We talk a lot about OPEC and the US shale boom. But the hottest oil market in the world is the South American nation of Guyana, which has seen a massive amount of new discovery in recent years. This oil has made the country the fastest growing economy in the world. So what is the future of such a potentially major player in oil? And what are the prospects of Guyana avoiding the resource curse? On this episode of the podcast, we speak with oil historian Gregory Brew about the boom in Guyana, and the broader state of world oil markets. This transcript has been lightly edited for clarity.
Key insights from the pod:
How Guyana started booming — 6:15
Exxon’s relationship with the Guyana government — 9:50
What is the resource curse? — 13:28
How resource discoveries fail — 15:46
How a boom makes the resource curse worse — 23:39
Why the oil industry is so volatile — 31:09
Why uncertain demand is making oil more expansive — 34:40
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Joe Weisenthal: (00:10)
Hello, and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.
Tracy Alloway: (00:15)
And I'm Tracy Alloway.
Joe: (00:16)
All right Tracy. Trivia time... You probably already know the answer.
Tracy: (00:20)
I know the answer because you talked about this yesterday
Joe: (00:22)
Okay. Prior to yesterday, had I asked you, do you know the fastest GDP growing country in the world, would you have known the answer?
Tracy: (00:34)
I 100% would've said Guyana.
Joe: (00:39)
Would you really have known that?
Tracy: (00:41)
No, of course not. But now that I know it, I can't lie about it. I can't reverse engineer my lack of knowledge about Guyana, which is kind of surprising, you know, a relatively unknown South American country. People don't talk about it that much.
Joe: (00:56)
No, people do not talk about it that much, but it is the fastest growing economy in the world. I think they had a year of like 47% GDP growth or something like that recently. But where people are talking about Guyana a lot more specifically is in the energy industry, in the oil industry specifically, there's a lot of oil there and a lot of oil being discovered all the time. I think, you know, we talk about US supply a lot on the show, but outside the US I think, like almost all the oils being discovered in Guyana these days.
Tracy: (01:25)
I actually saw a tweet in the course of this research saying that since 2015, 1 out of every three barrels of new oil discovered has been in Guyana. And of course, there's a lot of interest in it right now, not just because it could be a potential source of additional crude at a time when the world seems to really need some extra oil, but also because it's the sort of new player in the market, right? It hasn't necessarily declared an allegiance to any one country or any one group of oil producing nations — I'm thinking of OPEC in particular, of course. And so it's sort of like, it kind of feels like it's up for grabs.
Joe: (02:02)
Yeah. So when we think about oil, we talk all the time about what's going on in US production. We talk about OPEC, talk about OPEC+ including Russia. But here is this new entity and it potentially could be very significant. And so it raises all sorts of interesting questions. What's it going to mean to the global oil market and the incredible GDP growth of Guyana right now, how sustainable is it? And what is the best prospect for the sort of oil riches to really translate into meaningful economic development for the country.
Tracy: (02:34)
So this is something I find very interesting because when we think of a lot of oil producing nations, or we think about countries that are blessed with lots of resources, we automatically start thinking about something known as the resource curse.
So even if you have a ton of valuable things that the rest of the world really wants, it doesn't automatically translate into really good economic growth. And in fact, over the course of history, a lot of countries that have been blessed with natural resources have experienced subpar development. So the question for a country like Guyana is, can it avoid the resource curse? And also in an environment where we're talking about commodity shortages, oil and gas shortages, things like that, does the resource curse still exist? Maybe things start to change now.
Joe: (03:21)
Yeah, that's a great question. And then of course, just how successfully will the country be in developing its own resources? Because you can have theoretically abundant resources, but it takes skill and it takes some sort of technical know-how to exploit your own natural resources. Anyway, I'm really excited about our guest. We are going to be speaking to a historian of oil, who's going to help us sort of contextualize and understand what's going on in Guyana and in the oil market more broadly. We are going to be speaking to Gregory Brew. He is a post-doctoral fellow at the Jackson School for Global Affairs at Yale University. And he is the author of two forthcoming books on oil, and we'll get to those, but let's bring him in. Gregory, thank you so much for coming on the podcast.
