Guyana’s Infant Oil &Gas Sector: The Impact of the 2020 General Crisis on the Global Petroleum Sector

Introduction 
In today’s column I continue my deliberations about the impact of the 2020 global general crisis on Guyana’s infant oil and gas sector. Thus far, I have deliberated on two aspects of this crisis; namely: 1) incipient global inflation linked to an emerging global economic recession or worse, and 2) the economic impact of the global coronavirus (COVID-19) pandemic. While the two aspects of the crisis clearly have separate drivers, they nevertheless conflate to impact quite severely on global demand for petroleum products. This holds true for both their impact on consumer demand for energy products and capital investment in the oil and gas sector.  
 
Thus, last week it was shown that, even as the pandemic threatens to turn the impending economic recession into an outright global depression, this threat is already observed in both the energy consumption and investment sectors. As noted already UNCTAD’s survey of the top 5000 multinational enterprises had revealed that, within the first quarter of this year, investment decisions were revised downwards, dramatically. And, while the overall decline averaged -30 per cent to -50 per cent in the survey, for the energy sector the decline was a whopping -208 per cent! Specifically, ExxonMobil has only last week announced a 30 per cent cut in its planned capital expenditure worldwide. Similarly, its Guyana partner, Hess Corporation (30 per cent stake} has recently announced a 36 per cent cut in its capital and exploratory budget for 2020. These will be discussed later in coming columns. For now, we can rest assured they will have knock-on effects on Guyana’s still infant oil and gas sector. 
 
In the context of the above considerations, today’s column addresses the direct impact of the 2020 general crisis on the petroleum sector. 
 
Background 
The United States Energy Administration (EIA) has reported worldwide data for oil production in 2019 based on the following measure: including crude oil and lease condensate, the hydrocarbon liquids collected at or near the well head. Under this definition global oil production was equal to 80.6 million barrels per day. Just over two-thirds of these came from the top ten producers worldwide. Further, about 44 percent came from OPEC members. OPEC members currently include Saudi Arabia, Iraq, Iran, United Arab Emirates, Kuwait, Venezuela, Nigeria, Angola, Qatar, Nigeria, Ecuador, Libya, Sudan, Equatorial Guinea, and Gabon. 
More pertinently, three countries produced more than 10 million barrels per day in 2019; namely the United States, 15.0 million; Saudi Arabia; 12.0 million and Russia, 10.8 million. These amounts are more than double that of the fourth largest producer Iran, 4.4 million barrels! Of regional note Trinidad and Tobago ranked 47 at an output of only 60 thousand, while Suriname ranked 70 with an output of 17 thousand barrels. 
 
In terms of exports there are 15 countries that exported 1million barrels or more a day. As readers know, this is the category that I project Guyana will reach at full ramp-up of its production. Seven countries export 2 million barrels or more; and, 15 export one million or more. The top exporter is Saudi Arabia with 10.6 million barrel per day. This is more than twice the export of Russia, second at 5.2 million; Iraq, third at 3.8 million; and the United States marginally fourth also at 3.8 million. 
   
These are some of the key background data, which readers need to keep to the forefront as I address the baptism of fire and brimstone the 2020 global crisis is heaping on Guyana’s infant oil and gas sector.
 
Impact on Petroleum Industry 
As I started to prepare this column, crude oil prices had collapsed. Reports revealed such prices had lost more than half its value as at the end of 2019. Despite a recent rebound in these prices a number of analysts are projecting future declines based on supply and demand mismatches! Most of this decline is projected to be reflected in gasoline prices, as vehicular demand plunges and jet fuel as air transportation has also collapsed under pressure from both the economic recession and the societal lockdown ordered in the global fight against the public health crisis. 
 
As one analyst firm has put it in reference to the crude oil market balance: “Every doomsday forecast is more dire than the last” (Forbes). Indeed, such forecasts project a gap between the supply and demand for oil widening in a range as high as 10 million barrels per day to 20 million barrels per day! 
 
As observed indirectly globally, oil companies have not remained passive in the face of this impending doom. Thus, I pointed out their active cutback on capital expenditure (capex) in last week’s column as signaled in UNCTAD’s survey data. Some analysts have projected a worsening situation with the actual shutdown of oil wells; triggered by a deepening crisis as efforts to store surplus production run into a growing shortage of oil storage facilities worldwide. Evidence reveals that storage tanks and floating tankers are in short supply. An inventory glut is emerging worldwide. In the United States market, Forbes is projecting a cut in its crude oil output of at least 1.5 million barrels per day and up to 11.3 million barrels per day at the end of 2021.  
 
Such projections are based on the expectation “oil prices will fall below cash costs”. These cash costs refer to the outlay producers have to spend in order for existing wells to produce crude. Data cited by Forbes indicate that in Canada producers are paid as little as US$7.50 per barrel for their crude, while in the Permian Basin shale producers are getting US$15 per barrel. 
 
Consequently, there are headlines like: “Gird yourself for devastation” as they observe that “the US oil sector is now straining under US$160 billion in distressed debt”.  Indeed, Rystad Energy is projecting losses of more than 200,000 energy-related jobs in the United States this year. 
 
Conclusion 
Next week I continue this discussion of the 2020 general crisis and its direct impact on oil. I shall pursue three additional dimensions of this impact, which are still unfolding. First, there is the impact of what US President Trump has referred to as the “crazy Republic of Saudi Arabia versus Russian oil war”;  second, the status of swing-oil producers; and third, the existential threat carbon-based energy sources face from a global option that favours greener, renewable sources of energy, given global climate challenges.