Over the past few months, some of the world’s largest oil and gas companies have disclosed plans to make a considerable shift towards renewables, a path that has been resisted for years due to the sheer unattractiveness of the returns. Reuters for example, reported this week that Shell, the third largest super major, is looking to slash up to 40 percent off the cost of producing oil and gas, in a major drive to save cash so it can overhaul its business and focus more on renewable energy and power markets.
Chevron, Total and British Petroleum have committed to walking the same clean energy pathway. So where does this leave Guyana, the industry’s latest producer with over eight billion barrels of oil equivalent resources?
According to Chief Economist at the American Petroleum Institute (API), Dr. Dean Foreman it leaves Guyana in a favourable position.
Dr. Foreman said, “Choices to shift away from oil and gas production leave relatively more opportunities for others, like those in Guyana. And keep in mind that the natural decline of global oil production necessitates large investments just to sustain current levels, which also furthers opportunities for producers that stay the course.”
He added, “Separately, the companies’ reasons for changing focus appear to be responsive to their investors and stakeholders, especially in Europe. The economics of the strategies will vary based on their specific investments, but risks could include increased reliance on public support mechanisms to make it viable…”
Along with the noticeable increase in interest by some super majors to switch to renewables, there are also concerns about the fact that China, the world’s biggest importer of oil, is slowing down its stockpiling of crude. Compounding this too is the fact that oil prices fell on Monday and remains stuck at US$40 on renewed concerns of coronavirus-related lockdowns. Even though these trends need to be watched closely, Dr. Foreman says one must bear in mind that oil prices can and will change in response to supply/demand fundamentals and myriad other factors.
With respect to China, he noted that there is a Bloomberg consensus survey which currently suggests that China’s economy will expand by 8.0% in 2021, which would require substantial oil imports. He was keen to note however that the USA’s Energy Information Administration (EIA)’s short-term energy outlook projects China’s oil consumption will reach a record 15.0 million barrels per day in 2021 (up from 13.9 mb/d in 2020). The Chief Economist noted too that China’s net imports of oil would rise to 10.0 mb/d in 2021 from 9.0 mb/d this year while adding that globally, EIA has increased its 2021 global demand projection to 99.6 mb/d.
Dr, Foreman noted too that China’s net oil imports were projected by EIA to rise to 10.0 mb/d in 2021 from 9.0 mb/d this year, while adding that 2021 global demand could rise by 6.5 mb/d (7.0%) in 2021 with about half of that increase expected to come from non-OPEC nations. Taking the foregoing into account, Dr. Foreman said unequivocally that Guyana is well positioned to gain as global oil markets regain their footing along with the economy.
