Taking into consideration, the unrelenting economic blows being unleashed by the rise in new COVID-19 cases as well as the fact that the International Maritime Organization has required ships to reduce sulphur emissions by 80%, it is clear that only a few producing countries will be able to emerge as survivors.
Two nations that will be able to do so will be Guyana and Brazil says Arthur Deakin, the co-director of energy practice at Americas Marketing Intelligence (AMI).
In the Latin American region, Deakin opined that stricter fuel emission policies and tighter environmental controls have increased the demand for light, sweet, crude oil, a fuel with low sulfur content that is less harmful to the ecosystem.
In this regard, he said that Brazil and Guyana, Latin American countries with high quality crude, have an abundance of clean oil and will benefit from this regulatory shift that came into effect this year.
On the other hand, Deakin was keen to note that Venezuela, Colombia, Ecuador and Peru, which tend to produce heavy sour crude, are seeing demand plummet.
In fact, Colombia’s rig count, a good indicator of oil activity, was down 59% in September compared to the same month in 2019. Venezuela, who is also struggling with U.S. sanctions, saw oil production hit a historic low in October 2020.
Expounding further, the analyst in his recent writings articulated that Latin American countries producing heavier crude are also suffering from lower oil prices and higher breakeven costs, subsequently limiting foreign investment in exploration and production (E & P). He said that Colombia, for example, saw a 37% decline in foreign direct investment (FDI) in its hydrocarbons sector. In Peru, FDI fell 72% in the first semester as the country shut down its economy.
“If foreign investors can’t book a profit because the price of oil is lower than the cost of extracting it from the ground, they are likely to turn to other jurisdictions. Lower investment in E & P also tends to cut into future oil production, as there is a delay in technological investments and less explored territory,” the analyst expressed.
While producers of heavy crude attempt to regain their footing in a changing global environment, Deakin said that Brazil and Guyana are capitalizing on their lower breakeven costs and high-quality petroleum.
He highlighted that Petrobras, Brazil’s state-owned oil company leading the country’s pre-salt exploration, exported a record amount in April 2020, most of which went to China who is seeking cleaner fuel.
As for Guyana, with an estimated 9 billion barrels of oil and a current breakeven price of US$35/barrel, Deakin said this nation is also ramping up production as one of the cheaper options in the region. For its second phase of oil development, the Liza Unity, the breakeven cost will fall to US$25/barrel.
Taking these factors into consideration, low breakevens and the abundance of clean oil, Deakin said Guyana and Brazil are poised to be competitive players in this COVID-19 era and beyond.
