Its Thanksgiving weekend in America, which kicks off the Christmas holiday season in the US. The US President is giving his citizens an early Christmas present by releasing oil from the US Strategic reserve to curtail the rise in gasoline prices and heating bills. US citizens can celebrate low unemployment levels and an economy that is back to pre-pandemic levels. Guyanese on the other hand are suffering through the Covid pandemic and struggling with rising prices for day to day living. President Irfaan Ali can give the Guyanese people an early Christmas present by renegotiating an oil contract that is robbing us of at least US$91 billion or about US$467,000 per the average family of 4 in Guyana. The US President stated reason for using the reserves was because oil supply has not kept up with the demand. The US consumes about 18 million barrels of oil a day. The release from its strategic reserve will be 50 million barrels, or less than 3 days of what it consumes. The oil market reaction to this temporary measure is one where Brent Crude price hovers around US$80/barrel.
Global Witness had computed that Guyana loses US$55 billion on 8 billion barrels of oil. This computation was based on a fair deal that would place Guyana in the middle of the pack compared to other oil regimes around the world. When Global Witness pulled its report in January 2021 it stated, “…COVID-19 continues to depress demand for fossil fuels and as countries implement policies to restrict the use of fossil fuels in order to tackle climate change, the prospects for sustainable income generation from new oil projects are increasingly questionable.” What a difference just within a year as demand for oil has quickly reverted back to historical levels. Oil companies are reluctant to invest in new oil projects on Western soil because of the pressure they would receive from their governments and citizens because of climate change. However, it is these same Western citizens that complain if they can’t drive their gas guzzling SUVs and fly to luxurious vacation spots. This paradox would probably ensure that oil supply will be continued to be constrained as the world population keeps increasing, and Western citizens demand a lifestyle that is sustained by high energy consumption. No wonder many analysts from some of the leading investment banks in the world are predicting oil prices may reach above US$100/barrel next year.
The recovery of oil prices can be seen in the improving financials for Exxon. It recently noted that it paid off all its debt that it borrowed in 2020. It has increased its dividends paid to shareholders. And, some of its employees will be receiving pay raises. Exxon stock price is almost double from the lows it hit in 2020, thus benefitting many Americans who hold Exxon shares directly or via index funds. This is a company that will be reaping the benefits from Guyana’s oil for years and maybe decades to come. When Global Witness pulled its report in January 2021, it stood by the fiscal model saying it was instructive and standard setting. We at OGGN have used a copy of this fiscal model as a base but adjusting for oil at US$80/barrel and 10 billion barrels of oil that is now confirmed in the Stabroek Block. Using these updated figures, we conclude that Guyana is losing US$91 billion compared to a fair contract. In a fair contract, the royalty would be increased to 10% and Guyana’s 25% tax rate would be imposed on the oil companies. This would put us in the middle of the pack compared to more than 60 oil regimes around the world.
We have recklessly let Payara slip without demanding fair terms for the Stabroek Contract. We must use the approval of Yellowtail as leverage for a fair contract. American citizens are enjoying lavish turkey dinners baked in natural gas stoves for their Thanksgiving and looking forward to their Christmas presents in their well heated houses. We remind President Irfaan Ali he was elected to serve the interests of Guyanese, and not non-Guyanese. It is more than 5 years since first oil was discovered but Guyanese don’t see major benefits. The 30% of Guyanese who live on US$2/day deserve decent meals and proper housing. We demand a fair deal for our resources.
Sincerely,
Darshanand Khusial
