Wrap-up on the modelled second driver and its metrics, Guyana’s window for open crude oil exports

Buxton Proposal Part 9

Introduction

Today’s column concludes my assessment of the second of four modeled drivers and its metrics. All four drivers are listed in the analytical structure, which is set out in my column of January 28 2023. To recall, the first column [already completed] focused on Guyana’s petroleum resources and reserves and its modeled metrics. Following that, is modeled Government Take and its modeled metrics [the third, next week]; and fourth, modeled operating cost of production ratios and their metrics.

In today’s wrap-up column I continue to focus on the findings of the World Benchmarking Alliance, as they relate to assessing Guyana’s oil export opportunity going forward.

Key Findings

As I had previously noted, at some length, the 2023 Climate and Energy Benchmark in the oil and gas sector offers useful insights into the operations of companies in the industry. Even though their median scores have shown improvement in recent times, most of the companies have still not been able to set focused targets that cover their key Scope 1, 2 and 3 harmful carbon emissions,

Further, the findings have also indicated, depressingly, that overall, only a minority of the assessed companies are engaged with the needed set preconditions for a just transition, if undertaking a low-carbon transition at all. As with the low-carbon assessment, companies demonstrate a lack of commitment and action in their business relationships and value chain, as well as within the companies and for their own employees. A just transition requires urgent attention from companies and policymakers. A concerted effort is needed to bring people along in the transformation. Lack of action by companies could risk the success of the low-carbon transition and could lead to increased inequality, mass unemployment and civil unrest.

Sadly, with no set date to phase out fossil fuels, companies fail to make credible transition plans. As readers are aware the phase out of fossil fuels is urgently needed to limit the increase in global temperatures to 1.5˚C. The International, Energy Association, IEA’s, Net Zero Emissions (NZE) by 2050 Scenario has given a firm directive that no new oil and gas expansion should occur beyond projects approved in 2021 and production must rapidly decline by the end of this decade. Nonetheless, oil and gas companies have persisted in their expansion efforts and brazenly show no sign of curtailing production. Pointedly, the keystone oil and gas companies are set to burn through their carbon budget by 2036.

The Verdict

Given the above narrative, the WBA’s verdict on the eve of COP28 has been summed up as follows:

“Our planet faces enormous economic, social and environmental challenges and despite important progress, no country is on track to achieve all SDGs by 2030. Awareness is growing that the SDGs, the Paris Agreement and sustainable development beyond 2030 can only be achieved through transformational change and that without these transformations we will never achieve truly socially inclusive and environmentally sustainable economies and societies”.

The verdict admits that, dealing with such systemic issues requires systems-wide approaches. Systems change, [defined as the ‘intentional process designed to alter the status quo by shifting and realigning the form and function of a targeted system’] – is highly complex, it requires largescale and fundamental transformations of the societal systems driving current environmental and social pressures. Such transformations will require changes in current institutions, practices, technologies, policies, lifestyles and thinking.

The WBA sees business playing a key role in leading these transformations by creating sustainable, inclusive and innovative solutions. Regrettably, however, for businesses these deep and long changes require roadmaps that are rooted in the pathways to sustainable futures. Benchmarks developed by the World Benchmarking Alliance provide exactly these roadmaps. Benchmark methodologies translate societal expectations into metrics,

Closing Observations

Readers should note that this discussion concerning the modeled driver and its metrics, Guyana’s window of opportunity for the competitive export of crude oil, should not be conflated with the long running debates about the end of the petroleum era. I am aware that only months ago, the International Energy Agency, IEA, spoke pointedly on

the end of fossil fuels. And further, as recent as last year, with global crude oil consumption around 100 million barrels per day, OPEC has also predicted known resources and reserves will last for five decades.

Readers should however also recall that, 50 years ago, in 1973, experts were predicting we will run out of oil by year 2000! Clearly, the future of crude oil as a source of primary energy is a function of complex economics and highly complex technological change and innovation. Crude oil businesses typically have high sunk costs making decisions on their price response greatly contingent on prevailing not sunk costs. Guyana’s explosive petroleum expansion in offshore crude exemplifies the rapid movement possible away from being a virgin frontier region to a world class player

Conclusion

Next week I turn to consideration of Guyana Government Take and its modeled metrics.