Kaieteur News – Vice President, Bharrat Jagdeo, is of the view that fossil fuels are being phased-out around the world and therefore Guyana should extract as much oil – as fast as it can, in the shortest possible time, so as to maximize the country’s returns. This is a misguided policy.
But the issue at question is not novel. It has been debated before. As late as December last year, Jan Mangal, an oil industry expert, offered some advice via a letter to the editor, which was published under the title: “Pumping more oil may not be the best strategy for Guyana.”
In that letter, Dr. Mangal provided irrefutable arguments why Guyana should not attempt to extract its oil and quickly as possible based on the belief that the development of renewables could result in our oil remaining in the ground and with diminishing value.
Dr. Mangal’s arguments against this is that the strategy of “Drill baby drill! Pump baby pump!” is one, which is in the interest of the oil companies. He said that the oil companies are always keen to pump everything as fast as possible since this gives them a quick return on their investment and because they know that as new oil-producing countries become savvier over time, they tend to demand better terms. The oil companies therefore wish to get in and out and as fast as possible, especially when the oil contracts are stacked in their favour.
Dr. Mangal argues that countries benefit from sustained production over generations by using depletion strategies to constrain production even if it is lower production. This is because of the learning curve, which takes longer for small countries like Guyana. He points to countries like Equatorial Guinea and Venezuela.
There is another side to this line of argument. It is that it is better for small countries like Guyana to have sustained benefits over a long period of time rather than to be awash suddenly with petro dollars. Venezuela is a good case in point. It failed to diversify its economy because it was so flush with oil revenues that it never bothered to look towards a future outside of petroleum production. Trinidad is now facing a similar fate.
Dr. Mangal then makes a distinction, which Jagdeo seems oblivious to: the difference between peak production and peak demand. Dr. Mangal notes that the world has often been incorrect in predicting peak production. He points to the doomsday scenario in the 70s when it was predicted that the world would run out of oil. The same tune is being rehashed today, this time about the prospects of oil being eclipsed by renewables.
Dr. Mangal notes that the idea of a short window for oil production is a scare tactic of the oil companies. They use this ruse to entice countries to produce as much oil as fast as possible. It would not be surprising to learn that Jagdeo may have fallen, hook, line and sinker, for what the oil companies want him to believe.
Dr. Mangal does not believe, however, that the sky is about to fall on our heads. While he subscribes to the view that demand is inevitably bound to be reduced, it is questionable when this will occur. And he notes that the demand for the nastier hydrocarbons, like coal, will reduce first before the demand for sweet oil falls. And with many countries investing in coal production, it may take many decades before the higher quality oil gets affected.
Guyana, he noted, has failed to enjoy economic success despite its rich resources. So trying to cash-in now on oil by going on a production blitz does not necessarily mean that economic success will follow. In fact, this may well turn out to be a counterproductive strategy.
Dr. Mangal proposes that instead, Guyana should limit oil production to one or two projects (Liza 1 and Liza 2), and should negotiate for a fair share of the money from those projects. He asks that if it is assumed that oil demand will reduce, is it not more sensible to maximize our share from a prudent volume of oil, instead of pumping vast volumes so as to give away the lion’s share to ExxonMobil?
But as a word of caution, he observes that our local politicians have no interest in negotiations for the benefit of the country and its people. He can say that again! Without having to do a corpus colostomy!
(The views expressed in this article are those of the author and do not necessarily reflect the opinions of this newspaper.)
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