Jagdeo brushes off World Bank’s warning of oil glut lowering prices

Nov 10, 2024 News

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– says Guyana’s crude is cheap to produce, of good quality

By Renay Sambach

Kaieteur News- Last Thursday, Vice President Bharrat Jagdeo dismissed concerns raised by the World Bank regarding a potential decline in global oil prices due to an anticipated oversupply.

The World Bank’s latest Commodity Markets Outlook report, forecasted that an oil glut, and other factors, may lead to a substantial drop in global prices, and an oversupply in the coming years.

Addressing the matter at his weekly press conference at Freedom House, Robb Street, Georgetown, Jagdeo criticized the relevance of such forecasts to Guyana’s oil prospects.

Kaieteur News had reported that the World Bank’s latest Commodity Markets Outlook report raised doubts about the Vice President’s projections of substantial future revenue for Guyana. Jagdeo has suggested that by not implementing a ring-fencing provision for the oil projects in the Stabroek Block which is operated by ExxonMobil Guyana Limited (EMGL); 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.

Based on his previous comments, Jagdeo was asked whether the World Bank’s forecast changes his position on the lack of ring-fencing provisions for the oil projects in the Stabroek Block. In his response, Jagdeo downplayed the bank’s influence on oil market insights.

He highlighted Guyana’s low production costs and the high quality of its crude. Oil is currently being produced from the Stabroek Block, which is operated by ExxonMobil Guyana Limited (EMGL). Daily production is over 650,000 barrels per day (bpd) from just three projects in that block.

“Often people who are uninitiated, they put a lot of store on these IFIs (international financial institutions) and the reports they produce. For people who are actually in the sector, they pay scant regard to those reports,” he said.

The Vice President added that oil market projections require more specialized focus than what the World Bank typically provides. “So if you ask any of the oil majors around the world about this World Bank report, economic outlook report, they probably wouldn’t even know about it. Nobody pays attention to this,” he said.

Jagdeo argued that the dynamics of the oil market are highly complex and sensitive to a myriad of factors, including geopolitical events.

“Oil markets are very fickle in nature,” he said, adding, “You may have a glut today, but you have a shortage in the future.”

The Vice President then pointed to potential global disruptions, such as a hypothetical escalation in conflicts involving key oil producers or major incidents in international shipping lanes, as factors that could swiftly alter supply-demand balances and impact prices.

Jagdeo also criticized the World Bank’s report for its lack of specificity, noting that seasoned industry experts conduct daily assessments that consider real-time developments in the oil market. “So oil is just a small part of it, but there are agencies that every single day put out a report, and they have a more nuanced understanding of oil markets, because they live that sector on a daily basis,” he said.

To this end, he added that the World Bank’s analyses generally cover a broader economic scope without providing the same level of detail on oil as specialized industry reports.

It should be noted that while the Vice President did not dismiss the possibility of market challenges altogether, he underscored that Guyana’s oil industry is well-positioned to withstand potential price declines.

Reflecting on Guyana’s strategic advantage, Jagdeo emphasized that the country’s light, sweet crude oil—widely regarded for its quality—combined with low production costs of about US$40 per barrel, puts it in a stronger position than many other oil-producing nations.

“The good thing is that our crude is light, sweet crude. It’s a good quality crude, and also our breakeven cost is below many countries in the world. So if you had to fall off the production chart on the basis of quality of crude and breakeven cost, many other countries will fall off before we fall off the chart,” he asserted.

He underscored that Guyana’s production is low-cost compared to other countries, making it less vulnerable in scenarios where only the most economical producers survive a downturn. Jagdeo said, “So before those prices fall below a point where we can’t produce oil anymore, lots of other countries, should there be a reduction in global demand, would fall off the production chart ahead of us.”

Jagdeo acknowledged that while there are many unknowns in the oil market, his administration’s approach ensures that “we don’t get left stranded with these assets.”  He said that Guyana’s oil industry will be sustained long-enough to ensure the resources generated are used to improve climate resilience, and non-oil sectors.

The Vice President emphasized that while predicting oil markets is inherently complex, Guyana’s low-cost production and quality crude position the country advantageously, allowing it to derive long-term benefits from its oil reserves.

Pressed further on whether he found the World Bank’s forecast concerning, Jagdeo clarified, “No, no, because…these Economic Outlook Reports are produced either once every three months or six months…you would not go to a World Bank economic outlook report if you want to have a nuanced position on the oil and gas markets for the next week, for the next month, for the next quarter, for the next year…”

In his view, Jagdeo said that the pace of global transition to renewable energy sources remains inadequate, prolonging the need for fossil fuels. He cited an estimated US$2 trillion investment requirement to meet growing global energy demand sustainably.

Until such investments are met, he argued, demand for fossil fuels like Guyana’s oil will persist.

(Jagdeo brushes off World Bank’s warning of oil glut lowering prices)

 

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• Commodity Markets, Freedom House, Georgetown, Robb Street, Vice President Bharrat Jagdeo, World Bank

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