OPINION: Production and depletion policies go beyond demand/supply, Dr. VP

Last Updated on Monday, 26 May 2025, 20:59 by Writer

By GHK Lall

I agree with Vice President Jagdeo that a depletion policy should be based on day-to-day price movements. To wit, “Should we have a depletion policy now…you don’t determine policies of a long-term nature on the basis of daily occurrences in the oil and gas market which is known for its volatility…” No question here that the vice president spoke well. But I respectfully disagree with him that Guyana’s depletion policy should be based primarily (“carefully calibrated”) on “what’s happening globally with the demand for and supply of crude…” Demand and supply must feature, but there are other factors that should be given higher consideration.

For starters, it is what calibrates national revenue projections, while extending the life of the oil reservoir, so that revenues are spread over a longer period. Clearly, Dr. Jagdeo is aware that global prices are cyclical, with long intervals of high prices, and long years of depressed prices. Destructive price levels that hold host countries hostage, when they depend too much on oil income. Every country wants to supply/sell their precious oil treasure in a rising market, but when all are selling at the same time, and as much as they can, then there is an inevitable increase in price erosion risks. This is the springlike tightrope that the Saudi Arabians are walking currently. Open their spigots, flood the market, and there is only one way for oil prices to go. It is not up, nor is it pretty, for other producers would also up their output levels, if the reserve capacity is there, in a scramble to maintain their market presence, and to keep their economies afloat. Obligations have to be honored, expectation levels maintained. Usually domestic ones come under pressure, when the flow of oil money is stressed.

With this as quick background, 11 billion barrels of crude is not a 100 billion. Whether 11 or 22 or 33 billion barrels, it is not 100. With production planned to increase to 900,000 bpd soon, then 1.3 million bpd by 2027, and likely more before the beginning of the new decade, 11 billion barrels will not outlive today’s children. With oil managed around the ‘sweet spot’ range that it is now, and Guyana producing at present, and soon at higher levels, this country is looking at a 30-to-35-year oil life window. Whether more billions of barrels have been found (and unannounced), or more will be found, the highest probability, there is this consideration. A Guyanese child born today could be staring at the same fate as a Trinidadian child wondering if there ever was oil. Or a T&T pensioner asking where all the promise went. Production is wonderful, be a part of the price wave. A depletion policy is sensible, because oil doesn’t replenish itself. Because it combines guarded production and conservation levels for the benefit of later generations.

I take the position that production visions, depletion policy, and conservation practices, all go hand-in-hand. They are not driven primarily by demand and supply. They are self-nourishing, contribute to what is enduringly self-sustaining. Demand and supply considerations are vital. But depletion and conservation are about self-protection. These all come to how much of what is earned is retained in the nation’s Oil Fund. It is relatively paltry, to begin with, which reinforces how much saving for the future should be a priority. Like the man said, oil and gas prices are known for their volatility. Due to that wisdom, a production/depletion policy serves as a handbrake on output, a guardrail against recklessness and danger. Handbrake and guardrail are comforting, though of limited strength. They caution about how much to produce within a given price band with planning built around revenue levels, and how much infrastructure and social benefits can be attempted and consummated in specified time ranges.

For sure, oil prices and overall market conditions have their compulsory role to play. But so also does a depletion policy that is not “calibrated” on those alone. So also, how much is planned as spending. So also, how much is withdrawn from the Oil Fund. So also, how much is borrowed. I think that all of this must be tied together, inseparable. Demand and supply represent one side of the depletion policy equation. For emphasis, the other side of that policy equation that can neither be ignored nor separated from is how much is withdrawn and spent, along with how much is borrowed.

I throw in an outlier, and for one reason only. I believe that it would be worthy of leadership measuring by someone like Dr. Jagdeo. Production and depletion policy must be seen to be interrelated. When the former is paramount, and races ahead, the latter becomes secondary, of less significance. I now narrow this down to one issue: who wants to produce more of the cheap, sweet stuff of Guyana? Exxon or Guyana? Who stands to benefit more, maintain continued investor and Wall Street favor, Exxon or Guyana? Now who has the greater need, greater will to get the most out of Guyana’s oil in the fastest time, Exxon or Guyana? Who in Guyana has the will to influence Exxon that enhanced daily production levels have a price? Will Dr. Jagdeo? He hasn’t manifested any such prowess, any interest.

Finally, I hear that climate change still has some life, and revolutionary technology holds promise. I endorse both. But the will, the skill, the resourcefulness, and the resilience, are simply not present, to dismantle a global multitrillion oil business that employs eight million people, does so much for so many economies.