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Demand and supply

Jun 20, 2024 Editorial

Editorial… 

Kaieteur News – The International Energy Agency (IEA) just threw a wrench into Bharrat Jagdeo’s oil model.  According to the IEA, demand is projected to peak in 2029 and decline in the decade following.  Competitive pressures from clean energy and electric vehicles will lead to a deep cut in demand for oil.  Along with new oil projects coming on stream, the aggregate result is a projection by the IEA of an oversupply of eight million barrels daily.  This is not favourable to Guyana’s oil visions and strategies just when they were poised to come to greater fruition.

To begin with, Guyana’s leading oilman has settled for a model that combines new oil projects and rising levels of production, for greater (maximizing) oil revenues in a few years.  Though not specifically identified by Jagdeo, his present model of oil revenue maximization must occur sooner, as in this decade, rather than later.  This must be so, if Guyanese are to start enjoying the standard of living enhancements and economic wellbeing of citizens repeatedly identified as being the richest per person in the world.  Now with this IEA projection, Jagdeo’s model is in jeopardy of delivering, for anything later than this decade is likely to be too late.

Slowing demand is one problem, with an 8-million-barrel daily over supply being the other.  When the two are fused, this could be crippling to oil producers, from those in the US shale patch to OPEC+ to relatively new national producers, such as Guyana.  In any scramble for market share, the newcomer in the oil firmament, Guyana, could lose out to the more heavyweight producers.  With excess supply squeezing world market prices, it would be a huge fight to maintain the flow of national oil revenues to bolster national budgets.  With oil prices hit by the two-fisted hammer blow of declining demand and increasing supply, all the plans and models must be revisited, if not scrapped altogether.  Oil prices, never a stable animal, could skid from their current US$80+ dollars a barrel to below US$70, then below US$60, to anywhere below US$50 a barrel in an environment of sustained oversupply and dwindling demand.

Putting the most positive light on these scenarios, such developments in the medium term could put a crimp in Jagdeo’s revenue model(s).  Looked at more realistically, they could strangle the local economy, notwithstanding the talk about Guyana’s nonoil economy and its underpinnings.  For hopeful Guyanese, the string on which they have been dangled for so long by the likes of Jagdeo and other political leaders, just got longer, even shakier.  Another bright-eyed, brass-faced leader, and it is the same grim economic story at the individual and national level.  Wait a little longer, things will be better, the oil money will be roaring in, rings rather hollow, considering this sobering IEA release. This is one of the reasons that we keep pushing this nation’s oil champion to start fighting from now for more money from ExxonMobil now.  For sure, oil is not a perishable commodity, but it does suffer from time to time with demand hernias and supply hemorrhages.

Guyanese are struggling on different fronts: the need for a livable wage, diminishing savings, a battle with cost of living, difficulty with paying bills and providing for their families.  Jagdeo’s oil revenue model of more later was demanding too much of Guyanese from the beginning.  The IEA projection does not give his model a boost but rips a huge hole into it.  The Guyanese people oil leader must humble himself and recognize the severe handicaps looming.  Guyana is producing approximately 650,000 barrels of oil daily and collecting close to US$1.6B yearly.  By 2027, with new projects fully operational, daily oil production is set to rise to around 1.2 million barrels a day.  There could be some improvements for ordinary Guyanese, if the PPP/C Government allows real money to reach them.  But what happens after 2029, when the confluence of negative oil circumstances takes effect, as predicted?  All things being equal, Guyana could be whipsawed by producing twice as much oil only to collect half as much in oil earnings, should the worrying IEA visions occur.  We urge Jagdeo to revise his oil model for more money now for Guyana.

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