October 24 2019
Dear Editor,
At this time, it is my opinion that the oil industry in Guyana will come to an end within a relatively short time frame. I am an Environmental Scientist educated at the University of Guyana and the University of Toronto with over a decade of Environmental Management experience in Ontario, Canada. The following are my personal views and opinions based on my investigation when making the decision to purchase an electric vehicle.
There is general consensus that the supply of oil will be plentiful in the future but also that there will be many challenges on the demand side. The Center for Strategic and International Studies says that the total oil market is close to 100 million barrels per day with transportation taking 56% or approximately 56 million barrels per day and industry in second place with about 28% of the share. As seen with Guyana, existing technology is capable of finding reserves in the many billions of barrels which can keep this oil market going with a business as usual scenario. However, there is ongoing pressure from grassroots organisations to force decision makers to implement policy choices to meet emission reduction targets to tackle the global climate crisis. As a result society will increasingly adopt new green technology such as EVs which will weaken the demand for oil.
Electric Vehicles are rapidly replacing Internal Combustion Engine (ICE) vehicles. The sales of ICE vehicles are going down because consumers are realising that EVs are superior. People are buying an EV as their next car or waiting for the right choice to arrive. In their report Global EV Outlook 2019, the International Energy Agency (IEA) says that in 2018, the global electric car fleet exceeded 5.1 million, up two million from 2017 and almost doubling the number of new electric car sales. EV adoption will accelerate even more when the ban of ICE vehicles by more than 10 countries which include France and the United Kingdom and 20 large cities around the world such as Mexico City start to take effect by 2030.
When the number of EVs on the road starts to reduce global oil demand by about 2 million barrels of oil per day, an oil glut will manifest itself. Production will have to be reduced in order to maintain prices but this will not be sufficient to stop the decline. The IEA says that by 2030 the number of EVs in the world could be more than 250 million which would cut demand for about 2.5 million barrels of oil per day. High cost oil extraction operations will become stressed at first followed by operations in places like Guyana. We saw an example of this when in 2014 oil was over produced by 1.5 million barrels per day and oil prices plunged from $100 (US) a barrel to around $40 (US) a barrel. The solution at the time was to cut production to stabilise the price. However when the oil glut is caused by EVs, cutting oil production will not be enough as each subsequent year more EVs will be on the market and it will become progressively worse for oil producers as oil demand continues to diminish. Oil producers will need to sell more and more to make up for the loss of revenue. This action will increase the supply and lower the price, hence the beginning of the cycle which will eventually render oil a near useless commodity and simultaneously put Guyana’s oil industry in jeopardy.
An emerging set of dynamics on the demand side will determine the life of the oil industry in Guyana but the situation will not be ideal. If oil producers can cooperate to keep oil prices high throughout the decline in oil demand then the life of the industry will be prolonged. However many analysts believe that it will be difficult to achieve harmony on this issue. Also in Guyana’s favour is the lower production cost which should keep the industry afloat for a bit longer. In addition, there will remain a large number of ICE vehicles in the developing world such that oil demand for transportation will not disappear but will trend to zero over time. Nonetheless, EVs will start to arrive in the developing world as well. If demand for oil from industry which is 28% of market share rises, then the effect may also be a delay in the decline of the oil and gas industry. However industry is already under pressure to adopt green technology to tackle the global climate crisis so the 28% is likely to decrease.
I think that the evidence is clear that the oil and gas industry will be under high stress by 2030 and there will be negative ripple effects that may be felt in Guyana right away. I believe that it would be wise for Guyana to have an action plan which can adjust accordingly for a future with no more oil revenue which may come in as little as 10 years. In my view, there should be no long term investments in oil and gas infrastructure. Guyana should invest in self-sustaining projects that can achieve dramatic improvements in the living standards of Guyanese. A great place to start is with the, ‘The Green State Development Strategy: Vision 2040’, which should be implemented aggressively before oil becomes obsolete.
Yours faithfully,
Alexander Ramessar,
MEnvSci, HBSc, B.Eng. Mech.