Latest update May 13th, 2024 12:59 AM
May 29, 2022 News
…analyst notes rapidly changing market
By Zena Henry
Kaieteur News – Given the meagre funds Guyana is receiving from its oil endowments, the country must not only seek more revenue from its expansive offshore oil reserves and improve commitments to protect its environment from operators, but this must be done before the pending collapse of the transitioning energy sector.
International analyst, Tom Sanzillo, who made the foregoing pronouncement, was speaking directly to the fact that Guyana is set to expend oil revenues received so far by the end of the 2022 budget. Sanzillo is among the experienced professionals offering guidance to Guyana with its newfound oil wealth. One of his main concerns is that Guyana receives more money for its oil and puts up some of its earnings for rainy days. Sanzillo noted that the oil market is a volatile one that usually persists based on certain factors. For now, with increased oil prices the market appears pleasant for distributors of the resource.
“But the markets don’t look like they will be that strong for very long,” Sanzillo submitted. He told an Avaaz-orchestrated webinar on Guyana’s oil sector Tuesday last, that before the Ukraine crisis, the oil and gas industry was already on a 10-year decline. He said that the only thing that increases oil prices and company profits is a war, and one of a ghastly nature. “And when the war is over, we are going to return to a market that is at best volatile and not very profitable…” As such, Sanzillo said, the only way right now that ExxonMobil is making a sizeable profit is by maintaining the one-sided contract it currently has with Guyana, “that probably won’t stand up against market forces.”
“There is a real issue that in the long-term Guyana may never see the robust profits,” Sanzillo opined. He said while there is talk about having more money, he does not believe that would be the case since the projected, “amount coming now is not enough to meet objectives.” Sanzillo pointed out also that in 2019, Guyana received International Monetary Fund (IMF) advice where it was agreed that oil funds would, among other important things, be used in decreasing the country’s debt, while saving a portion of the oil profits for the future. None of these have been done. Instead, quite contrary to the IMF’s advice, Guyana has slated the oil money so far to support capital projects outlined in the 2022 budget.
In the IMF’s 2019 report, Guyana was warned to look at the actions of Trinidad and Tobago when it rapidly scaled up public expenditure and risked fuelling macroeconomic distortions, inflationary pressures and the eroding of competitiveness. Currently, Guyana’s budget is more than 44 percent larger than it was last year, a clear representation of the significant contribution oil money made to the financial estimates.
Sanzillo has noted, however, that should Guyana seek evidence of the changing oil market, it need not look any further than Norway, an oil and gas powerhouse that managed to grow significantly from its oil endowments. Sanzillo said that Norway is a country that has been receiving revenue since the 1970s after running a very public process and was able to create a Sovereign Wealth Fund (SWF) that is 25 percent of its economy. “They have also issued a clear message to its people and to the market, that the revenues that came in the past from oil and gas can no longer be relied upon because the market has changed.” Here it is, he said, an economy with 25 percent of its economy based on oil announcing that it needs to shift gears away from oil and gas and form a more diverse economic base because the market has changed substantially, “and they do not see a turnaround of the markets any time into the future.”
Already, Sanzillo reiterated, it will take a long time for Guyana to pay the amounts owed to Exxon Mobil based on the oil agreements that were made between the country and the oil giant. He insists that changes must be made for Guyana to increase its financial take from its oil resources, while securing protection for its environment.
Norway recently unveiled plans for a major expansion of its offshore wind energy production by 2040 as it, “aims to turn a country that has built its wealth on oil and gas into an exporter of renewable electricity.” It was noted that oil and gas firms, including Equinor, Shell, British Petroleum (BP), Denmark’s Orsted and Italy’s Eni, have lined up to develop renewables in the European state. The country’s Prime Minister said that the move would nearly double the country’s power output.
In the meantime, Guyana has received just over US$700M in oil payments. US$200M was recently withdrawn as part of the sum to be added to the Consolidated Fund to aid with budget projects.
Listen how to run an oil country
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