Introduction
Since Guyana’s first commercial oil discovery in 2015, I have steadfastly urged a “strongly bullish outlook” on its potential petroleum resources. As part of my proposed recap and overview, today’s column addresses the long-run profile of petroleum exports which the country should aim at as it matures. Some readers may feel that raising this issue when the petroleum sector is just one year old is premature. My response is that this issue is already being debated in international and national reporting on Guyana’s petroleum prospects.
Going forward, I’ll confine the discussion to three future policy choices. And, while I believe a final decision on these is about a decade away, early consideration is advisable. These choices are: 1) Guyana’s stance in regard to membership of the Organization of Petroleum Exporting Countries (OPEC); 2) Guyana’s stance regarding operating as a “strategic swing producer” in global crude oil markets; and 3) Guyana’s stance regarding the establishment of a National Oil Company (NOC).
The first choice forms the subject of today’s column.
OPEC
I shall not repeat in detail my earlier evaluation of OPEC. Readers would recall that it is an inter-governmental body whose pre-eminent mandate is the coordination and unification of its members’ petroleum policies. As earlier indicated, this mandate has witnessed many twists and turns since its formation. It maintains 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 significance, the main operating enterprises were state owned and controlled. Consequently, the leading narrative placed heavy emphasis on its members’ goal of national ownership and/or control of their petroleum resources. This, it was argued, was needed in order to pursue the structurally transformative use of their petroleum revenues, as well as re-balancing the global distribution of income and wealth.
Following 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 organization! 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
Back in my May 17, 2020 column, I had brought to readers’ attention that the US House of Representatives’ Judiciary Committee had passed the No Oil Producing and Exporting Cartels (NOPEC) Act. 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 definitely enhanced by 1) its gruesome ongoing war in Yemen, and 2) the murder of dissident Washington Post journalist Khashoggi in its Turkish Embassy.
As its title clearly 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 neutralizes sovereign immunity. It also exposes OPEC countries’ assets to lawsuits in the US, especially Saudi Arabia’s, the largest holder of such assets. There is also OPEC’s practice of pricing oil sales in US dollars.
Assessment of OPEC Membership
I believe that four considerations, all outside Guyana’s control, are central for guiding the country’s attitude towards membership in OPEC. One of these is the strong US hostility to OPEC, evident in the intended NOPEC Act referenced above. The second is that Guyana’s lead crude oil Operator (ExxonMobil and partners) is a United States supermajor. As such it is subject to the legal jurisdiction of the United States. Third, Guyana does not have a state-owned oil company to represent Government’s interest in the commercial corridors of power and influence in the global petroleum economy. Fourth, I had earlier also referenced a public lecture on the topic: Should Guyana join OPEC? It was given by Robert McNally, Founder of the Washington–based Rapidan Consulting Group (Energy). There, he strongly advised against Guyana’s membership of OPEC. His objection was based on the consideration that membership of OPEC, as indeed would be the case for membership of any supply cartel, carries with it the obligation to adjust supply (that is abide by quotas) as set by the cartel’s management, when it feels it has to defend the market price, share and/or clout of the cartel in the global marketplace. His advice is that Guyana’s development needs are too great for it to be considering supply quotas at this stage. I concur with this position
Perhaps, I should also reveal that I do not believe Guyana presently possess the knowledge and skills required to be an effective global player in global crude oil marketing. Therefore, my recommendation remains to wait and see. I do not think the OPEC option needs to be decided on now. It is still too early into the development of Guyana’s oil and gas sector.
Conclusion
Next week I wrap-up discussion on this choice and turn toward addressing the second.