Gregory Brew: (04:10)
Hi Joe. Hi Tracy. Thanks so much for having me on.
Joe: (04:13)
Really excited to chat with you. So, let's just start, I mean, outside of a few conversations about energy, you don't hear much people talking about the fastest growing economy in the world, Guyana. But how big of a deal are they and these ongoing new discoveries that keep being made there in terms of the oil market?
Gregory: (04:33)
Yeah, so I think the statistic you threw out just a moment ago is accurate. I think in the last two years, Gyuana has in excess of 40% GDP growth, which is obviously just astounding. That's incredible. And the other statistic, which was noted was, yeah, since 2015, one out of every three new barrels that have been discovered worldwide have been discovered in Guyana, specifically off the coast.
So Guyana has been, I would argue, one of the most exciting oil stories of the last five or six or seven years. And it's really where a lot of the attention is on when you get outside of the United States, when you get off of the shale patch, places like the Permian or the Bakken or Marcellus shale fields, Guyana is really where the action is, especially for the companies that are involved there, like Exxon, Hess, Shell.
Tracy: (05:26)
Full disclosure, I think I got that stat about the oil barrels, one in every three oil barrels discovered having been in Guyana, I think I got that from your Twitter account.
Greg: (5:32)
I got it from Bloomberg, so, you know, I'm not pulling those numbers out of nowhere.
Joe: (05:41)
Very circular.
Tracy: (05:43)
All right. But actually, so I have a question on this. So I believe the oil in Guyana was discovered in 2015, and you already mentioned that most of it is offshore, maybe all of it is offshore. Why did it take so long? Like, was there new technology developed that made those oil reserves viable, or did no one know that they were there because, you know, I think about its geographic location, it's not that far away from Venezuela. We know Venezuela has oil, so why would we not have assumed that maybe Guyana does too?
Gregory: (06:15)
Yeah, absolutely. I think it stemmed from three core causes. The first was the government in Guyana got interested in opening up areas for oil exploration around 2002, 2003. So there was a local sort of policy change that opened areas up for exploration. I think there was a technological shift, like obviously deep water and offshore oil drilling has become much more advanced in the last 20 or 30 years.
You're able to conduct more sort of intensive seismic geological surveys, so finding oil is a little bit easier. But it was also just a function of majors like Exxon were interested in searching areas that other companies, other places hadn't really looked at. And Guyana was, you know, something of a new area.
But it did take a while. I think Exxon, which is sort of the major player here when you're looking at the companies that are involved down there, Exxon started looking offshore Guyana in about 2008. And I think drilling started in earnest in 2015. So it took a while and then, you know, really started coming on in 2017, 2019. So it took a while. You know, as we all know, there are pretty long lead times on greenfield oil exploration production, operations and Guyana was no different.
Tracy: (07:35)
Can I ask just one more sort of process question, but when we say that Exxon is the major player there and they decided to start exploring, how does it actually work? Does an oil company come to a government and they say, ‘Hey, we think there might be some oil under the ground or offshore or wherever we're interested in exploring it,’ and then they start doing that and then they get like a first mover advantage before other people start coming in? Or do they get exclusive rights? How does it work?
Gregory: (08:05)
Yeah, that's a great question. So, you know, historically, companies like Exxon, the big international companies, they have the resources to do this kind of exploration cuz they can go to a country like Guyana and say, ‘You know, if you give us a concession, if you give us rights to an offshore or an onshore bloc then we'll, you know, we'll pay a royalty, we'll give you a share of the profits once we've recouped our investment… So we'll put up the money, we'll search. If we find something, you'll get a piece of it. But if not, then we're really the ones who are on the hook here.’
The government doesn't really have to put up much up front. So the company is taking on the risk as far as the offshore fields are concerned, Exxon's down there working in a consortium of companies along with Hess, Total and Shell.
