Tom Sanzillo responded to this week’s issue of this column, which was a direct response to Tom’s analysis of several issues on Guyana’s oil and gas sector. This columnist is extremely pleased and proud that Tom Sanzillo has responded to an open public debate on these issues.
In his response, Tom basically revived his already public analysis and which this author touched on briefly last week. This is not only unfortunate but also disappointing on Tom’s part as he failed to offer any new and detailed analysis – thereby guaranteeing his inherently weak and uninspired analysis.
To summarize Tom’s response, he basically argues that failing markets and weak revenues will yield nothing but small benefits for Guyana and that revenue prospects are scarce due to crude markets declining. However, it failed to provide and confirm the underlying assumptions for this and the time frame that one can expect to crash in the oil market – based on his analysis.
It also argues that by pursuing ambitious development projects – which the country badly needs; which will set the country for bankruptcy. Not only did he confirm his absurd assumptions that are all speculative – he failed to validate and prove the madness contained in his baseless ramblings that leaves much to be desired.
Tom is correct, however, on one point only – that the global oil market is declining although he did not anticipate according to the timetable that one can expect an oil price crash, this March 2018 writer would have argued that the global oil market had secured another 20 years before the price of oil became unsustainable. This is attributed to the idea that the world economy is moving towards adopting climate change policies and alternative energy sources.
Obviously this will not happen overnight of course and for this reason in the cited referenced article by this column where it was argued that Exxon will need to increase production capacity to as much as 1 million barrels per day by the end of the first decade. See this link for ease of reference: Notably, Exxon appears to be on track to meet these targets based on its revealed projections for higher levels of production capacity – reaching over 500,000 barrels per day by the end of the first five years.
More so, the Organization for the Petroleum Exporting Countries (OPEC) provided in its 2019 World Oil Forecast Forecast 2040 2019, a forecast consistent with that of this author in relation to global demand for oil oil and gas in the global energy mix. To this end, the report noted that total primary energy demand is expected to increase by 25% between 2018 and 2040 with renewable energy leading the way in growth, but oil and gas is still forecast to meet more than 50% of the world’s energy. needs by the end of the forecast period (time 2040/20 years). (see link to report here:
The report also noted that these trends can also be seen in similar forecasts from other reputable organizations with long-term energy outlooks. Therefore, it is quite safe to conclude that the price of oil, although volatile, will remain sustainable at between US $ 40 – US $ 50 per barrel until the end of the next two decades as states continue to oil to be profitable above US $ 35 a barrel.
He went on to say that Exxon is tripping with the global market, but it may be that it is not just the declining market that has been a contributing factor to Exxon’s poor financial performance. Other factors that led to Exxon’s poor financial performance include spending due to oil spills globally – equivalent to over 300 oil spills from the period 2005 to 2018. Another important factor to consider is include the highly regulated industry in other markets which increases the cost it is forced to operate Exxon in those countries.
In the case of Guyana on the other hand, Exxon has benefited from a favorable financial regime in addition to the fact that Guyana has a lighter and sweeter raw that is less expensive to refine. These favorable conditions along with the need to rapidly increase production capacity are what make Guyana’s petroleum industry attractive against all the earlier highlighted in relation to the changing dynamics of the global energy market. So here again Tom is wrong and does not understand the dynamics of the market globally and in the case of Guyana.
For these reasons, Guyana must be wary of the surrogate lords in developed countries who want to stop developing countries prospering so that they can dominate us. We, Guyanese, must not allow this to happen and we should not allow foreign experts, as they are called, to insult our intelligence.
The IEEFA’s presentation of its claims gives one the impression that it is totally dependent on the oil and gas industry for Guyana to become prosperous and Guyana appears to be relying more completely on natural gas to solve its energy problems. This view from the IEEFA suggests that the IEEFA does not really understand anything about Guyana’s economy. Guyana reliance on oil, oil and gas is nothing but a bonus. Guyana is rich in natural resources and has a relatively diverse economy to build on which the Government is committed to.
In fact, in a previous response some months ago during the election period, this author would have responded to the former Finance Minister stating that we need not get excited about oil and gas as it is only a premium. For the benefit of Tom and the IEEFA this article can be accessed here for my full analysis in it sub-only -a-premium /.
The IEEFA concludes that Guyana will not earn much and that the gains will not be sufficient to make up budget deficits. Now, let’s look at some analysis using Liza’s Phase 1 project only. Liza phase 1 has a production capacity of 120,000 barrels per day and contains 450 MMbl.
About the Author: JC. Bhagwandin is an economic and financial analyst, lecturer and business and financial consultant. The views expressed are his own and do not necessarily represent the views of this newspaper and the organizations it represents. For comments, please send to [email protected]