Introduction
There is one outstanding feature of the 2020 general crisis and its impacts on the crude oil market that remains to be assessed in this series of Sunday columns, before I can fruitfully turn to evaluate its likely specific impacts on Guyana’s infant (five-month old) oil and gas sector. That outstanding feature is the environmental/ sustainability thesis, which argues that, logically, the 2020 general crisis should be located within today’s wider global climate change challenges. As readers are aware, such challenges stem from, in large measure, the heavy global reliance on fossil fuel-based petroleum and its carbon emissions. There is broad consensus that the energy sector is quite central to global efforts seeking to combat climate change. Further, the petroleum industry is indeed integral to that centrality. This topic is the concern addressed in today’s column.
Before attending to this concern, I need to wrap-up last week’s column with two brief updates. These are, firstly, Simon Watkins’ recently updated comment on the United States/Saudi Arabia oil conflict. And, secondly, the recent update on the crude oil market provided by the Energy Information Administration (EIA) in its May 2020, Short-Term Energy Outlook (STEO).
To expand: in a recent Oil Price column, dated May 11, 2020 and entitled, Oil War Puts Entire Kingdom of Saudi Arabia At Risk, Simon Watkins has returned to the topic of the United States/ Saudi Arabia conflict. Here he has gone much further than the earlier position he took on the topic and explicitly proclaims that: “At no time… [since] 1932 has the … Saud dynasty faced such an existential threat to its continued rule” I urge readers to note that this observation is far reaching. Indeed, I’ll posit in next week’s column that this observation strengthens the accuracy of predictions I shall be making in regard to the future of Guyana’s infant oil and gas sector.
As regards the EIA’s STEO Report, for now I simply wish to observe that events since the negative WTI crude oil futures price last month, the crude oil market, both on its demand and supply sides, has been revealing corrective behaviour. Broadly speaking, the powerful downward demand pressure on crude oil, created by the Covid-19 pandemic, remains. Specifically, there has been very depressed demand for oil in energy intensive economic sectors like transportation and travel.
However, a halting, but increasingly broad-based relaxation of lockdowns is occurring. Efforts at an economic opening up are also afoot. Further oil storage availability has been improving. And perhaps more importantly, the supply cuts that were agreed to by OPEC+ in early April and set to come into force on May 1 2020 were on schedule. This latter has revised crude oil supply projections downward alongside the projected declining demand. Indeed today, the EIA forecasts US crude oil production at 11.7 million barrels of oil per day (mbpd) for 2020 and 10.9 mbpd for 2021. Its price projections for Brent crude are $34.13 and $47.81 per barrel in 2020 and 2021, respectively.
Terminal crisis!
In recent decades a growing worldwide environmental sensibility along with increased calls for more sustainable models of economic growth and development, has generated with every oil crisis the same query: is this crisis the one that is terminal? Is this the crisis to end all others? And there have been several in the past five decades. These include the Arab oil embargo, early 1970s; the Iran crisis, late 1970s; President Regan’s de-regulation, early 1980s and Gulf War, 1990.
This query remains very much alive today. At the heart of such questioning, lies a deep concern over the ever-increasing global warming climate risks societies are presently confronting. As I shall indicate below, recent projections do suggest that, worldwide, the petroleum sector is at an inflection point over the long run of about three decades. In what follows I shall address this topic, because terminal threats to global fossil fuel -based energy apply by definition to Guyana’s oil and gas sector.
Changing fortunes
The recent EIA publication, International Energy Outlook. 2019, reports on its modelling of long-term estimates for global primary energy supplies (2018 to 2050). It focuses on the traditional five modes; namely, in descending order of importance in 2050: renewables, petroleum, natural gas, coal and nuclear. Their projected respective global shares in 2050 are 28 percent, 27 percent, 22 percent 20 percent and 4 percent. Over the period, the most striking occurrences exhibited in the projections are that 1) petroleum lost the pre -eminence it held in 2018 (32 percent); and in fact declined as a share of global primary energy supplies 2) the share of renewables rose from 15 to 28 percent 3) the share of natural gas remained constant over the period, at 22 percent 4) coal’s share fell the most, from 26 to 20 percent, and, finally, 5) nuclear power’s share declined from 5 to 4 percent, while remaining overall still only a marginal source.
Over the period 2018-2050 the annual rate of growth of renewables is projected to be strong at 3.1 percent and the growth of petroleum robust at 2.6 percent. The EIA model identifies the leading primary energy consuming sectors as industrial, transportation, commercial, and residential. It classifies the world into two broad categories, the 38-member, Organization for Economic Cooperation and Development (OECD) and the others, non-OECD. The latter category is further sub-divided into geographical areas Asia, Middle East, Africa, Americas, Europe and Eurasia.
The inflection point of global crude oil production that I have referred to above, is captured in petroleum losing its pre-eminence as a primary energy supplier in the coming three decades. Here an important caveat must be introduced. Despite petroleum’s reduced share by 2050, between today and then global demand for this item is indeed projected to increase by a whopping 30 percent. This means the existential threat to the petroleum industry still remains a secular prospect. This is a key outcome for my appraisal next week of the probable impact of the 2020 general crisis on Guyana’s oil and gas sector.
Conclusion
I am now in a position to assess the likely impacts of what I have termed the 2020 general crisis on Guyana’s infant oil and gas sector. The main features of this crisis have been considered in some depth in the immediately preceding columns. Next week I turn to address this task.
