Guyana’s prospects remain bright despite low oil demand and activity

By Bibi Khatoon

Despite the current low oil prices, Guyana’s prospects remain bright, according to Chief Economist of the American Petroleum Institute, Dr Dean Foreman.

In an invited comment to the News Room, he noted that the country’s projected growth is long term as he referred to the International Monetary Fund’s (IMF) projection in October 2019 that Guyana’s real GDP would nearly double in 2020 — and more than triple by 2024 — relative to 2019.

Expressed in constant US dollars, this translates into the economy expected to grow from $4.1 billion in 2019 to $15.5 billion in 2024.

As such, he said “although these estimates – and all they may imply for economic and social progress in Guyana – may be affected by oil prices, the tremendous scale of Guyana’s growth still could make it one of the highest growing economies in the world over the next several years.

“Consequently, Guyana’s prospects remain bright despite the immediate weakness in oil demand and activity.”

Dr Foreman explained that in the interim, much of the new investment, employment, tax revenues and the follow-on economic activities derived from having an oil industry in the country should be new and therefore “incremental to the economy.”

With at least eight billion barrels of proven crude reserves in the Stabroek Block Offshore, Guyana joined the list of oil-producing nations in December 2019.

The Department of Energy had disclosed that the first three cargoes of Guyana’s light sweet crude is being sold on a Dated Brent price basis. Brent crude oil reduced from $60 at the start of the year to an average of $25.

Oil prices plummeted at the start of 2020 to the lowest since the 1960s, according to international reports. This is due to the Coronavirus Disease 2019 (COVID-19) which in order to stem its spread, has forced countries to significantly decrease all economic activities, therefore reducing demand for oil.

There is also a price war between the top exporters – Saudi Arabia and Russia – which has had negative impacts on the oil economy.

Dr Foreman said Guyana’s niche in the market will become clearer as refiners in US Gulf Coast, Europe and Asia-Pacific see through their own experience the products and value derived from Guyana’s Liza crude oil.

“The kind of crude and the quality of crude that Guyana will provide…serving North American, European and Asian markets provide for flexibility which will add value to the market so I think there are some positives which will come out of this and again, it is throwing a foothold despite market downturn now,” he said during an earlier conference call with the local press corps.

However, he is also optimistic that the global oil economy which he deemed “resilient” will rebound. He is unsure of how long this will take as the COVID-19 has now spread to 199 countries, according to the World Health Organisation.

Guyana has received $11.4 billion (US $55M) for the first lift of the country’s one million barrels of oil, which was sold to Shell Western Supply and Trading Limited in February.

The sum was deposited in the Natural Resources Fund set up to manage the country’s oil wealth.

Guyana is entitled to approximately five million barrels of oil in 2020 alone, plus the two per cent royalty and withholding taxes.