The Public Relations Officer (PRO) of the Ministry of Natural Resources sent out a letter that sought to assure the public the government is working very industriously to prepare for “oil production” which will “benefit Guyana” when production commences. It would not be out of place to note that this claim was made when all the economic indicators for over a year have shown that the real economy has entered the doldrums and it is only gold production that is saving the country from being officially in a recession.
But in addition to describing the efforts to get ready for oil production, the letter also cited figures taken from the 2015 OPEC World Oil Outlook (WOO) that were presumably intended to buttress its claim of the coming “oil benefit”. The concrete figures quoted were that “Medium-term oil demand is revised upward, compared to the WOO 2014, rising above 97 million barrels a day (mb/d) by 2020; oil demand is projected to be at 110 mb/d by 2040.”
But while we have no quarrel with the figures cited, would it not have been better to also consider the figures on supply? After all it is elementary economics that working together supply and demand determine prices of a commodity. Since ExxonMobil is the major player in our oil prospects, the PRO might even have found it worthwhile to consider that company’s 2016 pronouncements on energy prospects – including, of course, oil – “The Outlook for Energy: A view to 2010”.
ExxonMobil prominently identified the joker in the oil pack: “shale oil/right oil” – “…until this century, energy producers had not yet figured out how to economically tap the vast amounts of oil and natural gas that were known to exist in shale and other “tight” rock formations. But by 2040, these unconventional and other technology-driven sources of oil and gas are expected to meet about one-fifth of the world’s energy needs.” This can supply , of course, more than double the increase in demand the PRO identified!
This shale oil, of course, is what threw the world of oil in general, and OPEC in particular into a tailspin when the US took off from a standing start to become the second largest producer of oil and gas just behind Saudi Arabia in just one decade. Saudi Arabia refused to cut its production within OPEC to match the challenge from US shale oil and with the massive oversupply, prices plunged from over US$100 per barrel to below US$40. Recently the Saudis have agreed to a production cut which had acted to create a small rally in oil prices.
But how long will this last beyond 2020 when our oil is scheduled to start flowing? In addition to the US, Russia and China have the largest reserve of shale oil and while Russia might not plunge into production from this front, China will have no compunctions. This is especially even more likely since the Americans have been steadily improving the “fracking” technology to lower costs significantly. What makes shale oil even more attractive is that it is sourced from wells on land unlike the deep sea wells that we would have from our Lisa field.
The PRO pointed out it was assured by International experts that “no international company will sanction a project if the break-even price is higher than its forecast.” The question, of course, is whether the price of oil by 2020 will have them produce oil, or leave Lisa as “proven reserves”.