Dear Editor,
The recent report by the Mexican consultant on oil refinery capacity shows the need for external oil sales. The data shared points to a 30-year supply for a local refinery based on the 1.5 billion oil find. With an accelerated or straight-line depreciation model, the payback on the investment can be determined if excess crude oil is sold. The challenge for the investment is long-term projected oil prices.
The 30-year plan for the Green Economy will inform the decision as to whether this investment can overcome the risk. Our ability as a nation to transition away from fossil fuel dependence faster than other nations will aid us to eliminate the risk associated with oil prices.
Given the energy agendas of high consumption countries and oil producing countries, we are exposed to demand reduction and the associated price softness in the market. This leaves supply countries with increased market competition.
The sensitivity and complexity of the Venezuelan supply being offline has been sustaining market prices during a price-favourable military climate. As the major military engagements end and the Venezuelan situation is resolved, oil prices will experience increased downward price pressure in the market.
Although this risk is built into current prices for the near- to mid-term, the long-term impact is beyond the futures market risk consideration, thus making it difficult to determine the rate of global conversion away from fossil fuels and towards a greener energy economy.
However, if a peaceful global climate is maintained and energy conversion targets are kept as outlined by countries at the climate summit, oil prices can be forecasted with reduced variation and increased accuracy. This is the baseline scenario for determining the payback on the refinery investment.
Best regards,
Jamil Changlee
