Pumping more oil may not be the best strategy for Guyana

Dear Editor,

On the topic of limiting the production and implementation of a depletion strategy, and the possibility of a fall in oil prices due to changing global energy demand. I’m sharing elements of a previously published article that still apply today. A friend commented after watching an online interview with me in June 2019.

Comment from a friend:

“… I listened to the… debate in its entirety this morning. It provided a great insight into the background to your appointment as petroleum adviser to the president and your subsequent departure from that position. It was balanced and the key message that we have to work with ExxonMobil came through but we don’t have to genuflect for them to come through very clearly.

The only issue I have a slightly different approach to is the rate at which we draw oil. Given that hydrocarbons as sources of energy will probably be phased out in many economies by 2050 I think we need to extract our oil resources as soon as reasonably possible, of course, and ‘ to convert to another asset form as it will have a diminishing value if left in the ground as the world turns to renewable energy. … ”

My response:

“… Thanks for watching and for the feedback. There are some different ways to approach a production strategy.

The oil companies always want to pump everything as fast as possible. Mainly because of the time value of money and quick returns on investment. But also especially in a situation like Guyana where the country starts out dumb but gets busy over time, and demands better contract terms over time. So the oil company is trying to take so much to get started under the better terms.

However, countries benefit from continuous production, over generations, by using depletion strategies and by limiting production. This is so even if it is lower productivity, as small places like Guyana take decades to learn how to cope, and unfortunately many countries never learn and become failed provinces (eg Equatorial Guinea) , Venezuela, etc.).

We then add to this mix the recent predictions of transport electrification and the potential decline in demand for hydrocarbons in the coming decades. Peak production, which is different from peak demand, has always been incorrectly predicted. For example, we were supposed to run out of oil in the 1970s. And there were a number of other predictions, all wrong. We are therefore likely to accurately forecast peak demand.

And as for Guyana, all this talk of peak demand is a wage from the oil companies and their supporters. Scare Guyanese to think they have to pump everything now, and they’ll accept whatever trash contract terms ExxonMobil offers.

However, the sky is not about to fall on our heads. Demand is likely to decrease, but exactly when it is doubtful, and demand for the nasty hydrocarbons will first decrease, such as coal. Coal consumption is currently increasing in some parts of the world, so this must be reversed before the gentle light oil in Guyana is affected. So it can be many decades before the higher quality oil is affected. But we still have to be prepared for the usual oil price crashes and spikes along the way.

Also, if one is a supporter of reducing the use of hydrocarbons due to global warming and climate change, as I am, how can you justify pumping as much oil as possible right now? You cannot, as this will exacerbate sea level rise that directly affects Guyana. But instead you can justify a prudent level pumping, relative to the size of the country, and that allows for financing a transition to renewable energy and a reasonable sovereign wealth fund.

We should not buy into the hype about falling demand and the need to pump everything now. This is unlikely to work for Guyana, and the justifications are unlikely to be valid.

We must also remember that Guyana has failed as a nation not because of a lack of natural resources, as Guyana is always richly endowed with gold, diamonds, wood, rice, sugar, and so forth. Thus adding a new and abundant natural resource in the form. oil will not make Guyana succeed. … ”

I hope the above helps Guyanese see that pumping more oil may not be the best strategy for Guyana, largely because of the unfair contract terms for the Stabroek Block and because of climate change.

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 funds from those projects. If we assume that demand for oil will decrease, is it not more sensible to increase our share of prudent volume of oil, instead of pumping vast volumes to give ExxonMobil the lion’s share?

But our politicians on both sides of the aisle are not interested in negotiating for the benefit of the country and its people in need, have no interest in learning from history, and are only interested in lining their own pockets being inferior to foreign entities. It is quite unfortunate that we are continually voting for politicians who are just puppets in the game of neo-colonialism.


Jan Mangal Dr.