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Guyana strives to combat spiralling fuel prices

GINA-April 2nd 2005

COUNTRIES around the world are facing steadily-increasing fuel prices and Guyana is no exception.
 

Over the past seven years fuel prices have shot up strengthening the income of oil rich countries and threatening to derail the small economies in developing countries.

In 1998, fuel prices were as low as US$10 per barrel as the United Nations approved increased oil production from Iraq in the Oil for Food programme. This, coupled with low demand for fuel in Asia as a result of an economic crisis on that continent, high oil inventories after two unusually warm winters, caused a glut on the market.

The downward spiral of prices was arrested when the Organisation of Petroleum Exporting Countries (OPEC) agreed to cut production. With some non-OPEC countries also agreeing to cut production, the number of barrels produced in the world was reduced by approximately 4.3M barrels per day.

Oil prices tripled between January 1999 and September 2000 due to strong world oil demand, OPEC oil production cutbacks, and other factors, including weather and low oil stock levels.

However, oil prices went into a period of decline reaching below US$20 per barrel as a result of an economic recession in the United States of America. An even sharper decline in prices was experienced after the September 11, 2001 attack on the World Trade Center in Manhattan, New York as world leaders feared a worldwide economic downturn.

Tensions in the Middle East with the threat of war in Iraq, political instability in Venezuela and the effects of production cuts by OPEC, soon pushed prices back up.

Between October 2003 and October 2004, oil prices increased by 80 per cent reaching a record high of US$55.50.

This price rise was pushed by decreasing stocks, fears of disruption in production in Iraq, Venezuela, Nigeria and Russia and increase in demand for fuel in China as that country’s economy continues to grow.

Today, prices stand at $56.46 per barrel and international analysts predict that it will continue to rise despite efforts by OPEC to increase oil production. OPEC member states are already pumping above their new daily output ceiling of 27.5 million barrels.

The impact on small and developing countries has been tremendous. These countries depend on oil imports and must buy at the market price.

Guyana has been caught in the spiral of rising prices which is being passed on to consumers.

The increase in the country’s oil import bill destabilises the trade balance and drives up inflation.

Increased production and a high dependence on fuel in developing countries, leaves them vulnerable to fluctuating oil prices as oil-producing countries regulate the supply.

In 1998, Guyana’s import bill for fuel was $78,539,499. Since then it has risen steadily and tentative figures for 2004 show a $170,333,408 figure.

The Government of Guyana has implemented several measures to cushion the impact of the rise in fuel prices.

After meeting major stakeholders in Guyana’s production sector last year, President Bharrat Jagdeo ordered the reduction of the consumption tax on diesel from 35 per cent to 10 per cent to bring immediate relief to the affected sectors.

This relief followed a reduction of the consumption tax on gasoline and cooking gas and the removal of such tax from kerosene.

The point to note is that the Government of Guyana has put this reduction in place even though it represents a loss of $500M per quarter in revenue to the administration.

All indicators point to continued price increases worldwide.
The Energy Information Administration in the United States of America projects that prices will rise gradually through 2025 as the oil resource base is further developed.

Since petroleum is not a renewable energy source, governments have no alternative but to develop alternative sources of energy.

The Government of Guyana has been exploring these options for several years and on March 26 President Jagdeo confirmed that hydropower generation is a priority for his administration.

The President noted that cheap power generation is integral to the development of Guyana. The US$110M Skeldon Modernisation Project will generate some 30MW of power from bagasse (sugar waste) burning.

Solar and wind energy power potential is also being explored.

The Government of Guyana is committed to finding new and cheaper sources of energy since it is integral to the development of the industrial sector.

Meanwhile, CGX Energy in collaboration with the Guyanese subsidiary, ON Energy will begin a five or six-hole drilling programme in the Berbice this month.

Additionally, there is heightened expression of interest in oil exploration in Guyana and the Guyana Geology and Mines Commission has spoken to several companies including REPSOL and EXXON about the possibility of exploration.

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