Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wisenthal and I'm right, Tracy Trivia time. You
Speaker 1: already know the answer. I know the answer because you
Speaker 1: talked about this yesterday. But but prior, okay, okay, prior
Speaker 1: to yesterday, yes had I asked you, do you know
Speaker 1: the fastest GDP growing country in the world, would you
Speaker 1: have known the answer, I would have said, wait for it, Guianna.
Speaker 1: Really did you really know that? No, of course not.
Speaker 1: But now that I know it, I can't lie about it.
Speaker 1: I can't reverse engineer my lack of knowledge Guiana, which
Speaker 1: is kind of surprising, you know, relatively unknown South American country.
Speaker 1: People don't talk about it that much. People do not
Speaker 1: talk about it that much, but it is the fastest
Speaker 1: growing economy in the world. I think it was like
Speaker 1: they had a year of like for GDP growth or
Speaker 1: something like that recently. But where people are talking about
Speaker 1: Guiana a lot more specifically is in the energy industry.
Speaker 1: In the oil industry specifically, there's a lot of oil
Speaker 1: there and a lot of oil being discovered all the time.
Speaker 1: Like I think, you know, we talked about us supply
Speaker 1: a lot on the show. But outside the US, I
Speaker 1: think like almost all the oil is being discovered in
Speaker 1: Guiana these days. Yeah. I actually saw a tweet in
Speaker 1: the course of this research saying that since one out
Speaker 1: of every three barrels of new oil discovered has been
Speaker 1: in Guiana. And of course there's a lot of interest
Speaker 1: in it right now, not just because it could be
Speaker 1: a potential source of additional crude at a time when
Speaker 1: the world seems to really need some extra oil, but
Speaker 1: also because it's the sort of new player in the market.
Speaker 1: Right It hasn't necessarily declared an allegiance to anyone country
Speaker 1: or anyone group of oil producing nations. I'm thinking of
Speaker 1: OPEC in particular, of course, and so it's sort of
Speaker 1: like it kind of feels like it's up for graps. Yeah.
Speaker 1: So when we think about oil, we talk all the
Speaker 1: time about what's going on in US production. We talked
Speaker 1: about OPEC, talked about OPEC plus including Russia. But here
Speaker 1: is this new entity and potentially could be very significant,
Speaker 1: and so it readsones all sorts of interesting questions. What's
Speaker 1: it going to mean to the global oil market and
Speaker 1: what are you know? Okay, the incredible GDP growth of
Speaker 1: Guiana right now, how sustainable is it and what is
Speaker 1: the best prospect for the sort of oil ridges to
Speaker 1: really translate into meaningful economic development from them? Right? So
Speaker 1: this is something I find very interesting because when we
Speaker 1: think of a lot of oil producing nations, or we
Speaker 1: think about countries that are blessed with lots of resources,
Speaker 1: we automatically start thinking about something known as the resource curse.
Speaker 1: So even if you have a ton of valuable things
Speaker 1: that the rest of the world really wants, it doesn't
Speaker 1: automatically translate into really good economic growth. And in fact,
Speaker 1: over the course of history, a lot of countries that
Speaker 1: have been blessed with natural resources have experienced subpar development.
Speaker 1: So the question for a country like Giana is cannot
Speaker 1: avoid the resource curse? And also in an environment where
Speaker 1: we're talking about commodity shortages, oil and gas shortages, things
Speaker 1: like that, does the resource curse still exist? Maybe things
Speaker 1: start to change now, Yeah, that's a great that's a
Speaker 1: great question. And then of course, just how successfully will
Speaker 1: the country be in developing its own resources, Because you
Speaker 1: can have theoretically abundant resources, but it takes skill and
Speaker 1: it takes some sort of you know, basic you know,
Speaker 1: a certain like their degrees to which how well a
Speaker 1: country can exploit their own natural resources. Anyway, I'm really
Speaker 1: excited about our guests. We're going to be speaking to
Speaker 1: a historian of oil who's going to help us sort
Speaker 1: of contextualize and understand what's going on in Guiana and
Speaker 1: in the oil market more broadly. We're gonna be speaking
Speaker 1: to Gregory brew. He is a postdoctoral fellow at the
Speaker 1: Jackson School for Global Affairs at Yale University and the
Speaker 1: and he is the author of two forthcoming books on
Speaker 1: oil and we'll get to those, but let's bring him in. Gregory,
Speaker 1: thank you so much for coming on the podcast. Hi Joe,
Speaker 1: Hi Tracy, thanks so much for having me on. Yeah,
Speaker 1: really excited to chat with you. So let's just start.
