Introduction
In last week ‘s column I had referenced the circumstance whereby, following sporadic social media and press reports ascribing to the Authorities an intent to build modular oil refineries, I have been encouraged by readers to pursue two separate but linked tasks. These are 1] to re-visit my earlier recommendation for the establishment of a National Oil Company, as a top priority and 2] to re-evaluate whether under present circumstances, the construction of a state-owned refinery makes economic sense; that is essential for sustaining Guyana’s continued economic growth and development, at this stage of its emerging petroleum sector.
In addition, last week I had adverted to the query as to whether, given as a national policy option, Guyana should still be seeking to establish a National Oil Company, NOC, if based strictly on the NRGI precepts, as I had originally advised several years ago. Up front, my recommendation on this score remains quite firm.
As readers are fully aware, ExxonMobil and co-ventures presently dominate Guyana’s oil and gas operations, decision making, along with their effective control of all critical control points along the value chain of its oil and gas sector.
Indeed, I predict with high confidence that this sector profile will remain more or less intact during the decade of the 2020s, if left un-addressed by the Authorities. I further predict that, the most likely outcome during the time frame indicated, is greater variation in the nationalities of the foreign corporations, which are in control. Such a bleak outcome reinforces my conviction that, it is only a NOC, based on the NRGI precepts, which can alter this dynamic. Presently, the Department of Energy, DoE, which basically represents the State’s interests, focuses mainly on oversight functions and policy framework guidelines.
NOC’s in practice
Regrettably, as matters stand, not all, nor indeed many NOCs in developing countries, are founded on the NRGI’s precepts. Surprisingly, global trend data reveal NOCs accounted for about 75 percent of oil output in 2021 and 90 percent of total reserves. Together these provide hundreds of thousands of jobs and their sales generate multi-billion US$ in financial assets. Indeed, so vast are their financial accumulations and impact on jobs and government revenue they are referred to in the literature as “behemoths”
Not surprisingly NOCs are now organized as a group; starting with the provision of standard, systematized, official database which is regularly updated in an online interactive and comprehensive manner. This database facilitates 1) “filling knowledge gaps” 2) serving as a gatekeeper for international oil companies and 3) handling large portfolios of public assets, and being involved in executing complex projects. Of note, such projects are not confined to oil but cover oil-related areas, [infrastructure, technology transfer and domestic linkages.]
Of note, the database’s Website observes: “Effective NOCs deliver significant value to their stakeholders via fiscal revenue … successful exploration efforts and the development of new skills and technologies”,. It admits that “NOCs have traditionally been poorly understood”, largely due to earlier poor reporting on these companies, sparse research and consequent absence of reliable comparative data, which the database, presently fills.
For interested readers the database covers key areas such as production, revenue, fiscal transfers, operational and financial performance based on a standard methodology; see www.nationaloilcompanydata.org.
Essentials and endeavour
While my recommendation for establishing a NOC, is NRGI Charter-bound: “offering policy options and practical advice … on how best to manage (Guyana’s) natural resource wealth”. The goal is ensuring it draws on accumulated experiences, … learns from history, and avoids past mistakes. Establishing such a NOC is clearly a long-term endeavour. Therefore, if one is to be established before the 2030s preparations should be set in train before next year end.
A NOC is not state-owned oil refinery
For the second part of my task, I basically repeat my earlier advice to the effect that there is no sound economic basis for the Government of Guyana, GoG, to invest its expected petroleum revenues to create value-added refining to its crude oil exports, given the prevailing global and national environment. Further, there is no sound economic rationale to justify the provision of subsidies, implicit or explicit, distorting market efficiency to private capital in order to build and or operate such an investment.
I have already argued this case in rather extensive detail. Thus, over 20 columns [from May 28, 2017 to October 29, 2017] I first addressed this topic. Later I re-visited it [from October 6, 2019 to November 3 2019]. Consequently, I shall not therefore, repeat again in any detail. The main outlines of my presentation will be briefly summarized in next week’s column. A schema of that is given below.
SCHEMA
What constitutes an oil refinery? [global continental and regional distribution, size variation, refinery capability, refinery complexity]
Local proposals. For state-owned [Performance, economics financing, joint-venture type]
Modular refineries [by type, size, economics]
Decision rules [public, private]
Conclusion
Next week I continue the discussion along the lines of the schema displayed above. Afterwards, I propose to engage the topic of working interest in the oil and gas sector , which was referenced in last week’s discussion of ExxonMobil’s co-ventures, Hess Corporation and CNOOC.
