– says leaders aware of potential dangers, putting mechanisms in place for success

By Navendra Seoraj

GUYANA is a fledgling petro-state, which started production of oil on December 20, 2019, and despite the imminent challenges the country will face in the years to come, Oil Market Expert and President of RAPIDAN Energy Group, Robert McNally, believes that Guyana will “surprise on the upside.”

In expressing his optimism about the country’s future in the global oil and gas industry, McNally said, “everyone seems to be aware of the challenges and there are also outreach and help that is coming to the country…I am, therefore, optimistic that Guyana is going to surprise on the upside.”

Speaking at the Centre for Local Business Development (CLBD)’s first “Join the Conversation” exercise on Thursday, the oil expert said, Guyana, unlike other countries, will be able to absorb and build on the experience from countries, which have failed and succeeded in the management of their oil and gas sector.

“Guyana has the benefit of many decades of failure and some successes in other countries with their oil…some are next door in Venezuela and then there are successful countries like Botswana and Norway,” said the oil expert, adding that there are a lot of international organisations and a lot of people, who have seen the failure of some petro-states and do not want to see Guyana repeat those mistakes, so they are assisting.

McNally being cognisant of the elections period, was optimistic that in addition to international assistance, local leaders will be able to capitalise on all the benefits that will flow from the sector and will also be able to overcome the potential challenges. He believes that both leading political parties have a similar, productive and progressive attitude about how to handle the oil wealth.

“And it is for those reasons I am optimistic about the country’s success…I didn’t meet anybody who says this is going to be an easy ride…there will be ups and downs and those challenges include making sure you preserve your gorgeous beauty and other industries, and also avoid the Dutch Disease,” said the oil expert .

He commended the coalition APNU+AFC government for already putting mechanisms in place to ensure that potential challenges are avoided. Among the things he acknowledged was the establishment of the Natural Resource Fund (NRF), which is geared at ensuring that the country’s resource wealth, benefits both current and future generations. The NRF Act incorporates oversight, accounting, reporting and auditing mechanisms to promote prudent, transparent and accountable management of oil revenues.

“The general approaches we have seen from political leadership across the spectrum, makes me optimistic that Guyanese leaders and businesses are aware of the dangers and are putting in place the mechanisms for a more successful experience,” said McNally, adding that these are grounds for optimism that are often overlooked.
ExxonMobil and its partners have racked up 15 commercial oil discoveries in the Stabroek Block, the last being the Mako-One well southeast of the Liza field, which added to the previously-announced estimated recoverable resource of more than six billion oil-equivalent barrels.

The Liza Phase One project, which started production, is expected to produce up to 120,000 barrels of oil per day at peak rates utilising the Liza Destiny FPSO. It is expected to generate over $7B in royalty and profit oil revenues for Guyana over the life of the project.

In talking about Guyana’s find, McNally said: “Guyana is enormously fortunate because not only did it find an enormous quantity of crude, but the quality is superb…Guyana’s crude is medium and this tends to produce very valuable products, which we call middle distillates and those include jet fuel, heating oil and now the big ships have to start using this cleaner and lighter oil.”

Though the quality is “superb,” he said what will determine the amount of revenue that Guyana sees from the “astounding” new finds will be the “crazy” global oil market than anything else.

“What Guyana needs to understand as a brand new oil producer and a big one, is that in addition to all the other issues we talk about, the resource curse and so forth, is that oil prices can be prone to wild swings and one must be cautious in assuming any given price will be the price you could base revenues off of for the next 10-15 years,” McNally explained, adding that oil is a long game and leader have to think “long term.”

WILD SWINGS
The oil market expert said oil prices are prone to wild swings but those wild swings were always unacceptable to the industry and government because oil is known as the “life blood” of modern civilisation.

In the past, groups have attempted to suppress the volatility. Those groups included the Texas Railroad Commission, John D Rockefeller Standard Oil and most recently, the Organisation of Petroleum Exporting Countries (OPEC).

The continuation of the effort to stabilise the prices will be determined in March, 2020 when some “OPEC +” countries such as Russia and Saudi Arabia will meet and decide whether to continue collective cuts to keep oil prices from falling.

“One of the problems they are dealing with is Guyana, whose new oil supply is coming on to an already market…Guyana is starting to register on the OPEC market screen,” said McNally, noting that if OPEC + is unsuccessful in early March, the price of oil could fall from $64 to $30 or lower in a few months and then the Guyanese would have to reckon with less money.

Bloomberg had recently reported that OPEC’s latest forecasts suggested a weaker outlook for global oil markets this year as surging supplies from competitors from Norway to Guyana threaten the group’s efforts to defend crude prices.

According to Bloomberg, the organisation and its allies – which together account for about half the world’s oil output – are embarking on a fresh round of production cuts as another year of booming rival supplies threatens to unleash a new glut.

Last year, while alluding to OPEC, Bloomberg noted that Guyana’s reserves would make it OPEC’s 12th-largest member after Angola. At the time of the compilation of the report, US oil giant, ExxonMobil, had projected that there were 5.5 billion barrels of oil equivalent resource in the Stabroek Block based on the finds to date, however, that figure that was upgraded to six billion barrels.

Guyana’s economy, with a Gross Domestic Product (GDP) of $3.63B, a growth rate of 4.1 per cent in 2018 and 4.6 per cent in 2019, is expected to further grow by 33.5 per cent and 22.9 per cent in 2020 and 2021 respectively. This was according to the NASDAQ Stock Market.

Those projections climbed in a report from the International Monetary Fund (IMF), which stated that Guyana’s GDP is expected to grow by approximately 86 per cent, this is almost twenty times more than the projected growth for 2019.

The Economic Commission for Latin America and the Caribbean (ECLAC) had also forecasted a staggeringly high growth rate for Guyana for next year. ECLAC noted that Guyana’s growth rate is pegged at 4.5 per cent for this year, while next year it will be 85.5 per cent.

A report from Bloomberg stated that with such figures, Guyana’s GDP will grow fourteen times as fast as China’s next year.

In addition, the oil sector is projected to grow rapidly, accounting for around 40 per cent of GDP by 2024 and supporting additional fiscal spending annually of 6.5 per cent of non-oil GDP on average over the medium term, which will help meet critical social and infrastructure needs.