Speaker 1: I mean, like, outside of a few conversations about energy,
Speaker 1: you don't hear much people talking about the fastest growing
Speaker 1: economy in the world Guiana. But how big of a
Speaker 1: deal are they and these ongoing new discoveries that keep
Speaker 1: being made there in terms of the oil market. Yeah,
Speaker 1: So I think the statistics he throughout just a moment
Speaker 1: ago is accurate. I think the last two years, Guiana
Speaker 1: has an access of GDP growth, which is obviously just astounding,
Speaker 1: it's incredible. Yeah. And the other statistic which was noted was, Yeah,
Speaker 1: since one out of every three new barrels that have
Speaker 1: been discovered worldwide have been discovered in Guiana, specifically off
Speaker 1: the off the coast and offshore off were blocked. So
Speaker 1: Guiana has been, I would argue, one of the most
Speaker 1: sort of exciting oil stories of the last five or
Speaker 1: six or seven years. And it's really where a lot
Speaker 1: of the attention is on UM when you get outside
Speaker 1: of the United States, when you get off of the
Speaker 1: shale patch places like the Permian or the Bakin or
Speaker 1: Marcella shale fields, Guiana is really where the action is,
Speaker 1: especially for you know, for the companies that are involved
Speaker 1: there like Egson has Shale Totel. Yeah, full disclosure. I
Speaker 1: think I got that stat about UM the oil barrels
Speaker 1: one in every three oil barrels UH discovered having been
Speaker 1: in Guiana. I think I got that from your Twitter account,
Speaker 1: so from Bloomberg. Yet you know I'm not holding those
Speaker 1: bets very circular. Yeah, all right, but actually so I
Speaker 1: have a question on this. So I believe the oil
Speaker 1: Indiana was discovered in twenty fifteen, and you already mentioned
Speaker 1: that most of it is off shore, maybe all of
Speaker 1: it is off shore. Why did it take so long,
Speaker 1: Like was there new technology developed that made those oil
Speaker 1: serves viable or did no one know that they were there?
Speaker 1: Because you know, I think about its geographic location. It's
Speaker 1: not that far away from Venezuela. We know Venezuela has oil,
Speaker 1: so why would we not have assumed that maybe Kean
Speaker 1: it does too. Yeah. Absolutely, I think it stemmed from
Speaker 1: three sort of core causes. U. The first was the
Speaker 1: government in Guiana got interested in opening up areas for
Speaker 1: oil exploration around two thousand to two thousand three, so
Speaker 1: there was a local sort of policy change that opened
Speaker 1: areas up for exploration. I think there was a technological shift,
Speaker 1: like obviously deep water and offshore oil drilling has become
Speaker 1: much more advanced in the last twenty thirty years. You're
Speaker 1: able to conduct more sort of intensive seismic geological surveys,
Speaker 1: so finding oil is a little bit easier. Um. But
Speaker 1: it was also just a function of majors like Exxon.
Speaker 1: We're interested in searching areas that a companies other places
Speaker 1: hadn't really looked at, and Guiana was you know, something
Speaker 1: of a of a new area, but it did take
Speaker 1: a while. I think eggs On, which is sort of
Speaker 1: the major player here when you're looking at the companies
Speaker 1: that are involved down there. Exson started looking offshore Guiana
Speaker 1: in about two thousand and eight. Uh, and I think
Speaker 1: you know, drilling started an earnest in, so it took
Speaker 1: a while and then you know, really started coming on in.
Speaker 1: So it took a while. You know, as we all know,
Speaker 1: there are pretty long lead times on greenfield oil exploration
Speaker 1: production operations, and Guiana was no different. Can I ask
Speaker 1: just one more sort of process question. But when we
Speaker 1: say that Exon is the major player there and they
Speaker 1: decided to start exploring, how does it actually work. Does
Speaker 1: you know an oil company comes to a government and
Speaker 1: they say, hey, we think there might be some oil
Speaker 1: under the ground or offshore or wherever. We're interested in
Speaker 1: exploring it. And then they start doing that and then
Speaker 1: they get like a first mover advantage before other people
Speaker 1: start coming in, or do they get exclusive rights. How
Speaker 1: does it work? Yeah, that's a great question. So you know,
Speaker 1: historically companies like Exon, you know, the big international companies,
Speaker 1: they have the resources to do this kind of exploration
Speaker 1: because they can go to a country like Guiana and say,
Speaker 1: you know, if you give us a concession, if you
Speaker 1: give us rights to an offshore or an onshore block,
Speaker 1: then we'll, you know, we'll pay a royalty, We'll give
Speaker 1: you a sheriff the profits once we've recouped our investment. Right,
Speaker 1: so we'll put up the money, will search. If we
Speaker 1: find something, you'll get a piece of it. But if not,
Speaker 1: then we're really the ones who are on the hook here.
Speaker 1: The government doesn't really have to put up much upfront.
Speaker 1: The company is taking on the risk. Um as far
Speaker 1: as the offshore fields are concerned. Exons down there working
Speaker 1: in a consortium of companies along with hash Hess, Total Shell,
Speaker 1: and that's you know, that's just a way of spreading
Speaker 1: the risk around, right. A big even a big company
Speaker 1: like Exon, doesn't want to take on all the risk
Speaker 1: for a big offshore operation like Guiana. So I think
Speaker 1: the stats, I mean, I think it's something like a
Speaker 1: thirty five percent share is what Exxon has down there.
Speaker 1: I might be a little bit off on that, but
Speaker 1: as far as how it's splitting things up with the government,
Speaker 1: Exon pays a two percent royalty and profits after recouping
Speaker 1: the investment. And now that they have you know, now
Speaker 1: that they have done, they've earned back the money that
Speaker 1: they spent exploring and drilling. Both Eggson and the government
Speaker 1: of Guiana are starting to make a significant profit from
Speaker 1: the off shore operations. So I've seen some stories and
Speaker 1: I'm not exactly sure what's going on, but is there
Speaker 1: some thought within the government there to just set up
Speaker 1: a state owned oil company and cut out these international
Speaker 1: majors because it's still like their oil they set the laws, Like,
Speaker 1: what is this sort of stance currently in terms of, uh,
Speaker 1: the sort of future of this relationship. I guess i'd
Speaker 1: put it right. So the relationship is still fairly new,
Speaker 1: you know, We're operations have only really been on going
Speaker 1: for a couple of years. Guiana is a fairly small country.
