2023-11-28 18:03:11
One of the basic principles of economics is that agents respond to incentives. If extracting oil from an area has a clear reward in the form of profits, that oil will be extracted and sold. If the incentives are lost in a tangle of public bureaucracy and clientelist networks, it may end up happening that even the richest country in the world in oil ends up occupying a mediocre position among crude oil producers.
This principle can be clearly observed in practice when comparing the evolution of oil production between Guyana and Venezuela. Both nations share a border and are fortunate to house significant quantities of crude oil under their soil or on their coasts.
However, the first, Guyana, is a country of only 800,000 inhabitants, with 11,000 million barrels of recoverable crude oil (proven reserves) and has been exploiting its ‘treasure’ since 2019. The second, Venezuela, is a country with 28.2 million inhabitants, more than 300,000 million recoverable barrels of crude oil and that has decades of advantage in the extraction of crude oil, which should have provided it with experience, know-how and large income to improve its industry.
However, the energy world might be very close to witnessing a historic event. Little Guyana is getting closer to surpassing Venezuela in terms of oil production. With the launch of the floating mastodon Prosperity, a giant vessel (Floating, Production, Storage and Offloading or FPSO) that will double the country’s production in a matter of months, Guyana will be pumping the same amount or even more oil per day than Venezuela. , according to calculations by Capital Economics.
Guyana’s oil grows without stopping
Megan Fisher and Bill Weatherburn, analysts at Capital Economics, comment in a note on tiny Guyana’s oil industry that “oil production looks set to grow rapidly in the coming years…substantial reserves and low break-even costs (Guyana’s barrel is very competitive) should mean it can continue producing even long following global oil demand begins to fall.”
Guyana will surpass Venezuela in oil production
Oil production growth will be quite rapid. ExxonMobil, the main operator of the country’s large oil projects, expects production to increase to more than 0.8 million barrels per day by 2025 as new FPSO vessels come online. Guyana will produce one barrel of oil per inhabitant, the highest ratio in the world.
Capital Economics experts assure that “if these forecasts are met (for now they have been more than met), Guyana would represent slightly less than 1% of global supply, but would be producing over 0.7 million barrels per day ( bpd) of Venezuela, although it would still be far below the 13 million bpd that the US produces today.
Why do we like Guyana’s oil so much?
Guyana has allowed private companies with great knowledge in the oil sector (Exxon) to invest in the country to extract crude oil. On the contrary, Venezuela has preferred to put PDVSA (Petróleos de Venezuela), which is publicly managed, first. The sanctions and the dubious management of this company have caused Venezuela’s oil industry to enter a decline from which it has not been able to emerge for now.
By contrast, “Guyana’s oil sector is attractive to investors, so production should be able to continue profitably even if global crude oil demand peaks and oil prices come under pressure.” the substantial drop. The reserves are considerable, around 11,000 million barrels, and industry organizations estimate that the equilibrium price of current marine developments is between 25 and 35 dollars per barrel,” they say from Capital Economics.
Guyana’s oil is high quality light, sweet crude oil. The industry’s low breakeven point prices, estimated by Rystad at an average of $28 per barrel, make operating off the coast of Guyana highly profitable, especially with Brent selling in the $80 per barrel area. barrel.
The US Department of Energy (EIA) published a note in October in which he explained the obstacles that Venezuela will face to increase its crude oil production and, with it, exports following the lifting of US sanctions. The note assured that Venezuela has not efficiently managed the income flows produced by crude oil. At least it has not managed them adequately to keep the industry that has generated so many millions of dollars in a competitive position.
The Venezuelan oil industry is outdated, ossified and has serious difficulties in remaining active following years of ‘forgetfulness’. Without the end of sanctions ending this decline, tiny Guyana will be a bigger player in the oil market despite having far fewer crude reserves.
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