And that's, you know, that's just a way of spreading the risk around right? Even a big company like Exxon doesn't want to take on all the risk for a big offshore operation like in Guyana. So I think the stats, I mean, I think it's something like a 35% share is what Exxon has down there. I might be a little bit off on that, but as far as how it's splitting things up with the government, Exxon pays a 2% royalty and 50% of profits after recouping the investment. And now that they have earned back the money that they spent exploring and drilling, both Exxon and the government of Guyana are starting to make significant profit from the offshore operations.
Joe: (09:26)
So I've seen some stories and I'm not exactly sure what's going on, but is there some thought within the government there to just set up a state owned oil company and cut out these international majors? Because it's still like their oil, they set the laws. Like what is this sort of stance currently in terms of the future of this relationship?
Gregory: (09:50)
Right. So the relationship is still fairly new. You know, the operations have only really been ongoing for a couple of years. Guyana is a fairly small country. It has a population of about 800,000 people. I think a fairly small underdeveloped economy outside of the oil industry.
And I think as far as setting up a state owned oil company, I don't think the government is there yet. But I wouldn't be surprised if momentum started to build towards that. Because, you know, if you look at history, if you look at how these things have gone in places like Venezuela, Iran, Iraq, Saudi Arabia, generally speaking for foreign companies, very often American companies, they come in, they put up the investment, they do the exploration, they start production. And within a few years, a decade or so, the local government has built up the resources, the technical know-how, the proficiency that it needs to set up a national oil company and to start thinking like, ‘Hey, why do we need these foreign companies to do this? We can operate this industry ourselves.’
Then you start seeing momentum towards nationalization or taking a more significant share in the operation. I don't think that started yet, but I wouldn't be surprised if the momentum builds towards that in the next few years.
Tracy: (11:12)
So we've been talking about corporate interest in Guyana's oil. What about, I guess interest from a sort of sovereign/strategic/political level. If Exxon comes in, starts developing the oil, Exxon is an American company, does that like automatically equate to suddenly Guyana is gonna be America's new best friend and maybe a sort of offset for OPEC countries and Saudi Arabia, which doesn't seem to be playing ball with the Biden administration at the moment?
Gregory: (11:45)
I'm not sure if there's really much focus on that quite yet because it's still fairly early days. I think there, there is often an association that a company like Exxon works as an arm of US foreign policy. And that generally really isn't the case. Exxon Mobil, other US other major energy companies are in business for themselves. And they see operations like the operation in Guyana as a commercial operation. I don't know if the US government sees it that way. I don't know if there are discussions inside the Biden administration about getting closer to Guyana, trying to form a closer relationship with an eye towards developing a sort of relationship with non-OPEC oil producers.
But again, I wouldn't be surprised if we started seeing conversations like that. If the US relationship with OPEC continues to get frostier, continues to get more antagonistic, I think there will be more interest in that. Again, you know, as a historian, I'm always seeing parallels in history. And this is something that occurred in the 1980s when the US was very interested in moving away from reliance on OPEC. It formed closer relationships with places like Canada, Mexico, Norway, the United Kingdom. These sources of non-OPEC oil became much more important. So it's entirely possible that we could see something like that happen between the US and Guyana in the years ahead.
Joe: (13:07)
So let's stick with the history theme, your specialty. Is there another country throughout history that sort of has a parallel where for a long time maybe people weren't thinking of it as a power player and then it emerged very fast? And so when you see the rise of Guyana, does it make you think of anything else?
Gregory: (13:28)
Sure. I mean, you know, in preparing to come on today, I did some background reading. I refreshed myself a little bit on the history of things like the resource curse. You know, the Dutch Disease. The paradox all of that. And you really do see stark parallels between what is happening in Guyana and what happened in Venezuela, Saudi Arabia in the 1950s and 60s.