Speaker 1: It has a population of about eight hundred thousand people.
Speaker 1: I think a fairly small, underdeveloped economy outside of the
Speaker 1: oil industry. Uh. And I think as far as setting
Speaker 1: up a state owned oil company, I don't think the
Speaker 1: government is there yet, but I wouldn't be surprised if,
Speaker 1: you know, if momentum started to build towards that because
Speaker 1: you know, if you look at history, if you look
Speaker 1: at how uh these things have gone in places like Venezuela, Iran, Iraq,
Speaker 1: Saudi Arabia. Generally speaking, for foreign companies, very often American companies.
Speaker 1: They come in, they put up the investment, they do
Speaker 1: the exploration, they start production, and within a few years
Speaker 1: a decade or so, the local government has built up
Speaker 1: the resources, the technical know how, the proficiency that it
Speaker 1: needs to set up a national oil company and to
Speaker 1: start thinking like, hey, why do we need these foreign
Speaker 1: companies to do this. We can operate this industry ourselves.
Speaker 1: Then you start seeing momentum towards nationalization or taking a
Speaker 1: more significant share in the operation. I don't think that's
Speaker 1: started yet, but I wouldn't be surprised if the momentum
Speaker 1: builds towards that in the next years. So we've been
Speaker 1: talking about corporate interest in Guiana's oil. What about I
Speaker 1: guess interest from a sort of sovereign strategic political level.
Speaker 1: If Exxon comes in starts developing oil, Exxon is an
Speaker 1: American company, does that like automatically equate to suddenly Gianna
Speaker 1: is going to be America's new best best friend, and
Speaker 1: maybe a sort of offset to UM. You know, OPEC
Speaker 1: countries in Saudi Arabia, which doesn't seem to be playing
Speaker 1: ball with the Biden administration at the moment. I'm not
Speaker 1: sure if there's really much focused on that quite yet,
Speaker 1: because it's still fairly early days. UM I think, you know,
Speaker 1: I think there is often an association that a company
Speaker 1: like Eggson works as an arm of US for policy,
Speaker 1: and that generally really isn't the case. Ex on Mobile,
Speaker 1: other U other major energy companies aren't in business for themselves,
Speaker 1: and they see operations like the operation in Guiana as
Speaker 1: a commercial operation. I don't know if the US government
Speaker 1: sees it that way. I don't know if there are
Speaker 1: discussions inside the Biden administration about getting closer to Guiana,
Speaker 1: trying to form a closer relationship with an eye towards
Speaker 1: developing you know, as you say, sort of relationships relationships
Speaker 1: with non OPEC oil producers. But again, I wouldn't be
Speaker 1: surprised if we started seeing conversations like that. If the
Speaker 1: US relationship with OPEC continues to get frostier, continues to
Speaker 1: get more antagonistic, I think there will be more interest
Speaker 1: in that. Again, you know, as a historian, I'm always
Speaker 1: seeing parallels in history, and this is something that occurred
Speaker 1: in the nineteen eighties, when the US was very interested
Speaker 1: in moving away from reliance on opec. It formed closer
Speaker 1: relationships with places like Canada, Mexico, Norway, the United Kingdom.
Speaker 1: These sources of non opec oil seem much more important.
Speaker 1: So it's entirely possible that we could see something like
Speaker 1: that happened between the US and Guiana in the years ahead.
Speaker 1: So let's stick with the history theme your specialty. Is
Speaker 1: there another country throughout history that sort of has a
Speaker 1: parallel where for a long time, maybe people weren't thinking
Speaker 1: of it as a power player, and then it emerged
Speaker 1: very fast. And so when you see the rise of Guiana,
Speaker 1: does it make you think of anything else? Sure? I mean,
Speaker 1: you know, in preparing to come on today, I did
Speaker 1: I did some background reading. I refreshed myself a little
Speaker 1: bit on the history of things like the resource curse,
Speaker 1: you know, the Dutch disease, the paradox and plenty all
Speaker 1: of that. And you really do see stark parallels between
Speaker 1: what is happening in Guiana and what happened in Venezuela,
Speaker 1: Saudi Arabia in the nineteen fifties and sixties, these were
Speaker 1: relatively you know, you go back sixty seventy years, go
Speaker 1: back to say, right the end of World War Two, Venezuela,
Speaker 1: Saudi Arabia fairly small countries economically, fairly small populations, but
Speaker 1: as far as their footprint geo politically or or you know,
Speaker 1: sort of geoeconomically, they became very important, very quickly to
Speaker 1: the global economy because of their status as major oil exporters.
