US$9B by 2027, has truth, has toxins

Mar 22, 2024 Features / Columnists, The GHK Lall Column

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H@rd Truths by GHK Lall

Kaieteur News – US$9B by 2027 is doable.  According to Vice President Jagdeo, this is so.  I agree up to a point, and then with conditions attached.  Guyanese should look forward to such a state, but they must also look around at surrounding circumstances.  A start is made with the honourable Guyanese oilman.  It is not an oxymoron.

“If the price is $100 a barrel, you will get more (than) if its $50, so you can play around with these numbers…but where it gets more difficult is when you look at the payback rate on the projects.” As much as I agree with Dr. Jagdeo, he should know that that is Common Entrance stuff.  It is a regurgitation of standard arithmetic.  The big man of big productions, (he should have been Laxmikant-Pyarelal) labored on: “it will take a number of years to pay back if the oil price is $50 a barrel. If it goes up to $100 a barrel, the pace of repaying is accelerated so it cuts the (timeline). If you had 10 years to repay the capital cost of the project, it comes down to five years to the extent that you repay faster, more revenue becomes available for distribution and so that is the model.”

There is nothing to disagree with, save for one piece of the Jagdeo puzzle that he left out.  Like any slick salesman knowing that he has a defective product, Jagdeo accentuated the positives. To repeat: oil at US$100 a pop; payback time halved; and 9US$ big ones.  What follows is what reduces Dr. Jagdeo to spluttering all over himself, with cursing following.  Perseverance is just what the doctor ordered.  Not one like Dr. Jagdeo, but the authentic article.

For starters, with oil at US$100 a head, there is an increased probability of the creep of what is called demand destruction.  Those blasted Saudis and Russkies know this, which is why they do that intricate dance with supply cuts.  Why, it was Vlad(imir) the Impaler himself of oil supplies who spoke of the potential loss of market share to the US.  I am sure I hear supplier remorse, supplier fear.  Go on cutting stocks, brother Putin, and see where that leads.  As a courtesy, I withdraw that horrid description of Saudis and Russkies; memory reminded that they are friends of Dr. Ali and the PPP respectively.

Second, I expand on demand destruction.  With oil at a hundred American a barrel, nonproducing oil countries are in deep(er)waters.  They can only buy so much oil, most likely less at US$100 for every 42 gallons.  With oil at US$100 a barrel, Americans could be staring at US$5 for a gallon gasoline.  Those macho Dodge Ram chargers then require US$100 to refill.  I hear the sound of trains and buses, with personal chariots parked, be they from Nagoya or Kentucky, or Detroit or Seoul.  I recall that transportation fuels cover over half (70%) of oil usage.  I am due a safari to the States, but airline tickets hang overhead.  Is this picture registering fellow Guyanese?  More importantly, does Dr. Jagdeo have the time of day for inconvenient talk of this type?

Next, I hate to do this to bhai Jagdeo’s model, but it lists too heavily to one side.  With oil at US$100 a cask (good) and European demand (good), there still looms the specter, however small, of Guyana having more oil that it can sell (bad).  Meaning, that 1.2 million barrels by 2027 may not be 1.2 million barrels demanded and sold, but a little less (badder).  This has been an age-old weakness of models, sometimes troublesome eventualities are deliberately left out.  I refrain from dismissing the good doctor’s model, as garbage in, garbage out.  But it does have its biases, its assumptions that ignore a pile of reality.  The volatility of oil prices is one.  The sickening of the global economy is another.  The advances of new technology still another.  It is not my way to pour liquids (pick one) on a man’s parade.  But silence and pretended ignorance are poor alternatives.

Then, what about the Saudis and Russkies?  Well, what about them, Guyanese may ask.  It is inconceivable from a commercial perspective, and a leadership one, for those seasoned oil powers to sit back like contented cows (think how most Guyanese are) and allow themselves to lose in the revenue collection game.  At US$100 a barrel, the carefully calibrated supply play of OPEC+ comes under heavy pressure.  National budget squeezed, the population screams, and some projects slashed.The choice is theirs: keep production cuts or flood the market.  Not necessarily flood, but release some of that spare capacity lingering about.  Think several million barrels more daily supplied into the oil pool.

Suddenly, prices head south of US$100.  Suddenly, the best models are due for tweaking.  Perhaps, I should have said radical overhauling, but due to domestic sensitivities thought better of it.  Now the pulse is spiking.   Calling Dr. Jagdeo.  Calling Dr. Jagdeo.  Is Dr. Jagdeo still in the hospital complex?  I think that sounds like a summon to report to the oil ICU. Fifth and final, I am all for US$100 a barrel, 1.2 million barrels daily, and shortened payback periods.  But there must be maturity and honesty to face every side of the full story.  May all be well.

(The views expressed in this article are those of the author and do not necessarily reflect the opinions and beliefs of this newspaper and its affiliates.)

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• circumstances, GHK Lall, oxymoron, toxins, Vice President Jagdeo

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