– says American Petroleum Institute chief economist
By Lisa Hamilton
ALTHOUGH the coronavirus (COVID-19) could continue to negatively affect oil prices further, Guyana’s expected large-scale growth as a result of oil could still bump the country up to being one of the highest-growing economies in the next few years.
Over the past month, as a result of the pandemic, oil prices fell by the most on record since 1960; global prices fell nearly 40 per cent between February and March 2020.
However, Chief Economist at the American Petroleum Institute (API), Dr. Dean Foreman, told this newspaper on Thursday that even so, Guyana’s economic and oil-market progress appears to hold “tremendous potential” for economic progress by any measure.
He said it is a rare opportunity for any nation to have the potential to more than triple its real Gross Domestic Product (GDP) in a four-year period.
This is based on the estimates of the International Monetary Fund (IMF) projected in October 2019 that Guyana’s real GDP would nearly double in 2020 — and more than triple by 2024 — relative to 2019.
Expressed in constant US dollars, this translates into the economy being expected to grow from $4.1 billion in 2019 to $15.5 billion in 2024.
“Although these estimates – and all they may imply for economic and social progress in Guyana – may be affected by oil prices, the tremendous scale of Guyana’s growth still could make it one of the highest-growing economies in the world over the next several years. Consequently, Guyana’s prospects remain bright despite the immediate weakness in oil demand and activity,” the chief economist said.
He added: “For Guyana, since the production and marketing of its oil is just beginning, much of the new investment, employment, tax revenues and the follow-on economic activities derived from having an oil industry in the country should be new and therefore incremental to the economy.”
FIND YOUR NICHE
Currently, Guyana has not yet begun to market its share of crude on the export market.
In late February, the country commenced a search for an Oil Marketing / Trading Company with the publishing of a ‘Request for Expression of Interest (EOI) – Provision of Marketing Services for the Cooperative Republic of Guyana’s Oil Entitlement from the Lisa Destiny FPSO Vessel’.
The duration of services for such an Oil Marketing / Trading Company will last 12 months, between 2020 and 2021 and EOIs were to be submitted by March 12, 2020, to the Chairman of National Procurement and Tender Administration Board (NPTAB).
When Guyana does begin this marketing, Dr. Foreman advised that the country set out early to establish its uniqueness on the market.
“As a trade association, API cannot weigh in on what Guyana can or should do with its oil, but we can emphasise the benefits of Guyana establishing its niche in the global market,” he stated.
“Specifically, Guyana’s Liza crude oil is a new grade that is medium in its viscosity (as measured by API gravity) and sweet (that is, low in sulfur) and should be suited for refineries in the US Gulf Coast, Europe and Asia Pacific that need crude oil like this to match for their catalytic cracking units.”
There are several uncertain factors that can impact Guyana’s speed of production and the marketing of its oil, the chief economist said. He pointed out factors such as oil prices, future expectations, inventories and anticipated value after refining.
Guyana has received US$55 million for its first lift/ the country’s first million barrels of oil, which was sold to Shell Western Supply and Trading Limited, late last month.
This agreement was inked in December and the COVID-19 spread did not pick up on the global scale until over a month later.
Dr. Foreman said: “It generally seems positive that Guyana was able to place its cargos and… [this] could help the country carve out a niche for its crude oil with refiners in the U.S., Europe and Asia Pacific.”
While global travels have come to a crawl, this is likely to rise rapidly again once the pandemic passes.
The early effects of COVID-19 were apparent in February with jet fuel demand down by 5.2 per cent and diesel fuel demand down 9.9 per cent when compared with February 2019.
Many people chose to drive instead of fly, which led to the highest gasoline demand for February since 2007.
This is according to data collected by the API and the U.S. Energy Information Administration (EIA) following surveys of 90 per cent of industry on a weekly basis.
It noted that the data on March are likely to show a greater U.S. and global impact due to COVID-19.
“We remain confident that oil demand is likely to be resilient once the effects of COVID-19 subside. Crude oil futures markets and the EIA appear to concur, and both sources suggest oil prices could rebound,” Dr. Foreman said.
A spot price for March 26 shows $25.80 per barrel for Brent crude oil while Brent crude oil futures prices for December delivery are at $36.89 per barrel, and the EIA projects Brent crude oil to be $45 per barrel in December 2020.
The chief economist pointed out that while the EIA’s estimates have remained uncertain along with market conditions, they generally reflect that there are many activities that are likely to resume in the near future.
“Staying the course in providing a consistent policy and business environment is likely to be the most conducive path for Guyana to reap the economic benefits,” Dr. Foreman advised.
With regards to COVID-19 and Guyana’s oil industry, he said the best thing Guyana can do right now is to establish preventative measures and stop the spread of the COVID-19 to the best of its ability.
This, he said, would enable producing companies and the businesses which support the country to maintain activities and respond as quickly as possible to changes in circumstances that may help Guyana solidify its niche in the global market.