Speaker 1: So as far as where Guiana is headed, you know,
Speaker 1: as the operations continue to expand. Right now it's producing
Speaker 1: about three thousand barrels a day. Within a year, it
Speaker 1: could be producing a million. Within three or four years,
Speaker 1: it could be producing two million. I mean, it had
Speaker 1: to keep expanding the estimates of proven reserves as they
Speaker 1: find more and more oil, so you know, things could
Speaker 1: just keep going up from here. So I think there
Speaker 1: are definitely parallels between where Guiana is and where these
Speaker 1: sort of more mature or more sort of older petro
Speaker 1: states like Venezuela Saudi Arabia where they were sixty or
Speaker 1: seventy years ago. In many ways, history does seem to
Speaker 1: be repeating itself. So one thing that has happened historically
Speaker 1: as well, is we do get these periods of excitement
Speaker 1: about a new commodity producing nation, And the one that
Speaker 1: I can remember most recently was Mozambique and natural gas,
Speaker 1: and everyone got really excited, Oh, they have all these
Speaker 1: gas reserves and they're going to be a new powerhouse
Speaker 1: on the global commodities markets. And you know, fast forward
Speaker 1: many many years. I was reading today that Mozambique is
Speaker 1: going to send its first l en G shipment to
Speaker 1: Europe relatively soon, I think this month. And that's after
Speaker 1: years and years and years of people talking about Mozambique
Speaker 1: being the next big gas exporter. What are the sort
Speaker 1: of challenges or potential problems that can come on stream
Speaker 1: as resource production gets ramped up? Like why do we
Speaker 1: have these periods of excitement only sometimes to be disappointed? Right? Absolutely, so,
Speaker 1: you're absolutely right. You know, very often when these big
Speaker 1: fines are made, when these big discoveries are made, there's
Speaker 1: an intense early period of very high expectations. Right, where
Speaker 1: could this lead? You know, how could this develop and
Speaker 1: do an even larger find How do we transform reserves
Speaker 1: into exports? Right? Because you need to manage the resource
Speaker 1: in order to develop it, in order to in order
Speaker 1: for it to grow turn into something that could be exported.
Speaker 1: And I think in the case of Guiana and other
Speaker 1: early stage resource rich states, the question really comes down
Speaker 1: to local government, local resource management, and the relationship between
Speaker 1: the local government and foreign companies. So in some cases,
Speaker 1: I'm not too familiar with the Mozambique case, but in
Speaker 1: some cases there's a fairly early pushback from the local
Speaker 1: government to foreign companies. You see expropriations, you see nationalizations,
Speaker 1: you see a local attempt to seize control of the
Speaker 1: resource at a very early stage, and that can sometimes
Speaker 1: lead to resource mismanagement. It can lead to capital being
Speaker 1: drained away or in some cases being sort of scared off,
Speaker 1: and very quickly the expectations, the excitement drains away, and
Speaker 1: you're left with UH, an industry or resource that can't
Speaker 1: get off of its feet. And I think right now,
Speaker 1: in the course of doing research for this UH, you know,
Speaker 1: for this appearance, I was reading a little bit about
Speaker 1: the Guiana government's attitude towards Exxon, and they're interested in
Speaker 1: maintaining a close relationship with Exxon. They have a lot
Speaker 1: of grievances with Exons approach to things like royalty and
Speaker 1: tax payments. But they're very interested in maintaining this relationship
Speaker 1: because they want the resource to grow, because they want
Speaker 1: exports to come on. They're worried about following the footsteps
Speaker 1: of a Mozambique or even in of a Venezuela, where
Speaker 1: an oil and the oil industry is you know, almost
Speaker 1: entirely collapsed in the last six or seven years as
Speaker 1: the result of various state management policies and that sort
Speaker 1: of thing. So, you know, there is this early period
Speaker 1: of excitement, but where it goes from here depends in
Speaker 1: large part on how the local government decides to act,
Speaker 1: on the kinds of policies it tries to implement, and
Speaker 1: on how it manages its relationship with the big foreign companies.
Speaker 1: So I have two questions. The first one is kind
Speaker 1: of short, but when we talk about, okay, maybe at
Speaker 1: some point Guiana could set up a state owned oil company.
Speaker 1: Does does the existence of a state owned oil company
Speaker 1: preclude the possibility of Exxon having a significant role or
Speaker 1: could you have a state owned oil company in name
Speaker 1: but still outsourced a lot of operational decisions to a
Speaker 1: multinational with significant expertise. Yeah? Absolutely, so generally how this
Speaker 1: has gone is, you know, after the initial discovery, after
Speaker 1: the early stage investment where you mostly have foreign companies
Speaker 1: operating the industry, a national energy company is established and
Speaker 1: then it proceeds to mature over the course of you know,
Speaker 1: several years and decades, several decades. It develops technical expertise,
Speaker 1: it develops a professional workforce, and at some point it
Speaker 1: obtains a share or participation in the general industry. So
Speaker 1: it operates in partnership with companies like Exon. In some
Speaker 1: cases there's a total exproke aation, there's a total nationalization,
Speaker 1: Exxon is kicked out, the operations are taken over by
Speaker 1: the state oil company. But in other cases you do
Speaker 1: see it sort of a transitional stage where there's more partnership,
Speaker 1: there's more participation between the state owned energy company and
Speaker 1: the foreign international So that does happen, and I would imagine,
Speaker 1: you know, where the Gayana government currently is and where
Speaker 1: it wants to go. I think in managing this resource,
Speaker 1: I wouldn't be surprised if that's the course they decided
Speaker 1: to take. Establish a state owned firm, you know, gradually
Speaker 1: enter the operations take on an increasing share and gradually
Speaker 1: nationalized the industry, keeping a role for uh, you know,
Speaker 1: foreign companies like Exxon to continue to grow the reserve,
Speaker 1: to continue to explore, and to take advantage of the
Speaker 1: foreign technical expertise and the foreign capital. Right so, even
Speaker 1: if even as they develop, you know, greater resources and
Speaker 1: greater earnings, they're still going to be looking for foreign
Speaker 1: capital to further develop the industry. So what does histories
Speaker 1: say about the countries that have done this best, not
Speaker 1: just in terms of building out their domestic production, but
Speaker 1: distributing it widely so that you know, you don't have
Speaker 1: the sort of resource curse Dutch disease phenomenon. What are
Speaker 1: the best examples of paths the countries have taken so
Speaker 1: that the benefits really do accrew across the country and
Speaker 1: you have like widespread economic development. Absolutely, this is the
Speaker 1: big question, right There are a few good examples. Um.
