In Finance Minister Winston Jordan’s Budget Speech at the end of January, he offered his Government’s perspective on our oil prospects, in the wake of ExxonMobil’s confirmation of “significant” deposits in their Stabroek Block, and the subsequent interest shown by other oil companies.
“Despite low oil prices, which are expected to continue through next year, all licensed operators remain committed and new venture interests are considered on a regular basis. These investments will bring fruitful rewards to the Guyanese people through increased revenues, employment and income, which will propel Guyana towards achieving national as well as sustainable development goals,” Jordan stated.
The APNU/AFC coalition evidently expects the low sub US$30/barrel oil prices to continue for only another year, thus giving hope to Guyanese that oil revenues might start flowing within the 3-5 year window that is normal from deep-sea wells. But how realistic is that projection? Last week, the International Petroleum Week held its annual bash in London, with producers from over 50 countries in attendance.
The mood was positively gloomy as Ian Taylor, chief executive officer of Vitol Group, the world’s largest independent oil trader, predicted oil prices would stay low for up to a decade as Chinese economic growth slows and the U.S. ‘shale’ industry acts as a cap on any rally in a world that is awash with oil. “I wouldn’t be surprised if this market goes into the teens,” said Jeff Currie, head of commodities research at Goldman Sachs Group.
The Opposition PPP did not challenge the Finance Minister’s optimism for a quick recovery of oil prices into the US$60 range that will make it feasible to pump out our oil. But this discussion needs to take place sooner rather than later because we may be on the cusp of contracting an anticipatory “Dutch Disease”, where economic activity in the economy outside of oil slows down because of the latter being seen as solving all challenges.
Most analysts have been focusing on the Saudi Arabians refusing to lower their oil production in the face of the booming US shale production, to maintain their market share. They have missed the misgivings top Saudi analysts and oil officials have expressed about the future of oil itself, in a world that is compelled to seek renewable and alternative energy supplies on account of global warming as well as saving foreign currency.
Saudis have never bought into the dogma of “peak oil” – which posited “finite stocks of oil” supply against ever rising demand. The Saudi Oil Minister Ali al Naimi has consistently been warning his peers about a deeper structural development: flagging long-term demand. They see shale oil as an aberration which cannot head off the ultimate denoument where oil will be left in the ground because it will not be economic to pump it out – at any price. It is therefore in Saudi Arabia’s interest to extract as much oil as they can while they can have markets in the near term. And all the while developing alternative industries, such as their potash reserves, for the future.
As Sheik Ahmad Zaki Yamani, the Saudi Oil Minister who rocked the world back in 1973 when he led OPEC’s quadrupling of oil price quipped a while ago, “The stone age didn’t end because they ran out of stones.” And so will the petroleum age.