These were relatively, you know, you go back 60, 70 years, go back to say 1945, right? The end of World War II, Venezuela, Saudi Arabia, fairly small countries economically, fairly small populations, but as far as their footprint geopolitically or geo economically, they became very important very quickly to the global economy because of their status as major oil exporters.
So as far as where Guyana is headed, you know, as the operations continue to expand, you know, right now it's producing about 300,000 barrels a day. Within a year it could be producing a million. Within three or four years it could be producing 2 million. I mean, they've had to keep expanding the estimates of proven reserves as they find more and more oil. So, things could just keep going up from here. So I think there are definitely parallels between where Guyana is and where these sort of more mature or more sort of older petro states like Venezuela, Saudi Arabia, where they were 60 or 70 years ago. In many ways history does seem to be repeating itself.
Tracy: (14:53)
So one thing that has happened historically as well, is we do get these periods of excitement about a new commodity-producing nation. And the one that I can remember most recently was Mozambique and natural gas. And everyone got really excited, ‘Oh, they have all these gas reserves and they're going to be a new powerhouse on the global commodities markets.’
And, you know, fast forward many, many years, I was reading today that Mozambique is g onna send its first LNG shipment to Europe relatively soon, I think this month. And that's after years and years and years of people talking about Mozambique being the next big gas exporter. What are the sort of challenges or potential problems that can come on stream as resource production gets ramped up? Like, why do we have these periods of excitement only sometimes to be disappointed?
Gregory: (15:46)
Right, Absolutely. You know, very often when these big finds are made, when these big discoveries are made, there's an intense period of very high expectations, right? Where could this lead, you know, how could this develop into an even larger find? How do we transform reserves into exports, right? Because you need to manage the resource in order to develop it in order for it to grow, turn into something that could be exported.
And I think in the case of Guyana and other sort of early stage resource rich states, the question really comes down to local government, local resource management, and the relationship between the local government and foreign companies. So in some cases, I'm not too familiar with this Mozambique case, but in some cases there's a fairly early pushback from the local government to foreign companies.
You see expropriations, you see nationalizations, you see a local attempt to seize control of the resource at a very early stage. And that can sometimes lead to resource mismanagement. It can lead to capital being drained away, or in some cases being sort of scared off. And very quickly the expectations, the excitement drains away, and you're left with an industry, a resource that can't get off of its feet. And I think right now, in the course of doing research for this you know, for this appearance, I was reading a little bit about the Guyana’s government's attitude towards Exxon. And they're interested in maintaining a close relationship with Exxon.
They have a lot of grievances with Exxon's approach to things like royalty and tax payments. But they're very interested in maintaining this relationship because they want the resource to grow because they want exports to come on. They're worried about following the footsteps of a Mozambique or even a Venezuela where the oil industry has, you know, almost entirely collapsed in the last six or seven years as the result of various state management policies and that sort of thing. So, you know, there is this early period of excitement, but where it goes from here depends in large part on how the local government decides to act on the kinds of policies it tries to implement and on how it manages its relationship with the big foreign companies.
Joe: (17:59)
So I have two questions. The first one is kind of short, but when we talk about, okay, maybe in at some point Guyana could set up a state owned oil company…. does the existence of a state owned oil company preclude the possibility of Exxon having a significant role? Or could you have a state owned oil company in name, but still outsource a lot of operational decisions to a multinational with significant expertise?
Gregory: (18:26)
Yeah, absolutely. So generally how this has gone is after the initial discovery, after the early stage investment where you mostly have foreign companies operating in the industry, a national energy company is established, and then it proceeds to mature over the course of several years or decades, several decades. It develops technical expertise, it develops a professional workforce, and at some point it obtains a share of participation in the general industry. So it operates in partnership with companies like Exxon. In some cases there's a total expropriation, there's a total nationalization. Exxon is kicked out. the operations are taken over by the state oil company. But in other cases, you do see it sort of a transitional stage where there's more partnership, there's more participation between the state owned energy company and the foreign international. So that does happen, and I would imagine, you know, where the Guyana government currently is and where it wants to go.