Speaker 1: The classic example that people point to is Norway. Norway
Speaker 1: discovered offshore oil and gas in the late nineteen sixties.
Speaker 1: By the nineteen nineties nine eighties, it was a major exporter.
Speaker 1: It's still a major exporter today, and yet it doesn't
Speaker 1: seem to have suffered from governance issues. It doesn't seem
Speaker 1: to have suffered from, you know, widespread state corruption, and
Speaker 1: it's been able to develop its resource efficiently, it's been
Speaker 1: able to distribute revenues in an acceptable and sort of
Speaker 1: equitable way. Other examples would be the United Kingdom, which
Speaker 1: discovered oil in the late nineteen sixties in the North Sea,
Speaker 1: became a major exporter in the nineteen eighties. Um, but
Speaker 1: there really aren't many, you know, in many cases where
Speaker 1: oil is discovered, uh, it doesn't generate the kinds of viable,
Speaker 1: positive economic results you want to see. And there are
Speaker 1: many reasons for that. And one of the reasons for
Speaker 1: it is that very often, and this is this is
Speaker 1: some of the one of the more troubling aspects. Very
Speaker 1: often the resource is controlled and dominated at an early
Speaker 1: stage by foreign capital. So foreign companies, you know, like
Speaker 1: they're interested in developing oil, they're not very interested in
Speaker 1: general national economic development, right. What they want to do
Speaker 1: is developed resources that they can produce profit frums to
Speaker 1: return to their shareholders. So in states like Guiana, or
Speaker 1: looking back into history, states like Iran, Venezuela, Saudi Arabia,
Speaker 1: in early stages of the development of oil industries, where
Speaker 1: you had an oversized role being played by foreign capital.
Speaker 1: You had these problems around governance, you have these problems
Speaker 1: around corruption and a lack of adequate economic development appel
Speaker 1: appearing at an early stage, and you know, once they
Speaker 1: had matured, once they had become sort of set in stone,
Speaker 1: it was very difficult for national governments to correct them.
Speaker 1: So the problem of you know, what role foreign capital
Speaker 1: can play in this, you know, in the so called
Speaker 1: resource curse, is something that I have a great interest
Speaker 1: in as an academic, as a scholar, but I think
Speaker 1: it's also something that governments like Guiana are conscious of.
Speaker 1: You know, how do we manage this resource adequately on
Speaker 1: a national level while still retaining the support of foreign
Speaker 1: capital that we need to develop our industry, knowing that
Speaker 1: foreign capital may not share our same political, economic, and
Speaker 1: social interests in the development of that resource. That's a
Speaker 1: huge question that has faced states throughout the point in
Speaker 1: century and faces Gianna today. So I realized in the intro,
Speaker 1: I said, well, maybe things are different and the resource
Speaker 1: curse doesn't exist anymore because everyone needs boil. But actually
Speaker 1: actually you could very easily argue it the other way
Speaker 1: around and say, since people need more oil, prices are higher,
Speaker 1: you're going to get even more interest in the scarce commodity.
Speaker 1: And I have heard a really basic analogy for the
Speaker 1: resource curse. I've heard people compare it to a lottery.
Speaker 1: So the same thing that happens to someone who wins
Speaker 1: a big powerball prize, you know, rarely does that actually
Speaker 1: lead to a good outcome for them in terms of
Speaker 1: standards of living. I would be different from me to me,
Speaker 1: I'm sure we would all be very everyone listening to
Speaker 1: the podcast. I would also I would also not letting
Speaker 1: the same thing. Okay, great, we've established that. But does
Speaker 1: an era of resource scarcity, does that maybe make the
Speaker 1: danger of a resource curse more acute? That's a good question.
Speaker 1: I think it can, and I think part of the
Speaker 1: reason that it can is that the problems associated with
Speaker 1: the resource curse often become worse if the price of
Speaker 1: said resource is perceived to be high and is expected
Speaker 1: to rise in future years. Right, So the temptation to
Speaker 1: develop a dependence on this resource, it's very easy to
Speaker 1: to accept if you think like, well, this is selling.
Speaker 1: You know, this is selling for eighty dollars a barrel now,
Speaker 1: But as it becomes more scarce moving forward, it's going
Speaker 1: to sell for a hundred and hundred twenty dollars barrel
Speaker 1: in the future. We would be fools not to not
Speaker 1: to grow this industry, right, we would be fools not
Speaker 1: to invest in it. So I think the expectation of
Speaker 1: scarcity or the expectation, let's say, of high prices, can
Speaker 1: encourage the development of the resource curse. But that leads
Speaker 1: to you know, even bigger problems, which is this the
Speaker 1: problem of volatility. Right, if your national economy is based
Speaker 1: around an export that you hope will retain its value,
Speaker 1: then you're surrendering your economic agency to the vagaries of
Speaker 1: a market. Right. A producer, even a prolific producer like Diana,
Speaker 1: can't be expected to, you know, exert influence over the
Speaker 1: global price of oil at least, you know, the outside
Speaker 1: of a very marginal impact. They're essentially surrendering their economic
Speaker 1: fortuns to the global oil market. So that is, you know,
Speaker 1: that's that's sort of inherent to the dilemma of the
Speaker 1: resource curse, the dilemma of resource exporting nations like Guiana,
Speaker 1: and I imagine it's going to raise some difficult questions
Speaker 1: for Dian and bomb makers, policymakers as they sort of
Speaker 1: continue to grow their center national industry. So, since you
Speaker 1: mentioned the boom bust of oil, I think that's a
Speaker 1: good opportunity to sort of broaden things out a little bit.
