The Major Oil Story Markets Have Missed

A Big Day for Guyana, A Huge Day for New Oil

While it's difficult to tear oneself away from the effects of the spreading coronavirus on global oil demand as the most significant fundamental oil story of the week, don't forget about Guyana - our newest major offshore venue that defined the past year of fantastic frontier discoveries. What happens next could rock the rig for Exxon, its partner Hess, and the entire nation-in-waiting.

Guyana voted in presidential elections Tuesday, and by late Wednesday, both of the country's two main political parties were claiming victory. For the oil market, it doesn't particularly matter which of the parties wins as both are eager to exploit the new finds. But the current situation should have Exxon and its partners on edge.

The parties are strictly divided along ethnic lines - Afro-Guyanese and Indo-Guyanese - and each wants control of the brand new oil revenues are about to come pouring in with first production that has already begun - ahead of schedule - courtesy of Exxon. These elections aren't about determining whether the deal cut with Exxon to tap into Guyana's offshore potential was too sweet, to the detriment of the country. Yes, there's been a lot of talk about this deal and attempts to tie it to corruption. There's also been a lot of speculation that the deal could be changed, tweaked or otherwise dramatically reinvented depending on who ends up winning the elections. None of this speculation is realistic. Neither party has any intention of messing with this deal, but they will negotiate future deals on better terms - and that's how things work with exploration and production in a new, frontier venue.

What could rock the boat is post-election violence that would lead to overall instability.

It is, after all, a very close race. Incumbent President David Granger and the ruling Partnership for National Unity and the Alliance for Change (ANPU-AFC) have a dangerously small parliamentary majority going into it all. And the prize for the party that wins is bigger than ever before.

We will be watching these developments closely.

An Oil Giant With A Real Carbon-Cutting Plan

Finally, we have an oil and gas giant with an actual plan for significantly slashing its carbon footprint - and it's not just smoke and mirrors designed to sound good but lacking any details. It's Italian giant Eni's plan, and it actually makes sense. 

Eni's goal is to shift its business away from oil and focus more on natural gas, while bumping energy services (gas stations, electricity production) at the expense of drilling. And, of course, the plan is to invest more in renewable energy, as well. But the plan gets even more specific than this: In order to make this happen, Eni is actually going to drill more and produce more fossil fuels from now until 2025. So, between now and 2025, Eni will shoot to boost oil and gas production by 3.5%. After that, it will flat-line and then start to ramp down. 

What this means is that Eni is about to go on a drilling binge in order to afford its carbon-cutting plan. It's going to make more carbon in order to fund making less. 

The plan will be highly criticized by climate activists, of course. But it's the first honest plan anyone's heard. It's the first plan that offers details that actually make sense in this market. Other giant oil and gas plans to fight carbon footprints may lack details, or those details are not shared with the public. It may sound better to say a fossil fuels giant is going carbon neutral by 2050, but when no one knows how they're going to do it, it's nothing but smoke and mirrors. Eni has a plan, and it makes sense.