I think in managing this resource, I wouldn't be surprised if that's the course they decide to take, establish a state owned firm, you know, gradually enter the operations, take on an increasing share and gradually nationalize the industry, keeping a role for, you know, foreign companies like Exxon to continue to grow the reserve, to continue to explore and to take advantage of the foreign technical expertise and the foreign capital, right? So even if even as they develop, you know, greater resources and greater earnings, they're still gonna be looking for foreign capital to further develop the industry.
Joe: (19:54)
So what does history say about the countries that have done this best, not just in terms of building out their domestic production, but distributing it widely so that you know, that you don't have the sort of resource curse/Dutch Disease phenomenon. What are the best examples of paths that countries have taken so that the benefits really do accrue across the country and you have widespread economic development?
Gregory: (20:19)
Absolutely. This is the big question, right? There are a few good examples. The classic example that people point to is Norway. Norway discovered offshore oil and gas in the late 1960s. By the 1980s/1990s, it was a major exporter. It's still a major exporter today, and yet it doesn't seem to have suffered from governance issues. It doesn't seem to have suffered from widespread state corruption. And it's been able to develop its resource efficiently. It's been able to distribute revenues in a, an acceptable and sort of equitable way.
Other examples would be the United Kingdom, which discovered oil in the late 1960s in the North Sea became a major exporter in the 1980s. But there really aren't many. In many cases where oil is discovered it doesn't generate the kinds of viable positive economic results you want to see.
And there are many reasons for that. And one of the reasons for it is that very often, and this is this is one of the more troubling aspects, very often the resource is controlled and dominated at an early stage by foreign capital. So foreign companies, they're interested in developing oil, they're not very interested in general national economic development, right? What they want to do is develop resources that they can produce profits from or return to their shareholders.
So in states like Guyana, or looking back into history states like Iran, Venezuela, Saudi Arabia, in early stages of the development of oil industries where you had an oversized role being played by foreign capital, you had these problems around governance, you had these problems around corruption and a lack of adequate economic development appearing at an early stage. And, you know, once they had matured, once they had become sort of set in stone, it was very difficult for national governments to correct them.
So the problem of what role foreign capital can play in this the so-called resource curse is something that I have a great interest in as an academic, as a scholar. But I think it's also something that governments like Guyana are conscious of. How do we manage this resource adequately on a national level while still retaining the support of foreign capital that we need to develop our industry, knowing that foreign capital may not share our same political, economic and social interests in the development of that resource? That's a huge question that has faced states throughout the 20th century and faces today.
Tracy: (22:44)
So I realized in the intro, I said, well, maybe things are different and the resource curse doesn't exist anymore because everyone needs oil. But actually you could very easily argue it the other way around and say, since people need more oil prices are higher, you're going to get even more interest in the scarce commodity. And I have heard a really basic analogy for the resource curse. I've heard people compare it to a lottery. So the same thing that happens to someone who wins a big Powerball prize, you know, rarely does that actually lead to a good outcome for them in terms of standards of living.
Joe: (23:19)
I would be different.
Tracy: (23:20)
Me too. I'm sure we would all be very different. Okay, great, we've established that. But does an era of resource scarcity, does that maybe make the danger of a resource curse more acute?
Gregory: (23:39)
That's a good question. I think it can, and I think part of the reason that it can is that the problems associated with the resource curse often become worse if the price of said resource is perceived to be high and is expected to rise in future years, right? So the temptation to develop a dependence on this resource is very easy to accept. If you think like, well, this is selling, you know, this is selling for $80 a barrel now, but as it becomes more scarce moving forward, it's going to sell for a hundred and $120 a barrel in the future. We would be fools not to grow this industry, right? We would be fools not to invest in it. So I think the expectation of scarcity, or the expectation, let's say, of high prices can encourage the development of the resource curse.