Speaker 1: But before we do, what is the prospect of a
Speaker 1: future relationship between Guiana and OPEC. It's not currently a
Speaker 1: member of OPEC? Could it be at some point in
Speaker 1: the future. What would have to happen for it to
Speaker 1: become one? And were it to become a member of OPEC, like,
Speaker 1: how big of a player with it? Like put it
Speaker 1: in context of where it would stand versus some other exporters,
Speaker 1: other big players. Right. So an important thing to know
Speaker 1: about OPEC is it's membership has always been changing. It
Speaker 1: was founded in nineteen sixty by core members Saudi Arabia, Iran, Iraq, Kuwait,
Speaker 1: and Venezuela. It was later joined by countries like Libya, Algeria,
Speaker 1: later countries like Indonesia, Ecuador, um, you know, so it's
Speaker 1: broadened its membership over the course of the last several decades.
Speaker 1: In some cases members have left, you know. Cutar is
Speaker 1: no longer a member of OPEC. So the membership of
Speaker 1: OPEC has been changing. For Guiana to join OPEC, it
Speaker 1: would need to develop what we discussed earlier, which is
Speaker 1: a national oil company. UH, it would have to develop
Speaker 1: the national oil Ministry. It would need to have a
Speaker 1: slightly more advanced infrastructure around governing its resource because an important,
Speaker 1: you know, an important part of how OPEC works is
Speaker 1: the management of loyal not only on a national level,
Speaker 1: but on an international level. UM So I wouldn't you know,
Speaker 1: I wouldn't close the door on Guiana joining OPEC at
Speaker 1: some point in the future. I think we're some ways
Speaker 1: away from that happening. I think we're to join now.
Speaker 1: This is of course contingent on how guiana oil production developed,
Speaker 1: but were it to join, Guiana would be a fairly
Speaker 1: important member of OPEC. Were it to reach a point
Speaker 1: where it's producing and exporting upwards of a million, even
Speaker 1: a million and a half barrels a day, that would
Speaker 1: place it, you know, that place along lines of countries
Speaker 1: like Iraq, Uh and Iran that are exporting that much.
Speaker 1: And again, as Guiana's reserves grow, which is an even
Speaker 1: more important question. Right now, it's reserves are estimated around
Speaker 1: eleven billion barrels, but that number has grown quite significantly
Speaker 1: over the last several years. So as its reserves grow,
Speaker 1: then its role within the international oil economy and its
Speaker 1: potential role in OPEC could become even more significant. Can
Speaker 1: you remind me why can't the US join OPEC? Is
Speaker 1: it um like price fixing law something like that. I'm
Speaker 1: just thinking the US has an interest in smoothing oil
Speaker 1: booms and bus so you know, maybe maybe they can
Speaker 1: join OPEC too. No, I know they can't, But why
Speaker 1: is that? This is funny the meaning that Joe referenced
Speaker 1: that we were at last week UM. I gave a
Speaker 1: little talk about oil policy in the oil dilemma facing
Speaker 1: the United States, and someone in the room asked, uh,
Speaker 1: you know, how does the US solve its problem? And
Speaker 1: I said, well, the US can joan oil Oka that
Speaker 1: that was selves a problem. No, I think there are
Speaker 1: obviously a number of reasons. Antitrust law is one of them. UM.
Speaker 1: The other one is, uh, you know, sort of a
Speaker 1: basic question of oil policy. The US has no national
Speaker 1: oil company. It has really no national oil policy. It
Speaker 1: has hundreds of private companies that manage oil resources porting
Speaker 1: to you know, commercial incentives, market incentive. UM. In the past,
Speaker 1: the US has had production management policies that in many
Speaker 1: ways mirror went OPEC was open like inspired by the
Speaker 1: Texas Railroad Commission, Like, didn't Texas sort of invent OPEC?
Speaker 1: Yeah no, Yeah. Abdullah Tariki, one of the founders of OPEC,
Speaker 1: imagined a pro rantioning scheme by which Peck could manage
Speaker 1: global oil production, and he modeled his scheme on the TRC,
Speaker 1: on the Texas Railroad Commission. I took a class in
Speaker 1: college on the history of Texas oils, and that the
Speaker 1: one fact that I remembered. I don't remember anything else
Speaker 1: about the class, but I do remember that the Railroad
Speaker 1: Commission was like this sort of uh, you know, inspiration
Speaker 1: for OPEC. So I'm glad I got a chance to
Speaker 1: use that professionally. It's the famous, the famous Texas institution
Speaker 1: with the funny name that does that does something completely
Speaker 1: different from what it sounds like. Yeah, that Texas Railroad
Speaker 1: Commission used to manage Texas oil. Um. But yeah, I
Speaker 1: mean the US, the United States had mandatory import quotas,
Speaker 1: it had progression production in Texas and the whee Ciana
Speaker 1: and Oklahoma. You know, he used to have a lot
Speaker 1: of oil management, oil production management, policies that it no
Speaker 1: longer really has. So I think, you know, the question
Speaker 1: of whether or not the U s could join OPEC
Speaker 1: is sort of neither here nor there. But could the
Speaker 1: US and OPEC work together on managing the global supply
Speaker 1: the global price of oil. That I imagine could be
Speaker 1: a possibility. It would take you quite a lot to happen.
