Wednesday, September 28, 2022

High costs of transitioning to renewables give Guyana more time to monetize oil – AMI Analyst

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Despite the economic attractiveness of Guyana’s oil sector, the Inter-American Development Bank (IDB) recently issued a warning that the nation’s window of opportunity to properly govern the industry as well as monetize its resources in an efficient manner is “very narrow” especially when one considers the fact that the world is transitioning to renewable energy.

Other reports by key energy players such as British Petroleum (BP) have also considered the possibility that oil is nearing its peak demand.

However, Americas Market Intelligence (AMI) Analyst, Arthur Deakin, is of the opinion that one must take a step back to evaluate the entire picture. Expounding further, Deakin asserted that coal, natural gas, and oil still account for more than 80% of the world’s energy. He stressed that this percentage is even higher among less developed countries. Deakin went on to state that the transition into renewables is progressing gradually and still lacks the appropriate infrastructure for battery storage. In fact, the analyst argued that when one uses history as precedence, one would note that it took over 100 years for oil to overtake coal as the world’s top energy source after it was discovered in 1859.

Deakin further posited that the sizeable capital needed to accelerate the energy transition is also just starting to appear as investors begin to receive higher returns on their climate-friendly investments. In the early 2000s, the analyst noted that green venture capital (VC) investments suffered a cycle of boom and bust, losing over half of the U$25 billion they had invested. He said that these VC firms erroneously used financing models for technology companies and applied them to sustainable energy. Now, with more experience under their belts, Deakin noted that VCs are enjoying public support and government-friendly regulations for green energy, which are contributing to higher returns on investments.

Outside of VC firms, Deakin said that renewable energy investments are still far short of what is needed to allow for mass deployment of these technologies.

When these factors are considered alongside the fact that Guyana holds large volumes of light, sweet oil with low breakevens, Deakin concluded that the country still has ample time to monetize its resources.

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