The plummeting oil prices worldwide would see Guyana getting less than the expected US$300 million for this year but if the APNU+AFC government had negotiated for better royalties it would have cushioned the lost sums, says Dr Jan Mangal, the former Petroleum Advisor to President David Granger.
“If our government had negotiated a fair royalty of say 15%, versus the current value which is less than 2%, then we would still be getting about US$250-300 million in the first year even with the crash,” Mangal said on Thursday.
“This is why royalty is so important to countries like Guyana,” he added.
Stabroek News reported recently that Guyana has been paid US$55 million for its first cargo of crude oil sold in February and the country will receive royalties from production by ExxonMobil in its Liza-1 field on the offshore Stabroek Block next month.
Mangal on Thursday pointed to statements from Aditya Ravi, an analyst at the energy research firm Rystad, who said that Guyana’s take this year would be between US$160 million to about $190 million, significantly down from the around US$300 million it expected.
According to Mangal, Guyanese are worried that the crash in oil price means they will receive much less than the initial estimate of US$300 million in the first year and he said the “worry is justified.”
Rystad Energy on Tuesday released its third report on an overview of the novel coronavirus disease (COVID-19) pandemic and its impact on the energy sector.
“We expect governments will use a strategy aimed at “managing the virus” through various levels of quarantines in order to avoid exceeding Intensive Care Unit (ICU) capacity. With the implementation of these social distancing measures, we expect governments will aim to lengthen the spread and impact of the virus over 12 to 18 months in most countries. Oil demand will see a larger drop than ever before in the history of oil,” the report stated.
“In another shocking consecutive revision of our weekly estimates, our newest forecast for oil demand now projects a decrease of 4.9% for 2020, or 4.9 million barrels per day (bpd) year-on-year. Our estimates show that total oil demand in 2019 was approximately 99.9 million bpd, which is now projected to decline to 95.0 million bpd in 2020,” it also said.
Similar positions were proffered by Chief Economist of the American Petroleum Institute, Dr Dean Foreman, who told a Guyana Press Association forum on Thursday that March 2020 has seen the largest monthly price decrease for crude since 1960.
Referencing data from the US Energy Information Administration (EIA) and the International Energy Agency (IEA) Dean said that global oil demand has continued to rise with economic growth and is expected to continue to do so under virtually any scenario. He noted that even before the COVID-19 pandemic, non-OPEC [Organization of the Petroleum Exporting Countries] members including Guyana were expected to contribute a total of 2.5 million barrels per day of new oil supplies in 2020.
But the EIA now projects that US oil and natural gas production will “decrease year-on-year starting in Q4 2020,” Dean said.
ExxonMobil has said that is continuing to monitor not only the global COVID-19 pandemic and its impacts on its operations here but the possible implications of the post-elections situation.
The company was last week asked about COVID-19 and tumbling oil prices and the implications for this country, given that it had earlier announced spending cuts.
“ExxonMobil Guyana is monitoring the situation closely and continues to evaluate our next best steps. At this time, our immediate priority remains the safety of our entire workforce. We are also actively seeking to play our role in limiting the spread of the virus and to this end, we have put several precautionary measures in place,” Janelle Persaud, Government Affairs Advisor for local Exxon affiliate, Esso Exploration and Production Guyana Limited, had told Stabroek News.
While the country has received US$55 million for its first cargo of crude, the authorities have not commented on if they have revised what they expect the accumulated sums for this year will be. The US$55 million paid for the one-million-barrel cargo puts the price for one barrel of oil at about US$55, Minister of Finance Winston Jordan has said.
Regarding the first cargo sold, Director of the Department of Energy, Dr Mark Bynoe, had explained that “Guyana’s crude is calculated on a dated Brent basis after the bill of lading is issued…Guyana sold its crude on a dated Brent basis, 10 days after the bill of lading.” He said that the upcoming cargoes will be sold similarly.
Yesterday, the cost of Brent crude was pegged at US$28 per barrel and if Guyana’s next one-million barrel shipment is sold at the same price, Guyana would receive US$28 million.
For this year, Guyana is entitled to five cargoes or five million barrels of oil as part of its profit share with ExxonMobil and its partners, in addition to the 2 per cent royalty on all production.
