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Opposition still wants to assess each project to determine whether ring-fencing is feasible
Leader of the Opposition, Aubrey Norton
Despite new IEA report on decline for oil…
Kaieteur News – The Leader of the Opposition, Aubrey Norton is unfazed by a new report issued by the International Energy Agency (IEA) that the demand for oil in the next few years will reduce significantly, resulting in a slump for the price of the commodity.
Although Guyana’s oil sector, and economy by extension, can suffer tremendously from this ripple effect due to the decision by policymakers not to enforce a ring-fencing provision, Norton too is yet to be convinced that the country should secure earnings early on from the sector before oil price dips.
A ring-fencing provision would mandate each oil project to pay for itself. After the cost of the project has been repaid, Guyana would then enjoy a greater share of its oil revenue.
On Friday, Norton was asked by Kaieteur News whether the Opposition still believes it needs further assessment on the benefits of ring-fencing, in light of the new IEA report.
The IEA said in its new medium-term oil outlook that oil demand growth is set to slow in the coming years and global demand will peak in 2029, while rising production will lead to a major glut this decade.
The clean energy transition and the “stellar growth” in global EV sales are expected to lead to slowing oil demand growth with worldwide consumption set to peak in 2029 and begin falling the following year, according to the IEA’s report Oil 2024, the agency’s annual medium-term market report. World oil demand is being tempered by the clean energy transition, says the IEA, which has been a vocal proponent of a faster energy transition in recent years.
Norton however emphasized on Friday, “I’ve made our position clear on ring-fencing. In principle, we agree with ring-fencing. I however proceeded to say we have to look at every case on its merit and assess it – that still holds regardless.”
He went on to explain, “You cannot be in Opposition and just wildly say I’m going to ring-fence. Some projects are still to come, some exist, we need to know the details so in principle we agree with ring-fencing because it allows us to separate the various activities and therefore the cost from one not moving to the other – we are sold on that, but that doesn’t remove the fact that we have to assess every issue, everyone by themselves and it’s not the case of pussyfooting.”
According to Norton, the Opposition must be “responsible” and careful not to issue “wild statements” as the People’s Progressive Party (PPP) did previously while in Opposition lest they be reminded of their failed promises.
Presently, ExxonMobil, the operator of the Stabroek Block is producing oil at three projects. Six projects to date have been sanctioned without a ring-fencing provision.
The Production Sharing Agreement (PSA) stipulates that up to 75% of the monthly revenues generated can be deducted towards the recovery of costs invested by the Stabroek Block partners – Exxon, Hess and CNOOC. Costs not recovered in any given month are added to the next month.
In the absence of a ring-fencing provision, ExxonMobil uses the revenues from the three producing developments to pay for projects that are yet to come on stream. Kaieteur News recently reported that some US$19B in costs has been recovered to date by Exxon. This means that three projects, which collectively carries a price tag of about US$18.5B, has already been cleared. In this way, the country could have been receiving greater profits from the three projects this year.
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