By
Anthony T Bryan
Guyana’s oil reserves, only discovered in 2015, are vast. They are estimated at 11
billion barrels of recoverable oil — one of the highest levels per capita worldwide.
The country’s current daily production of 400,000 (b/d) is projected to be more
than one million b/d of oil equivalent (boe) by 2027. Although Guyana only
produced its first barrels of oil in December 2019, it recorded the globe’s highest
GDP growth rate of 2022, a remarkable 57.8 percent. Its annual earnings from the
sector could be US$10 billion by 2030. However, the global media hyperbole that
is accompanying the boom is boisterous and overwhelming, and raising Guyanese
public expectations to an uncomfortable level. So perhaps it is time for
retrospection, a reality check, and a cautionary note.
Dealing with this windfall is a new experience for the Guyanese government and
its people. There is a race to provide the necessary legislation, to create the
institutional structures, and to devise strategies to manage an oil economy.
Obviously, one danger is the onset of the dreaded ailment known variously as the
‘resource curse,’ the ‘paradox of plenty,’ or the “Dutch Disease,” where
destabilisation of traditional economic sectors occurs as the resource-rich country
becomes overly dependent on exports of a single commodity and suffers drastic
inflationary consequences.
On August 27, 2023, Vice President, Dr Bharrat Jagdeo was reported in the energy
publication OilNOW as saying “We are hell-bent on ensuring that we do not make
the same mistakes that other oil-producing countries have made.”
It will be avoided by Guyana’s careful fiscal management of the energy sector,
including its Local Content Act, and a “dedicated policy” towards diversification,
he further stated.
But most energy analysts would still agree on some cautionary notes for Guyana.
First, it is the government’s responsibility to ensure that the country has all the
contractual provisions in place to earn and distribute its fair share of the windfall.
The population can become frustrated by the lack of any immediate tangible
benefits that they may have expected from oil revenues. Managing public
expectations is critical. Also, in multi-ethnic Guyana, the possibility of political
and ethnic strife is a constant threat if the benefits of the windfall are not
distributed evenly among the various ethnic groups.
Second, although international credit agencies report that Guyana still has a low
level of corruption, regulations must be developed to control that elephant in the
room. Energy exploration and production have a long supply chain, and many
opportunities exist for the diversion of revenue and profits. Third, the impact of the
oil and gas windfall on Guyana’s economy can be convulsive. Guyana may
become one of the world’s richest nations per capita. However, attaining high-
income status from natural resource wealth does not always translate into improved
human development outcomes. Citizens must be shown that the wealth generated
from oil and gas will be used prudently and transparently for the people’s welfare.
Now for a reality check. Guyana is not slowing down on its oil and gas exploration
and production, nor should it do so. In fact, it is preparing to auction off 14 coveted
oil blocks during 2023 in its first-ever government-regulated offshore licensing
round. But even with the new PSA signed with Exxon which split the revenue 50-
50 with a 2 percent royalty paid to the government, Exxon has a sweetheart deal—
considering that the global average for a government’s take in offshore projects is
75 percent.
The contract also includes a strange provision that permits Exxon to immediately
recover costs for exploratory work within the lease area. Exxon effectively then
pays itself back for those costs out of the oil revenue that would otherwise go to
the government. With an oil field lease this large (28,806 square kilometres), easy
to drill, and highly productive, Guyana should have negotiated much better!
Nevertheless, the country is going to realise tremendous revenue from oil and gas
for a nation of 800,000+ inhabitants.
The windfall presents many challenges. Guyana can accrue more debt even with
the surplus oil money. Both the IDB and the IMF are advising the government to
save for a rainy day and to exercise caution in the way in which it goes about
taking on new loans. The IMF notes that while surging oil output could help
address development needs, buffer the economy, and retire expensive outstanding
public debt, it also faces risks from volatile oil prices, a slowing global economy,
and possible difficulties managing the resource.
Guyana’s political leaders have emphasised that certain services should be
reserved for Guyanese procurement. The Local Content Act seeks to protect local
Guyanese companies. While this is a commendable objective, just filling a
percentage of the workforce with nationals in the name of ‘local content’ or giving
preference to local companies that may not be up to the tasks, are mistakes to be
avoided. This is not about numbers; it’s about investing in the long-term benefits
for the country and its people.
As Guyana moves forward there are very positive signs that it is going in the right
direction. Globally, investment is slowing down in new oil provinces, but
Guyana’s light sweet crude is an exception to the trend. Its energy resources are
attracting a lot of investment, but there are lots of investment opportunities in the
non-oil sectors as well. Large investment in agriculture for the benefit of Caricom
members is a major objective and regional momentum is under way. From a
business perspective, the investment opportunities in Guyana are as extensive as
one’s imagination or skill set, once there is a Guyanese mindset that is open to
foreign investment and to regional cooperation.
But there are concerns as well. Despite withdrawals in 2022 and the first half of
2023, the National Resources Fund (NRF) had a market value of US$1.72 billion
as of June 30, 2023. It is expected to close 2023 with about US$2.1 billion. So,
while Guyana may be immune from any serious depletion of the NRF at this time,
given the massive financial inflows, tapping into it to meet budget deficits,
unforeseen production failures or shortfalls, substantial declines in the global
prices and markets for oil, economy crippling pandemics, and serious debt incurred
for rapid infrastructure development that does not produce revenue–can all impact
on future drawdowns on the NRF.
When new provinces come into massive oil wealth, the resource is often controlled
and dominated at an early stage by foreign companies interested in developing oil
and returning profit to their shareholders. They are very rarely interested in general
national economic development. So far, the international oil companies (IOCs) in
Guyana, ExxonMobil, and its partners, appear to be investing in subsectors of the
economy that advance their portfolios with some benefit to the Guyanese
economy. Eventually, Guyana might find the T&T model—where the state chose
to be an active participant and a leader in the first stage of the country’s
industrialisation by becoming an equity investor in most of the energy enterprises–
-to be a useful initiative. Guyana will have the money to do it!
Looking forward, Guyana has attributes that can make it a regional energy leader.
Its forests have created environmental space for the simultaneous development of
its oil resources and its net carbon sink credentials.
While it may seem to be in a contradictory position as a current victim of climate
change and an actor exacerbating the problem, Guyana can become a major
supplier of fossil fuel that uses the money from its oil and gas resources to invest in
renewable energy and facilitate its transition and that of the Caricom region to net-
zero status.
Anthony T. Bryan, PhD, is a Co-Founder of the Caribbean Policy Consortium (cpccaribbean.org),
Professor Emeritus at the University of Miami, and a former Director of the Institute of
International Relations at UWI, St. Augustine. He has been a leading scholar and an
independent consultant on Caribbean energy development, energy security, and energy
diplomacy for the past 20 years.
