Introduction
Given my “bullish outlook” on Guyana’s potential petroleum resources, today’s column considers the profile Guyana’s petroleum exports might be assuming in the next decade. Considering this today, when Guyana’s petroleum sector is still very much in its infancy, may be considered quite pre-mature. While true, such considerations are already being raised in the international and national reporting on Guyana’s petroleum prospects.
Recent headlines attest to this. Thus, in response to the Question “who will be the world’s largest oil producing country per person in the 2020s? The headline in the National Business screamed: 1) Guyana may be the next big beast in global oil; 2) Guyana – How to Invest in the Next Wealthiest Country in the World, appeared in The Value Portfolio, January, 2020; 3) Guyana Overtakes Russia as the world’s top oil discoverer for 2019, headlined by Rystad Energy, January, 2020; 4) Guyana: The Only Hotspot where Big Oil Will Still Spend, by T. Paraskova, headlined in Oil Price, May, 2020; 5) Liza crude could be the “oil of choice”, appeared in Oil Now, July 3, 2020; 6) Liza crude is perfect for making jet fuel, other products in high demand, O&G Report, also appeared in Oil Now, June 2, 2020; and, 7) Canje could be the next block to deliver big oil pay in Guyana deepwater, similarly in Oil Now, June 1, 2020. The last item follows the description of the Stabroek Block offshore Guyana as “the block that keeps giving”!
At this point in time, I’ll confine my discussion to three key future policy choices that will have to be made. And, while I believe a firm decision on these is at least a decade away, early consideration is worthwhile. The first will be Guyana’s stance in regard to the Organisation of Petroleum Exporting Countries (OPEC). The second will be Guyana’s preference regarding operating as a “swing producer” in global oil markets. And the third will be answering the query: Is there a case for establishing in Guyana a National Oil Company (NOC)? The first choice forms the subject of today’s column.
OPEC
I shall not repeat in detail my previous assessments of OPEC. Readers should be aware that it is an inter-governmental body whose pre-eminent mandate is the coordination and unification of its members’ petroleum policies. Since its formation, this mandate has witnessed several twists and turns. Nevertheless, OPEC has steadfastly maintained its three core aims: namely, 1) securing fair and stable prices for crude oil sales in global markets; 2) serving as an economically efficient and regular supplier when delivering crude to that market; and 3) providing a fair return to the capital invested by its members. At its inception, OPEC was portrayed as an anti-colonial and anti-imperialist body, championing the cause of poor exploited underdeveloped countries. Of note is that its operating enterprises are state owned and/or controlled. The above narrative placed primary emphasis on OPEC members’ striving for national ownership and/or control of their petroleum resources, in order to pursue the structural transformative use of their petroleum revenues, as well as re-balancing the global distribution of income and wealth.
Since the Great Recession of 2007/08, however, OPEC has seemed far more pre-occupied with negotiating global macroeconomic instabilities and uncertainties; financial/economic/political risks; and, their accompanying wider social unrest. Nonetheless, its core membership has remained constant from the inception with others joining, leaving, and even re-joining. The body has welcomed associated allies, which are labelled as OPEC+.
At its formation in 1960, OPEC had five permanent Founding Members: Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. As indicated above, new members have joined, some have left, and also later re-joined the organisation! There are thirteen current members. Requirements for membership of OPEC include being a substantial net exporter of crude oil; and, sharing the body’s fundamental interests. Further, to secure membership, an applicant must obtain a majority of three-quarters of the existing members’ votes. Associate members are permitted and, as mentioned above, its operational paradigm has been re-configured from what it was in the 1960s and 1970s.
Recently (May 17, 2020), I had indicated to readers that the US House of Representatives’ Judiciary Committee had passed the No Oil Producing and Exporting Cartels Act (NOPEC). A bi-partisan group in Congress then introduced this Act to the Senate. President Trump then indicated he would veto this legislation. The bottom line, however, remains, the US Congress is distrustful of Saudi Arabia’s authoritarian rulership. And, this distrust has been enhanced by: 1) its gruesome ongoing war in Yemen; and 2) the murder of dissident Washington Post’s journalist Jamal Khashoggi in its Turkish Embassy.
As its title suggests, NOPEC seeks to bring the force of US law into play in order to destroy within the US, and hopefully elsewhere, the essence of OPEC; that is, its cartel/monopolistic origins. The Act proposes to make illegal, the administrative capping of oil and gas prices in a non-market manner. This neutralises sovereign immunity. It also exposes OPEC countries’ assets to lawsuits in the US, especially Saudi Arabia’s, the largest holder of such assets. Further, OPEC’s practice is to price oil in US dollars.
Assessment on OPEC
Three factors outside of Guyana’s control are of key concern in guiding Guyana’s attitude to OPEC. One is the strong hostility to OPEC evident in the intended NOPEC Act. The second is that Guyana’s lead Operator (ExxonMobil and partners) is a United States supermajor. Third, Guyana does not have a state-owned oil company to represent the Government’s interest in the commercial corridors of power and influence in the global petroleum economy. These three factors weigh heavily against participation, at least for now.
I might add that I do not believe Guyana has the knowledge and skills required to be an effective global player in even the limited sphere of crude oil marketing. So my recommendation is to wait and see. I do not think the OPEC option should be decided on now. It is too early into the development of Guyana’s oil and gas sector.
Conclusion
Next week I continue this assessment of the three key policy choices that will face Guyana in the decade of the 2030s.
