Dear Editor,
On the subject of constraining production and implementing a depletion strategy, and the possibility of a reduction in oil prices due to changing global energy demand. I share elements of a previously published article which is still of relevance today. A friend made a comment after viewing an online interview with me in June 2019.
Comment by a friend:
“… I listened to the … discussion in its entirety this morning. It gave a great insight into the background to your appointment as petroleum advisor to the president and your subsequent departure from that position. It was balanced and the key message that we have to work with ExxonMobil however we don’t have to genuflect to them came through very clearly.
The only issue I have a slightly different take on is the rate at which we extract oil. Given that hydrocarbons as an energy sources will probably be phased out in many economies by 2050 I think we need to extract our oil resources as quickly as possible, within reason of course, and convert it to another asset form as it will have diminishing value if left in the ground as the world turns to renewables. …”
My response:
“… Thanks for viewing and for the feedback. There are some different ways to approach production strategy.
The oil companies always want to pump everything as fast as possible. Mainly due to the time value of money and a quick return on investment. But also especially in a situation like Guyana where the country starts off dumb but gets savvy over time, and requires better contract terms over time. So the oil company tries to take as much initially under the better terms.
Countries however benefit from longer sustained production, over generations, by using depletion strategies and by constraining production. This is so even if it is lower production, since small places like Guyana take decades to learn how to cope, and sadly many countries never learn and become failed states (eg Equatorial Guinea, Venezuela, etc).
Then we add into this mix the recent predictions about electrification of transport and possible reduction 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 meant to run out of oil in the 1970’s. And there were numerous other predictions, and all wrong. So we are likely to incorrectly predict peak demand.
And with respect to Guyana, all this talk of peak demand is a ploy by the oil companies and their supporters. Scare Guyanese into thinking that they have to pump everything now, and they will accept whatever rubbish contract terms ExxonMobil is offering.
However, the sky is not about to fall on our heads. Demand is likely to reduce, but exactly when is questionable, and the demand for the nastier hydrocarbons will reduce first, like coal. Coal use is actually increasing right now in some parts of the world, so this has to be reversed before the sweet light oil in Guyana gets affected. So it may be many decades before the higher quality oil gets affected. But we still have to be prepared for the usual crashes and spikes in oil price along the way.
Also, if one is a supporter for reducing the consumption of hydrocarbons because of 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 which directly affects Guyana. But you can instead justify pumping a prudent level, in relation to the size of the country, and which allows for the funding of a transition to renewable energy and a reasonable sovereign wealth fund.
We should not buy into the hype about falling demand and the consequent need to pump everything now. This is unlikely to work for Guyana, and the justifications are unlikely to be valid.
We also have to remember that Guyana failed as a nation not because of a lack of natural resources, since Guyana was always richly endowed with gold, diamonds, timber, rice, sugar, etc. So adding a new and abundant natural resource in the form of 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, mainly 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 money from those projects. If we assume oil demand will reduce, is it not more sensible to maximise our share from a prudent volume of oil, instead of pumping vast volumes so as to give away the lion’s share to ExxonMobil?
But our politicians on both sides of the aisle have no interest in negotiating to benefit the country and its needy people, they have no interest in learning from history, and are only interested in subservience to foreign entities as a way to line their own pockets. It is quite unfortunate that we continually vote for politicians who are mere puppets in the game of neo-colonialism.
Yours faithfully,
Dr. Jan Mangal