Speaker 1: It would take quite a change in the relationship between
Speaker 1: the United States and OPEC, but I could certainly see
Speaker 1: it developing in the future as the US grows, if
Speaker 1: we were more important oil exporter oil producer. Right, So
Speaker 1: it's not really about whether or not they could join OPEC,
Speaker 1: but the fact that we're even talking about it kind
Speaker 1: of highlights this ongoing problem for America and maybe that
Speaker 1: maybe that's our queue to get back into the boom
Speaker 1: bus stuff. So we have spent the better part of
Speaker 1: this year talking about ways to bring down oil prices
Speaker 1: different ways, whether it's oil companies just ramping up production,
Speaker 1: or whether or not it's something um more, I guess complex,
Speaker 1: like the derivative solution, the hedging solution that Scanda proposed
Speaker 1: and successfully um you know, got accepted by the Biden administration.
Speaker 1: But maybe we just jumped to the big question. Is
Speaker 1: there something about oil that makes it inherently cyclical? Is
Speaker 1: this always going to be a cyclical industry? Are there
Speaker 1: limits to the extent to which we can actually smooth
Speaker 1: those cycles? Yeah, I think there's sort of an inherent
Speaker 1: volatility to the oil industry, and it's based on just
Speaker 1: how oil is produced. Right, And when I say produced,
Speaker 1: what I really mean is mine. Oil is in some
Speaker 1: ways a mineral that's mine from the earth. The problem
Speaker 1: with producing oil mining oil is that you can't store
Speaker 1: it very effectively, and once you start producing it, it's
Speaker 1: hard to stop, right, So you can move through periods
Speaker 1: of scarcity and into periods of abundance or oversupply very easily,
Speaker 1: because managing production can be very difficult. Uh, you have
Speaker 1: a constant chase for revenue for profit because you need
Speaker 1: to recoup your investment. Oil is famously very expensive industry
Speaker 1: to get into. It's very expensive. It's very costly to
Speaker 1: develop a field. But once you do develop that field,
Speaker 1: you can produce large amounts of oil very quickly, potentially
Speaker 1: flooding in the market. So historically, you know, looking back
Speaker 1: to the early days of the industry, the seventies the
Speaker 1: eighteen eighties, where in many cases the producers would take
Speaker 1: the oil that they produced from their drills and they
Speaker 1: would flood fields with it because they had no market
Speaker 1: for it, they had nowhere to store it. Uh. You
Speaker 1: see a recurrence of this boom bust cycle throughout the
Speaker 1: history of oil. But what you also see our efforts
Speaker 1: by entities like the TRC, by OPEC and by you know,
Speaker 1: the current alignment OPEC, plus you see efforts to stabilize
Speaker 1: that boom bust volatility, efforts to stabilize the cycle. I
Speaker 1: think saying that it's sort of naturally cyclical is a
Speaker 1: little hard for me to accept because of these constant
Speaker 1: efforts to you know, moderate that that that cycle, moderate
Speaker 1: that volatility. In many ways, the oil industry can't really
Speaker 1: function without some effort to mitigate the inherent volatility. And
Speaker 1: this was something that I mentioned to Joe last week.
Speaker 1: One of the may your problems that everyone has had
Speaker 1: to grapple with has been the return of the United
Speaker 1: States as a major oil exporter. Because of what I
Speaker 1: mentioned before, the US has no central oil and ministry.
Speaker 1: You can't go to OPEC and talk about prorentioning production control.
Speaker 1: President Biden can give a speech where he talks to
Speaker 1: oil and gas companies, but at the end of the day,
Speaker 1: he has a very little control over domestic oil production.
Speaker 1: So this is a big problem, right, how do you
Speaker 1: manage a global, volatile, global oil market when your biggest
Speaker 1: producer has no control? Right? And I wanted to talk
Speaker 1: more about this point exactly because I think when the
Speaker 1: US oil industry really started booming like crazy in the
Speaker 1: last decade, there was probably some optimism. They're like, oh,
Speaker 1: we're gonna like wean ourselves off of UH or we're
Speaker 1: gonna we're no longer going to be dependent on oil independence,
Speaker 1: oil independence, right, and that and that oil independence seemed
Speaker 1: like it was going to be great. And for a while,
Speaker 1: obviously the price of oil plunge, but now it's really
Speaker 1: expensive again. And so you know, even with all of
Speaker 1: the US capacity either currently producing or available to produce,
Speaker 1: it hasn't curbed. It doesn't seem like it's done anything
Speaker 1: to curb curb the boom bus cycles and sort of
Speaker 1: to listen to you, it sounds like it's very unnatural
Speaker 1: and a historical to have a significant amount of oil
Speaker 1: out on the global market. That is not subject to
Speaker 1: some sort of curbs setting aside, like the selling of
Speaker 1: the spr like that is just very unusual to have this.
Speaker 1: I guess now Guiana would be part of this, But
Speaker 1: now there is a lot more and more oil that
Speaker 1: just isn't part of any production management plan. Absolutely. You know,
Speaker 1: there's the US oil that's being pumped into the market.
