Appraising the near-term setbacks of the 2020 General Crisis

Guyana’s Infant Oil and Gas Sector:

Introduction

Today’s column continues my appraisal of the likely impacts of the 2020 global general crisis on Guyana’s infant oil and gas sector. I turn to appraise the near-term effects of the global crisis, as I have defined this term in earlier columns. As indicated there, I have chosen the metaphor — “a baptism of fire and brimstone” ― to dramatize the severe challenges this crisis poses to Guyana’s emerging petroleum industry,

To recall briefly, the five drivers of the 2020 crisis are: 1) projections made in Q4, 2019 that  global economic recession in 2020 will drive a collapse of the crude oil market  (see  the earlier citation UNCTAD, 2019); 2) the COVID-19 public health pandemic; 3) the Saudi Arabia vs Russia “crazy oil war”; 4) the United States shale producers/OPEC + (Saudi Arabia) “existential conflict” for oil market share; and 5) the widely forecasted “end of days” for fossil fuel-based carbon emitting energy sources. Complementing the above international elements has been a protracted domestic 2020 electoral and political crisis.

Altogether, these features portend severe global demand pressures on crude oil production and export. Further, the United States Energy Information Administration (EIA) projects a global transition in primary energy use over the next three decades. Thus, by 2050 global primary energy use derived from petroleum liquids, although continuing to grow, is expected to yield its leadership as an energy source, to renewables. Guyana’s infant oil and gas sector is therefore likely to mature at an inflection point for global dependence on fossil fuels!

Economic Data

I have long complained that, the overwhelming preponderance of Guyana’s official economic data is backward-looking. That is, they offer few projections or even real-time information. This circumstance severely limits the scope for economic analysis and sound advice. This is more so for microeconomic than macroeconomic data. For the former, researchers traditionally rely on data provided on requests they make directly to the appropriate economic agents. The situation with regard to macroeconomic data is a bit better. Here forecasts for GDP, inflation, growth, government balances, and so on are more likely to be available officially.

 In the case of the oil and gas sector, the need to sustain both investor confidence and goodwill in the market place often force  international oil companies (IOCs) to make available related micro data and forecasts.

One final introductory observation should be made. Earlier in March this year, when I started the series of columns I had indicated that I would prefer to appraise the “near-term” effects later in the year, when the impacts are more observable, given the inordinate time-lags in publishing Guyana’s economic data. Analyzing 2020 trends and their cumulative impacts is certain to be more informative in Q3, 2020, than in Q1, 2020. As it has turned out these columns are appearing in mid-Q3. This happenstance has enabled me “to get a better handle” on this year’s trends.

Context: Noise and Nonsense

When I was evaluating Guyana’s First Report on Petroleum Production and Revenues, back in March, 2020, I had noted that in various print and social media, reporting on the “baptism of fire and brimstone” was swinging widely from “thinly disguised glee and delight” over unfolding events (accompanied with reveling in the country’s unfolding misfortunes) to “gloom and doom” based on these media expectations that events could lead to Guyana’s petroleum resources ending up as stranded assets.

As discussed at some length previously, this group of commentators on Guyana’s infant oil industry are peddlers of alarmism, misinformation and deception, deliberately and otherwise. Some are doing it for unmentionable motives, others are, as many privately speculate, doing it for benefit. In all these instances the quality of information put out is of the lowest quality. As I point out in my volume Guyana Petroleum Road Map, this prevailing public mischief of some of these commentators reflects several factors, not least of which is lack of basic comprehension of the recent profuse research findings in the field of energy economics and ecology. Further, and perhaps worse, their “expertise” seems trapped in the sloganeering and pamphleteering narratives of the 1980s and 1990s, and therefore, unable to offer readers the benefits/insights of recent research and analysis in these areas. All this dramatically lowers the usefulness of local debates, although they find favour in the empty echo chambers of social and printed media.

On Method

Upfront, I need to offer a few comments for readers’ benefit, related to the broad approach and scope of my appraisal of the near-term effects of the global 2020 general crisis on Guyana’s infant petroleum sector. First, and foremost, I need to make it clear that I focus mainly on the direct economic effects of the crisis on the performance of the petroleum sector. I admit that there are significant indirect or collateral effects, arising from the direct effects I will consider. This outcome is expected, given the increasingly preponderant weight the petroleum sector is forecasted to play in the Guyana economy. Consequently, if that sector suffers significant setbacks, these will in turn inevitably impact on other sectors of the economy. However, as I will make clear in next week’s column, some of these “indirect effects” are captured in estimates of the impact on GDP as a derivative of changes in the performance of the petroleum sector.

Second, as events have unfolded this year, the public health (COVID-19) element of the global general crisis, has turned out to be its most dominant feature. Recent studies of the global pandemic, published by the United Nations Economic Commission for Latin America and the Caribbean, UNECLAC confirm this. These studies also confirm that this occurrence is yielding “a synchronized global economic and public health crisis”. Thus UNECLAC projects global GDP to contract by 5.2% this year, while the GDP of the USA, Europe, China and the Caribbean is projected to decline by -6.5%; -7.0%; -1.5%; and -5.4%, respectively.

Conclusion

Today’s column is introductory. Next week I start the detailed appraisal of these near-term economic setbacks.