But that leads to even bigger problems, which is this the problem of volatility, right? If your national economy is based around an export, right, that you hope will retain its value, then you're surrendering your economic agency to the vagaries of a market, right? A producer, even a prolific producer like Guyana, can't be expected to, you know, exert influence over the global price of oil, at least, you know, outside of a very marginal impact. They're essentially surrendering their economic fortunes to the global oil market. So that's sort of inherent to the dilemma of the resource curse, the dilemma of resource-exporting nations like Guyana. And I imagine it's going to raise some difficult questions for Guyana and lawmakers policy makers as they sort of continue to grow their national industry.
Joe: (25:25)
So since you mentioned the boom-bust of oil, I think that's a good opportunity to sort of broaden things out a little bit. But before we do, what is the prospect of a future relationship between Guyana and OPEC? It's not currently a member of OPEC, could it be at some point in the future? What would have to happen for it to become one, and were it to be become a member of OPEC, put it in context of where it would stand versus some other exporters, other big players.
Gregory: (25:53)
Right. So an important thing to know about OPEC is its membership has always been changing. It was founded in 1960 by core members Saudi Arabia, Iran, Iraq, Kuwait, and Venezuela. It was later joined by countries like Libya, Algeria, later countries like, Indonesia, Ecuador you know, so it's broadened its membership over the course of the last several decades. In some cases, members have left, you know, Qatar is no longer a member of OPEC.
So the membership of OPEC has been changing. For Guyana to join OPEC, it would need to develop what we discussed earlier, which is a national oil company. It would have to develop sort of a national oil ministry. It would need to have a slightly more advanced infrastructure around governing its resource, because an important part of how OPEC works is the management of oil, not only on a national level, but on an international level.
So I wouldn't close the door on Guyana joining OPEC at some point in the future. I think we're some ways away from that happening. I think to join now this is of course contingent on how Guyana’s oil production develops. Guyana would be a fairly important member of OPEC were it to reach a point where it's producing and exporting upwards of a million, even a million and a half barrels a day, that would place it, uh, you know, that would place it along the lines of countries like Iraq, uh, and Iran that are exporting that much.
And again, as Guyana's reserves grow, which is an even more important question. Right now, it's reserves are estimated around 11 billion barrels, but that number has grown quite significantly over the last several years. So as its reserves grow, then its role within the international oil economy and its potential role in OPEC could become even more significant.
Tracy: (27:45)
Can you remind me, why can't the US join OPEC? Is it price fixing law, something like that? I'm just thinking the US has an interest in smoothing oil booms and bust, so may maybe they can join OPEC too. No, I know they can't. But why is that?
Gregory: (28:00)
Well this is funny, the meeting that Joe referenced that we were at last week I gave a little talk about oil policy and the oil dilemma facing the United States, and someone in the room asked, ‘how does the US solve its problem?’ And I said, ‘Well, the US could join OPEC. That would solve the problem.’ No, I think there are obviously a number of reasons. Antitrust law is one of them. The other one is, you know, sort of a basic question of oil policy. The US has no national oil company. It has really no national oil policy. It has hundreds of private companies that manage oil resources according to commercial incentives, market incentives. In the past, the US has had production management policies that in many ways mirror what OPEC does.
Joe: (28:46)
Wasn't OPEC like inspired by the Texas Railroad Commission? Didn't Texas sort of invent OPEC?
Gregory: (28:53)
Yeah. Abdullah Tariki, one of the founders of OPEC, imagined a pro-rationing scheme by which OPEC could manage global oil production. And he modeled his scheme on the TRC, on the Texas Railroad Commission.
Joe: (29:06)
I took a class in college on the history of Texas oil. And that’s the one fact that I remembered, I don't remember anything else about the class, but I do remember that the Railroad Commission was sort of an inspiration for OPEC. So I'm glad I got a chance to use that professionally.
Gregory: (29:21)
The famous Texas institution with the funny name that does something completely different from what it sounds like. Yeah, the Texas Railroad Commission used to manage Texas oil. But yeah, I mean, the United States had mandatory import quotas. It had pro rationing in production in Texas and the Louisiana and Oklahoma. You know, it used to have a lot of oil management, oil production management policies that it no longer really has.
