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World Bank’s oil glut warning casts doubt on Jagdeo’s projections of massive revenue in the future by not ring-fencing projects
World Bank’s oil glut warning casts doubt on Jagdeo’s projections of massive revenue in the future by not ring-fencing projects
Kaieteur News- The World Bank’s latest Commodity Markets Outlook report, which forecasts an imminent oil surplus, has raised doubts about Vice President Dr. Bharrat Jagdeo’s projections of substantial future revenue.
Jagdeo has suggested that by not implementing a ring-fencing provision for the oil projects in the Stabroek Block, the country is strategically foregoing short-term benefits to reap greater long-term gains.
In simple terms, a ring-fencing provision in an oil contract ensures that each oil project is financially independent, meaning it can only use its revenue to cover its own costs. Once a project’s expenses are repaid, profits are then split. However, the 2016 Production Sharing Agreement (PSA) with ExxonMobil lacks such a provision, and it allows Exxon and its partners Hess and CNOOC to recover 75% of monthly revenue toward cost recovery, with the remaining 25% split equally between the companies and the government.
Vice President, Bharrat Jagdeo
Without ring-fencing, Exxon and its partners can allocate costs from new developments across multiple projects, which delays profit distribution to Guyana.
Dr Jagdeo has argued that implementing a ring-fencing provision could jeopardize future revenue from Guyana’s oil projects. He said at one of his press conferences, “Thinking in policy making is much more complex, it’s never a linear way- oh ring-fencing can save all the money in the world; ring-fencing could lead now too to us having nothing in the future.”
The Vice President had explained, “We admitted that we are foregoing revenue now in exchange for massive future income because its going into new projects that will increase production and so even with the same share of the 50/50 plus the two percent royalty that the future income, because of the bigger scale will be massive in Guyana’s case and we are deliberately foregoing that in this period for that purpose and then trying to grab this bone now could cause you to lose all the bones, the bigger bones too in the future.”
Despite Jagdeo’s stance, industry experts have advised that a ring-fencing provision could secure early returns for Guyana, ensuring immediate revenue from individual projects without pooling expenses across multiple developments.
As reported in an article by Oilprice, the World Bank has forecasted that the oil glut may lead to a substantial drop in global prices.
“Next year, the global oil supply is expected to exceed demand by an average of 1.2 million barrels per day,” the World Bank stated.
It was noted that the scale of this oversupply is difficult to overstate; these numbers have only been exceeded twice in history, in 1998 and 2020. As a result, a barrel of oil could cost less than US$60 within the next six years.
According to Oilprice, the World Bank’s Commodity Markets Outlook, warns that global oil supply is expected to surpass demand by an average of 1.2 million barrels per day by 2025, driven by factors including flatlined economic growth in China, rising electric vehicle sales, projected production bumps from non-OPEC+ nations, and persistent overproduction from OPEC+ members as well and increased natural gas-powered transportation.
(World Bank’s oil glut warning casts doubt on Jagdeo’s projections of massive revenue in the future by not ring-fencing projects)
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