Speaker 1: There's also a tremendous amount of sanctioned oil that's being
Speaker 1: moved through the global market at discounted prices. It's being
Speaker 1: moved through illicit market channels. You have actors like Russia, Venezuela, Iran,
Speaker 1: they're trying to evade Western sanctions by selling oil uh
Speaker 1: through sort of illicit means. So that's creating greater uncertainty,
Speaker 1: and that's making control even harder, right, it's making mitigating
Speaker 1: volatility even harder. So yeah, looking back through history, you
Speaker 1: constantly see efforts by various state, international, or even local
Speaker 1: actors to try to control this flow. You saw efforts
Speaker 1: by major Western oil companies in the fifties and sixties
Speaker 1: to moderate production to try to make sure that supply
Speaker 1: could match demand. And we don't have a similar structure,
Speaker 1: a similar system for managing that and the additional problem
Speaker 1: is that in the past, you know, the past thirty years,
Speaker 1: it was possible to manage supply with demand because you
Speaker 1: knew the demand was going to increase in the years ahead.
Speaker 1: And that is no longer a certainty. If anything, we're
Speaker 1: certain the demand is going to decline. So that's making
Speaker 1: it a lot harder for private companies, but also for
Speaker 1: OPEC members to know how much they need to invest,
Speaker 1: to know how much they need to produce, because there's
Speaker 1: great uncertainties about the availabilities of markets moving forward. If anything,
Speaker 1: shortage of market is going to be a bigger problem
Speaker 1: than shortage of supply. Imagine going back ten years ago
Speaker 1: and saying we're going to have an eavy revolution and
Speaker 1: the US is going to be this huge producer and
Speaker 1: oil is going to get more expensive because of all
Speaker 1: those things. That would have like broken so many minds,
Speaker 1: but that's exactly what happened. Gregory Brew is such a
Speaker 1: treat to have you on. I learned so much in
Speaker 1: that forty minutes. I really appreciate you coming on oddlots.
Speaker 1: Thank you so much of us great crazy. I really
Speaker 1: I feel like I learned a lot in that last
Speaker 1: oil history is fun. Yeah, and he Gregory is a
Speaker 1: really good at talking about it and contextualizing it. But
Speaker 1: I do want to start without that last point because
Speaker 1: it is pretty wild. The thing. We had this huge
Speaker 1: US oil boom in the last decade. It become the
Speaker 1: biggest oil producer in the world, the e V Revolution,
Speaker 1: which everyone expects is going to curb demand, and yet
Speaker 1: here we are. But like the cost of gasoline surgery,
Speaker 1: everyone was wrong. Everyone was wrong in all of the
Speaker 1: most unexpected way. That's so weird. The other thing I
Speaker 1: thought that really stood out to me was his point
Speaker 1: about how we know that the US has come online
Speaker 1: as a big oil producer, but actually they don't have
Speaker 1: a lot of ways to control production, which causes problems
Speaker 1: for the rest of the world. I mean, especially in
Speaker 1: when we have the show revolution and then prices collapsed.
Speaker 1: We saw a lot of that, but now it's the
Speaker 1: opposite problem, right, like, how do we get everyone to
Speaker 1: actually start pumping oil? Right? And you know there's a
Speaker 1: lot of people we need to pump more oil in
Speaker 1: the US. And why isn't the White House doing more
Speaker 1: to boost domestic oil? And I don't think it's impossible
Speaker 1: to think that the White House has levers to compull
Speaker 1: that it hasn't. But there's no national It is not
Speaker 1: like the countries where we say, okay, we're going to
Speaker 1: expand our daily quota todd thousand more barrels like that.
Speaker 1: There's just no went to be right, and telling private
Speaker 1: companies what to do is not historically a very like
Speaker 1: successful American political strategy. I think, um, that's fascinating, And
Speaker 1: now I'm going to be following Guiana's economic trajectory for years. Well,
Speaker 1: I think the cool thing about that and was really
Speaker 1: helpful is we know that there are so many countries,
Speaker 1: as Gregory talked about, that have gone through a similar
Speaker 1: trajectory or a similar path, find a lot of oil,
Speaker 1: figure out how to manage the relationship between the domestic
Speaker 1: interests and the foreign multinationals interest So it'll be very
Speaker 1: interesting to see if, with the knowledge of so much
Speaker 1: history of other countries that have gone this route, whether
Speaker 1: Guiana can maintain you know, there's like extremely rapid you
Speaker 1: can i'm a growth, and whether it could be high quality,
Speaker 1: well distributed growth. You know. The other thing I was
Speaker 1: thinking about, one of the persistent commodity mysteries to me,
Speaker 1: has always been Morocco and it's fertilizer reserves. I think
Speaker 1: it has like the world's biggest supply of phosphates or something,
Speaker 1: and yet it never actually seems to translate into a
Speaker 1: significant economic boom. Let's do acc Moroccan fertilizer episode. Okay, alright,
Speaker 1: anyone know any Moroccan phosphate du Yeah, please let us know.
Speaker 1: Shall we leave it there? Let's leave it there? Okay.
Speaker 1: This has been another episode of the Odd Blots podcast.
Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at
Speaker 1: Tracy Alloway and I'm Joe Wisn't All. You can follow
Speaker 1: me on Twitter at the Stalwart. Follow our guest Gregory Brew.
Speaker 1: He's at g brew twenty four. Follow our producer Carmen
Speaker 1: Rodriguez at Carmen Arman, and check out all of our
Speaker 1: podcasts under the handle at Podcasts and for more Odd
Speaker 1: Lots content, go to Bloomberg dot com slash odd Loves
Speaker 1: Tracy and I blog there. We pushed the transcripts and
Speaker 1: there's a once a week newsletter for listeners when we
Speaker 1: talk about all the things and related topics that we
Speaker 1: discussed on the show. Thanks for listening.