Posted on 12/04/2019 7:45:01 AM PST by Presbyterian Reporter
Ahead of this week’s meeting of the Organization of the Petroleum Exporting Countries in Vienna, the tiny South American nation of Guyana will likely not be on the agenda. However, within a decade this country of just 778,000 people may be as wealthy as all other countries in the oil bloc.
That’s because Guyana is on the verge of receiving a mountain of cash.
In 2015, Exxon-Mobil (XOM) discovered a property offshore Guyana at the Liza-1 well with more than 5.5 billion barrels of confirmed oil and gas reserves. Then, in September 2019 ExxonMobil made an even bigger discovery at the Tripletail-1 well offshore of Guyana – a property with more than 6 billion barrels of oil.
Beginning this month, Guyana is projected to earn $300 million annually from the phase 1 of daily production at Liza – expected to amount to 120,000 barrels of oil per day. Phase 2 at Liza – which is expected to commence in mid-2022 – is expected to produce 220,000 barrels of oil per day.
Rystad Energy, an independent energy research and business intelligence company based in Norway, reported Guyana’s oilfields (including the recently discovered Tripletail-1) will exceed 600,000 barrels per day in total production by the end of this decade. These oilfields are expected to generate annual revenue of $15 billion, of which $10 billion would be split by the oil companies and the government.
Some observers say they think Guyana will eventually become as wealthy as the Arab oil states,
“Many people still do not get how big this is," former U.S. Ambassador to Guyana Perry Holloway told a reception in the Guyanese capital of Georgetown. "Come 2025, [gross domestic product] will go up by 300% to 1,000%. This is gigantic. You will be the richest country in the hemisphere and potentially the richest country in the world."
The International Monetary Fund forecasts Guyana will see its economy grow by 86% in 2020 -- up from 4.4% in this year.
“The reason the IMF is projecting that is because Guyana has the highest amount of oil for each individual person of any country in the world,” Natalia Davies Hidalgo, a Latin American analyst, told CNBC.
As a point of comparison Saudi Arabia has about 1,900 barrels of offshore reserves per person, while for Guyana the figure will be 3,900 barrels.
“And it could have more, as production hasn’t even started yet and new discoveries are still being made,” she added.
Ahead of elections scheduled for March 2020, some opposition leaders have called on the government to revise revenue-sharing agreements – which were written decades ago – to secure more favorable terms from oil companies in anticipation of huge profits.
The existing oil contracts call for Guyana to receive a 2% royalty and 50% of profits from oil proceeds – terms described as fair by Luiz Hayum, upstream research senior analyst, Latin America at Wood Mackenzie, a global energy research and consultancy group.
Hayum noted that changing terms of the contracts might dissuade oil companies from further exploration and development.
“They [politicians], however, seem to understand the huge benefit of collecting the oil revenues rather than trying to get more out of them or trying to develop a refining business within Guyana – they understand it’s more important to collect revenues and to invest in development of the country rather than turning into a pure oil economy,” Hayum said.
But some observers worry that immense riches might not benefit Guyana, a country that has been notoriously corrupt and burdened by high rates of poverty and unemployment.
Verisk Maplecroft, a global risk and strategic consulting firm based in Britain, cautioned the main risks of investing in Guyana are political and social: It is a poor country, with underdeveloped infrastructure and subpar government institutions. Moreover, Guyana is racially divided between blacks and Indians while elections often lead to violence and unrest.
Thus, Guyana may not be adequately prepared to manager sudden enormous wealth.
Amy Myers Jaffe, the director of the energy security and climate change program at the Council on Foreign Relations, is skeptical about Guyana. “There is no way the explosion of money will be managed properly,” she said.
Verisk Maplecroft further cautioned that Guyana needs to restructure some of its society.
“The challenge beyond 2020 is for the next government to adhere to and further develop the country’s institutional capacity to manage this wealth, and to implement a balanced economic policy program ensuring equitable development for the entire country, irrespective of ethnic divisions,” it warned.
Hayum said Guyanese government institutions “need to develop to manage the related contracts and this is something we see as not happening as it should.”
David Goldwyn, president of Goldwyn Global Strategies, expects that Guyana will undergo massive changes, but remains concerned.
“Guyana really is a country at risk,” he said. “They’ve gotten lots of advice, they’ve thought about a sovereign wealth fund, they’ve thought about a public accountability board, they’ve thought about a petroleum law — but they haven’t implemented it yet. They’ve got a framework on paper of a system that would provide accountability, but they haven’t implemented it yet.”
Similarly, Valerie Marcel, an associate fellow at think tank Chatham House, told CNBC the Guyanese “haven’t had the experience with this type of windfall, and it is coming so suddenly.”
Guyana, which has suffered a massive brain drain caused by emigration to Britain, the U.S. and Canada, may not have enough qualified local people to run something as complex as an energy industry.
Goldwyn added: “The next five years will be bumpy. The money will not have arrived. The ramp up will be slow. And there will be another political cycle, so whoever is in power now will not be in power when the $5 billion a year check arrives.”
Goldwyn said he hopes Guyana upgrades its infrastructure and school system and successfully manages unimaginable wealth.
Indeed, Guyana only has to look at neighboring Venezuela to see the damage that poorly managed oil wealth can do.
Vincent Adams, the new head of Guyana's Environmental Protection Agency, who also worked at the U.S. Department of Energy, told BBC: "We've seen the experiences in other countries. They got all this oil wealth and a lot of those countries are now worse off than before oil."
The Russians will n e all ober this...
“Great now they will be able to afford to reopen Devil’s Island...maybe we can send all our U.S. commies there!”
Mr. Notdowns, you can have a beer with me ANYTIME!
I once pointed out to someone that every one of them is lying face down. I believe someone turned them all over prior to the photo. The person I said this too insulted me for saying so. But think about it, what are the chances every one of them fell face forward. Seems completely unlikely.
But yep, this is all I ever think of when I think of Guyana in South America.
But but but Peak Oil!!!!
IIRC Venezuela claims Essequibo Province.
Was down there twice in early/mid 90s.
They are face down because they had ‘practice drills’ that had them do this...................
“Politicians...within Guyana – they understand it’s more important to collect revenues and to invest in development of the country...”
One would sure like to hope so, but I’ll believe it when I see it.
The powers that be have not finished filling their pockets yet.
The voters will select Socialism hoping they will get some of the wealth. Suckers.
When you are poisoned by cyanide it’s a very violent death. I don’t think they could control that last position.
I lived their two years.... currently the most dangerous country in the world.
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