So I think, you know, the question of whether or not the US could join OPEC is sort of neither here nor there, but could the US and OPEC work together on managing the global supply, the global price of oil? That, I imagine, could be a possibility. It would take, you know, quite a lot to happen. It would take quite a change in the relationship between the United States and OPEC, but I could certainly see it developing in the future as the US grows into a more important, oil exporter, oil producer.
Tracy: (30:15)
So it's not really about whether or not they could join OPEC, but the fact that we're even talking about it kind of highlights this ongoing problem for America. And maybe that's our cue to get back into the boom bust stuff. So we have spent the better part of this year talking about ways to bring down oil prices, whether it's oil companies just ramping up production or whether or not it's something more, I guess complex like the derivatives solution, the hedging solution that Skanda Amarnath proposed and successfully, you know, got accepted by the Biden administration. But maybe we just jump to the big question. Is there something about oil that makes it inherently cyclical? Is this always going to be a cyclical industry? Are there limits to the extent to which we can actually smooth those cycles?
Gregory: (31:08)
Yeah, I think there's sort of an inherent volatility to the oil industry, and it's based on just how oil is produced, right? And when I say produced, what I really mean is mined. Oil is in some ways a mineral that's mined from the earth. The problem with producing oil — mining oil — is that you can't store it very effectively. And once you start producing it, it's hard to stop, right?
So you can move through periods of scarcity and into periods of abundance or oversupply very easily, because managing production can be very difficult. You have a constant chase for revenue, for profit because you need to recoup your investment. Oil is famously a very expensive industry to get into. It's very expensive. It's very costly to develop a field. But once you do develop that field, you can produce large amounts of oil very quickly, potentially flooding the market.
So historically, you know, looking back to the early days of the industry, the 1870s, the 1880s, where in many cases producers would take the oil that they produced from their drills and they would flood fields with it because they had no market for it. They had nowhere to store it. You see a recurrence of this boom-bust cycle throughout the history of oil. But what you also see are efforts by entities like the Texas Railroad Commission, by OPEC, and by the current alignment of OPEC+, you see efforts to stabilize that boom-bust volatility, efforts to stabilize the cycle. I think saying that it's sort of naturally cyclical is a little hard for me to accept because of these constant efforts to moderate that volatility. In many ways, the oil industry can't really function without some effort to mitigate the inherent volatility.
One of the major problems that everyone has had to grapple with has been the return of the United States as a major oil exporter because of what I mentioned before, the US has no central oil ministry. It can't go to OPEC and talk about pro-rationing production control. President Biden can give a speech where he talks to oil and gas companies, but at the end of the day, he has very little control over domestic oil production. So this is a big problem, right? How do you manage a a volatile global oil market when your biggest producer has no control?
Joe: (33:32)
I wanted to talk more about this point exactly, because I think when the US oil industry really started booming like crazy in the last decade, there was probably some optimism that like, ‘Oh, we're no longer gonna be dependent on foreign oil.’
Tracy: (33:50)
Oil independence. Trump was talking about it all the time.
Joe: (33:53)
Yeah, oil independence. And that oil independence seemed like it was gonna be great, and for a while, obviously the price of oil plunge, but now it's really expensive again. And so even with all of the US capacity either currently producing or available to produce, it doesn't seem like it's done anything to curb the boom-bust cycles. And to listen to you, it sounds like it's very unnatural and ahistorical to have a significant amount of oil out on the global market that is not subject to some sort of curbs setting aside, like the selling of the SPR. Like that is just very unusual to have this, I guess now Guyana would be part of this, but now there is a lot more and more oil that just isn't part of any production management plan.
Gregory: (34:40)
Absolutely. You know, there's the US oil that's being pumped to the market. There's also a tremendous amount of sanctioned oil that's being moved through the global market at discounted prices. It's being moved through illicit market channels. You have actors like Russia, Venezuela, Iran, that are trying to evade Western sanctions by selling oil through sort of illicit means.
