Oil prices expected to plummet by 10.9% this year

Jan 19, 2025 News

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…Guyana projects less revenue from sector although another FPSO to come online

Kaieteur News- While Guyana waits for the “bigger bone” in the future, or a larger share of profits from the oil produced in the Stabroek Block by ExxonMobil, the impending transition to cleaner energy sources and consequent oversupply of the commodity has begun hitting at its price.

In 2025, although Guyana’s daily production is expected to climb, the country will see a decrease in earnings from the sector, as oil price is likely to come down by 10.9%.

This was explained by Finance Minister, Dr. Ashni Singh during the presentation of this year’s Budget at the Arthur Chung Conference Centre, Liliendaal, East Coast Demerara on Friday afternoon.

He said, “Oil prices contracted by 2.3 percent to average US$80.7 per barrel in 2024, primarily due to slowing global demand, particularly in China.”

The Minister was keen to note that this trend is expected to continue this year as “crude oil prices are forecasted to decline by a further 10.9 percent to US$71.9 per barrel, with global supply expected to exceed demand.”

This is particularly troubling for Guyana, since policymakers have refused to implement a ring-fencing provision, to ensure the country benefits early on from the wealth generated. Not only has Guyana been urged multiple times by various international financial institutions to do so, but it is also not forbidden by the 2016 Production Sharing Agreement (PSA) to implement this mechanism.

A ring-fencing provision would ensure that after the cost of an oil project is paid off, Guyana would receive 50% of the profits generated by that development, after the operational expense is covered.

In this manner, the country’s take from oil production would increase significantly. Vice President Bharrat Jagdeo previously explained that Guyana would not be implementing a ring-fencing provision, since the country is focused on repaying the investment cost, allowing it to benefit from a “bigger bone” in the future.

He said, “We admitted that we are foregoing revenue now in exchange for massive future income because its going into new projects that will increase production and so even with the same share of the 50/50 plus the two percent royalty that the future income, because of the bigger scale will be massive in Guyana’s case and we are deliberately foregoing that in this period for that purpose and then trying to grab this bone now could cause you to lose all the bones, the bigger bones too in the future.”

Government believes that ring-fencing new projects could hinder the development of the resources discovered in the Stabroek Block.

The country, which started oil production in 2019, and is eager to develop its resources, must however be mindful of the global trends that can impact the nation. In fact, a World Bank Report released last year warned that an oil glut may lead to a substantial drop in global prices.

“Next year, the global oil supply is expected to exceed demand by an average of 1.2 million barrels per day,” the World Bank stated.

It was noted that the scale of this oversupply is difficult to overstate; these numbers have only been exceeded twice in history, in 1998 and 2020. As a result, a barrel of oil could cost less than US$60 within the next six years.

This therefore raised doubts about Jagdeo’s projections of substantial future revenue.

Projections for oil sector in 2025

According to the Finance Minister, it is anticipated that there will be 246 lifts of profit oil from the Stabroek Block in 2025. Within this, Government is projected to have 31 lifts of profit oil from the three Floating Production Storage and Offloading vessels (FPSOs) producing currently, along with the One Guyana FPSO which is expected to be commissioned in the second half of the year.

Be that as it may, Dr. Singh pointed out, “With the average price of Brent crude expected to decline to an average of US$71.9 per barrel, Government’s petroleum revenue deposits are projected to be 2.6 percent lower than in 2024. Government is projected to earn an estimated US$2.2 billion in profit oil and US$340.6 million in royalties.”

In 2024, an average 225.4 million barrels of crude oil was produced, with the sector recording 57.7% growth that year. With the price of oil averaging, US$80.7 per barrel in 2024, Guyana earned US$2.6B from oil production.

(Oil prices expected to plummet by 10.9% this year)

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• FPSO, less, oil price, revenue, ring-fencing

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