The developed world is seeing a post covid-19 economic rebound which is driving oil prices higher. Guyana can expect improved government take for the remainder of 2021 and beyond.
Guyana’s Liza Crude which is light, sweet oil trades roughly on par with North Sea Brent that has risen 84% over the past 12 months. This increase is not all demand driven. On the supply side talks on the resumption of a nuclear deal with, and the lifting of sanctions on, Iran had meant some fear that the producer would swamp the market upon its return. (It has been covertly exporting about 1m B/D to China at what is estimated to be a 20% discount) However that concern has lessened as many analysts doubt Iran’s capacity to ramp up production so quickly. What has been more impactful on supply over the past year has been OPEC Plus’ (Russia) discipline during the pandemic, both in agreeing to cuts and in member countries not cheating by over producing. Much of the credit for this, say observers, is down to the leadership of Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman who is seen as a voice of calm and experience for the organisation. Since the pandemic hit, he has constantly preached caution. (why-opec-may-be-guyanas-new-best friend March 5 2021)
Outlook “$70 to $80”
The result has been a steady climb in crude prices including that of Brent, now in touching distance of $75 per barrel this morning on the back of weekly Energy Information Administration numbers showing strong demand for petroleum products in the US. Gasoline demand is now almost back to pre-pandemic levels at 9.360M bpd, up 880,000 bpd from the previous week, along with a 7.3m bbl drop in crude oil stocks. Oil prices in the $70-80/bl range for the rest of the year "is a reasonable place to set expectations", trading firm Vitol's chief executive Russell Hardy told Argus Media .
At that price, Guyana can expect to see its remaining lifts for this year bringing in upwards of $70M per shipment ($70 per barrel). That compares to last year’s takes which averaged about $46 per barrel - $54 (January) $35 (April) $46 (July) and $49 (November). Guyana’s fifth lift on February 5 2021 brought in $61M and its sixth lift on April 13 2021 was valued at US$62.6M bringing the Natural Resources Fund Account, including the 2% royalty, to US$344.1M. Three more lifts are likely this year (barring any further production issues) and this would mean the sovereign wealth fund hitting well over US$500M even as the government has yet to adjust legislation in order to tap into it. It now looks like Finance Minister Ashni Singh had been conservative in his budget forecast of an estimated $43.5 per barrel price for this year.
Meanwhile the outlook for crude prices for 2022 remains bullish as the global economy should continue to come out of the pandemic, although developments related to covid-19 and its variants are a major element of risk. Longer term, some traders are talking about $100 per barrel as a supply squeeze brought on by a cutback in exploration means a possible shortfall in production. Spare capacity among OPEC members can counter that shortfall but some analysts also feel OPEC will want to squeeze as much revenue out of production in the next ten years as renewables begin to eat into their markets.
Meanwhile governmental, activist and shareholder pressure will only grow on IOCs to move away from fossil fuels. Along with the threat of stranded assets this might mean investment diminishing in high cost, high carbon fields (see Venezuela and Canada Tar Sands). In this regard the high quality, low cost and well located Guyana Basin appears insulated. With four FPSOs “booked in” to produce ~800k B/D by 2024, the country could be in a position to ride the energy transition. However, the snowballing environmental narrative including litigation surrounding the country’s oil production’s effect on the climate remains a concern for the local industry.