Routledge denies transition to renewables will affect oil prices

Oct 23, 2023 News

…as Exxon runs away from ring-fencing Stabroek Block projects

Kaieteur News – Even though it has been well ventilated that the global shift to renewables is likely to negatively impact the price of oil in the future, the President of ExxonMobil Guyana Limited (EMGL), Alistair Routledge is adamant that the sector will not be affected.

President, ExxonMobil Guyana Limited, Alistair Routledge

Routledge was at the time responding to questions on the subject of ring-fencing the Stabroek Block projects from Kaieteur News, during a press conference hosted on October 17, 2023, when he said, “There’s no reason to believe this business is gonna change that fundamentally.”

‘Ring-fencing’ simply means that each project would pay for itself, thereby allowing for greater profits to be split when each development is paid off. In the absence of this provision, Exxon is allowed to use the income from producing oil projects to pay for other projects that are yet to commence producing oil.

During the media engagement, the company’s Country Manager explained, “Ring-fencing changes the timing of revenues to the country and to the NRF (Natural Resource Fund) but it doesn’t change the total amount. In fact, the downside of ring-fencing is that it may under-develop the resource because you end up with stranded resources cause you have tried to put a ring-fence around individual projects.”

He added, “So there is truth in the fact that it affects timing but if the goal is to maximize the development of resources to the country and maximize revenue to the natural resource fund, this contract is structured in a very supportive manner.”

Kaieteur News, however, pointed out to the Exxon official that oil prices are expected to decline in the future even as the world transitions to renewable sources of energy. This could therefore expose Guyana to a lower share of revenue as there is currently no ring-fencing to protect the proceeds in a single project in the Stabroek Block.

In response, Routledge told this publication, “Guessing oil prices is a monk’s game. Nobody seems to have done very well at that. We anticipate there are cycles in oil price just as in other commodities. It’s very, very, difficult to try and guess those. It’s impossible.”

Kaieteur News, however, interjected, signaling that there was no “guessing” involved as it regards the reduction in oil prices, given the global shift to cleaner sources of power in response to climate change and global warming as has been highlighted in a number of studies.

Routledge, however, maintained that these were mere assumptions.  He reasoned, “I’ve been in this industry for over 32 years. Our company has been operating for over 140 years. We’ve seen it (oil prices) come and go, the cycles of demand and supply and price goes up and price goes down.”

Consequently, he asserted, “There’s no reason to believe this business is gonna change that fundamentally, just as other commodities.”

Decline in oil prices

International news organization, Reuters in an April 2021 article reported that oil price can hit US$40 per barrel if climate goals are met.

According to the article, global oil prices could drop to around $40 a barrel by 2030 if governments push to reduce fuel consumption in step with U.N.-backed plans to limit global warming. It was quoting from a report by a leading energy consultancy, Wood Mackenzie, which indicated at the time that oil consumption would begin a steep drop as early as in 2023.

“As a result, oil prices would begin to slip later this decade, WoodMac said in its report. Under its Accelerated Energy Transition scenario, it expects Brent crude prices to average $40 per barrel by 2030, compared with current prices of around $65 a barrel,” Reuters reported.

See link for more: https://www.reuters.com/business/energy/oil-hit-40-by-2030-if-climate-goals-are-met-consultancy-2021-04-15/

In a more recent report, dated June 14, 2023, the International Energy Agency (IEA) said, “Growth in the world’s demand for oil is set to slow almost to a halt in the coming years, with the high prices and security of supply concerns highlighted by the global energy crisis hastening the shift towards cleaner energy technologies.”

“The shift to a clean energy economy is picking up pace, with a peak in global oil demand in sight before the end of this decade as electric vehicles, energy efficiency and other technologies advance,” said IEA Executive Director, Fatih Birol. “Oil producers need to pay careful attention to the gathering pace of change and calibrate their investment decisions to ensure an orderly transition.”

See link to report here: https://www.iea.org/news/growth-in-global-oil-demand-is-set-to-slow-significantly-by-2028

Meanwhile, in yet another study published earlier this year, Energy Intelligence said, “The direction, timing and progress of the energy transition will be key in shaping the future of oil, the most important commodity market in the world.”

It noted, “Falling demand and increasing price elasticity of this demand will eventually pressure oil prices, squeezing high-cost producers out of the market.”

Read more of the report here: https://www.energyintel.com/00000187-12e2-d7d4-a3e7-1efbe96d0000

• Alistair Routledge, Decline in oil prices, Exxon, ExxonMobil Guyana Limited, International news organization, President