So that's creating, you know, greater uncertainty and that's making control even harder, right? It's making mitigating volatility even harder. So yeah, looking back through history, you constantly see efforts by various state, international or even local actors to try to control this flow. You saw efforts by major western oil companies in the fifties and sixties to moderate production to try to make sure that supply could match demand. And we don't have a similar structure, a similar system for managing that. And the additional problem is that in the past, you know, the past 30 years, it was possible to manage supply with demand because you knew the demand was going to increase in the years ahead. And that is no longer a certainty.
If anything, we're certain the demand is going to decline. So that's making it a lot harder for private companies, but also for OPEC members to know how much they need to invest, to know how much they need to produce, because there's great uncertainties about the availabilities of markets moving forward. If anything shortage of market is going to be a bigger problem than shortage of supply.
Joe: (36:06)
Imagine going back 10 years ago and saying, ‘We're gonna have an EV revolution and the US is gonna be this huge producer and oil is gonna get more expensive because all those things.’ That would've like broken so many minds. But that's exactly what happened. Gregory Brew, it’s such a treat to have you on. I learned so much in that 40 minutes. Really appreciate you coming on Odd Lots.
Gregory: (36:26)
Thank you so much. It was great.
Joe: (36:41)
Tracy. I really feel like I learned a lot in that episode.
Tracy: (36:44)
Oil history is fun.
Joe: (36:45)
Yeah. And Gregory is really good at talking about it and contextualizing it. But I do want to start with that last point because it is pretty wild to think, we had this huge US oil boom in the last decade. It become the biggest oil producer in the world. We had the EV revolution, which everyone expects is going to curb demand. And yet here we are with like the cost of gasoline surging.
Tracy: (37:07)
Everyone was wrong.
Joe: (37:09)
Everyone was wrong in all of like the most unexpected ways. This is so weird.
Tracy: (37:12)
The other thing I thought that really stood out to me was his point about how we know that the US has come online as a big oil producer, but actually they don't have a lot of ways to control production, which causes problems for the rest of the world. I mean, especially in 2013 when we had the shale revolution and then prices collapsed. We saw a lot of that. But now it's the opposite problem, right? Like, how do we get everyone to actually start pumping oil?
Joe: (37:38)
And you know, there's a lot of people, it's like, ‘Oh, we need to pump more oil in the US’ and it's like, why isn't the White House doing more to boost domestic oil? And I don't think it's impossible to think that the White House has levers it can pull that it hasn't. But there's no national company. But it’s not like OPEC countries where they can say, ‘Okay, we're gonna expand our daily quota to a hundred a thou a hundred thousand more barrels like that.’ There's just no equivalent of that here.
Tracy: (38:00)
Right, and telling private companies what to do is not historically a very like, successful American political strategy, I think. That was fascinating. And now I'm going to be following Guyana’s economic trajectory for years.
Joe: (38:14)
I think the cool thing about that and was very helpful is we know that there's so many countries, as Gregory talked about, that have gone through a similar trajectory or a similar path, find a lot of oil, figure out how to manage the relationship between the domestic interests and the foreign multinationals interest. So it'll be very interesting to see if with the knowledge of so much history of other countries that have gone this route, whether Guyana can maintain, you know, this extremely rapid economic growth and whether it could be high quality, well distributed growth.
Tracy: (38:44)
You know, the other thing I was thinking about, one of the persistent commodity mysteries to me has always been Morocco and its fertilizer reserves. I think it has like the world's biggest supply of phosphates or something. And yet it never actually seems to translate into a significant economic boom.
Joe: (39:03)
Let's do a...
Tracy: (39:04)
Moroccan fertilizer episode? Okay. All right. Anyone know any Moroccan phosphate experts, please let us know. Shall we leave it there?
Joe: (39:12)
Let's leave it there.
You can follow Gregory Brew on Twitter at @gbrew24.