Introduction
Today I begin to address the third and final sub-sector in this long-running series of columns on the extractive industries sector of Guyana. That is, the coming time of oil and natural gas production and export, which are about 5-7 years away. So far, I have considered 1) the mining sub-sector (December 27, 2015-February 20, 2016), and 2) the extractive forest sub-sector (March 6, 2016-August 28, 2016).
This task requires coverage of several issues, the first of which I introduce today. That issue is, to locate Guyana’s anticipated production of oil and natural gas in the global energy market. Regrettably, recent public discussions and reporting on this topic, both in Guyana and elsewhere, do not seem to focus enough on evidence-based trends in the global marketplace. This I suspect, may be the reason why so many readers are confused and even perhaps gullible in dealing with the hyperbole that is frequently observed in both the wildly exaggerated and overly sceptical portrayals of the economics of oil and gas, as this impacts on the global economy.
The data set
A major contributor to this unfortunate outcome is the lack of readily accessible, timely, and reliable data on the overall global energy situation, which specifically treats the oil and natural gas markets as its subsets; and, at the same time, is readily understood by non-professionals. I believe that two excellent sources for this sort of information are first, the annual statistical review of world energy provided by British Petroleum, (BP). This review has a lineage going back over six decades when it was originally published as a review of world oil, and has been released since 1981 under the title: Annual Statistical Review of World Energy. Second, there is also the ninth (2015) OPEC World Oil Outlook, (WOO) which although focused on oil regularly locates this reporting in the context of the broader energy situation.
In his presentation of the 2015 BP Report three months ago (on June 8 2016), the Group’s Chief Economist observed: “It seems increasingly clear that global energy markets are in a state of flux: both energy demand and supplies are changing in profound ways. This year’s Statistical Review provides an update on these trends and an insight into how individual markets are adjusting.”
Today’s and next week’s column draw on the significant findings from both reviews, in order to situate Guyana’s oil and gas prospects in its coming time of their production
Demand
Examining the global energy market, both the 2015 reviews, referenced above, have highlighted two fundamental adjustments or transformations that are taking place on the demand side. The first of these is the strong double digit growth that “energy-hungry China” had routinely exhibited in the recent past as it pursued “energy-intensive industrial production”, is now behind us, leaving declining global demand.
On top of this, it has been found that the equally strong recent global efforts to improve energy efficiency, as well as to reduce energy intensity per unit of output, have been strikingly successful. Much of this success has been directly attributed to the coordinated global responses aimed at combating global warming and climate change.
This has led to the success of COP21 and the 2015 Paris Agreement. As a consequence, both reviews conclude that global demand for energy is in a state of momentous adjustment and transition.
Added to the indications of a fundamental transition underway in global demand, the reviews have also highlighted several other significant trends on the demand side.
One of these is the present cyclical weakness of the global economy. The consensus estimate is that annual global economic growth up to 2020 is projected to average at best only 3.6 per cent. Such sluggish growth is below potential output because of several listed factors, including 1) the lingering effects of the Great Recession after 2008; 2) high public and private debt levels; 3) weak labour markets; 4) low core inflation; 5) structural issues; and 6) lagging productivity gains.
Further, the reviews have observed this lacklustre global economic growth has been concentrated in the world’s energy-intensive sectors.
Thus, in support they have pointed out that, global power generation during 2015 had increased at an overall slower pace than total global energy demand for only the second time over three decades.
Another feature noted is that global energy demand has grown by only one per cent in 2015. And, importantly, this growth is just over one half the rates which were achieved over the past decade (when it averaged 1.9 per cent). Both reviews observe that, much of this weakness is concentrated among the developing countries, where the rate of growth although relatively high at 1.6 per cent is still less than one half that which obtained over the past decade. The main driver of this outcome is China where energy demand growth slowed to 1.5 per cent in 2015.
This has been China’s slowest annual rate of growth of energy demand since the 1990s, the period prior to its energy intensive industrialization.
Despite the above observations, it is likely that, in Guyana’s coming time of oil and gas production and export, China will remain the world’s largest growth market for energy.
Conclusion
To be sure the pattern of behaviour of demand in the global overall energy market, as summarily examined in this column, is not the same for individual items currently used in the global fuel mix (oil, gas, coal, nuclear, hydro, and a variety of renewables (biomass, wind, solar etc)). The effect of this will be noted after the summary examination of global energy supply, which follows in next week’s column.
As will be revealed there, in spite of the projected weakness in overall global energy demand, relatively speaking the demand for natural gas and oil is projected to be solid.
