Gushing Oil Reserves Found off Guyana, Will it be a Boom or Curse?
Guyana has won the black gold lottery, but what will happen to the South American nation with a population of only 800,000 and the continent’s smallest GDP now that oil has been found offshore?
In 2015 ExxonMobil found oil off of Guyana’s coast and has drilled eight discovery wells since which all suggested ExxonMobil has found an oil reserve large enough to potentially transform Guyana’s economy. Experts predict by the end of the next decade Guyana’s oil reserves could generate as much as $20 billion annually, a staggering number for a country with an annual GDP of $6 billion.
Last June ExxonMobil announced the completion of the eighth discovery well, the Longtail-1 well, and said it created the potential for additional resource development in the area.
“The Longtail discovery is in close proximity to the Turbot discovery southeast of the Liza field,” said Steve Greenlee, president of ExxonMobil Exploration Company. “Longtail drilling results are under evaluation. However, the combined estimated recoverable resources of Turbot and Longtail will exceed 500 million barrels of oil equivalent, and will contribute to the evaluation of development options in this eastern portion of the block.”
The initial plan is for a 17 well project connected to a “floating production, storage and offloading (FPSO) vessel designed to produce up to 120,000 barrels of oil per day.” ExxonMobil is targetting 2020 for the first production of oil. Phase 2 of ExxonMobil’s plan is expected to be similar to Phase 1 but with a production capacity of 220,000 barrels a day. A third development is also planned, but expected production capacity has not been announced.
Is Guyana Ready for Oil?
The discovery of oil off of Guyana could mean the fulfillment of dreams and an increase in the quality of life for Guyanese people as Guyana’s minister of natural resources Raphael Trotman declared. While others have expressed worry at the country’s lack of experience managing major petrochemical projects, negotiating with large international companies, and regulating an oil industry.
Trotman, however, believes the country is prepared for any regulatory or environmental challenges.
“These are the jeopardies and these are the perils that we have to prepare for. We should not take them for granted or believe that we are dealing with something that is so far removed from our consciousness or our reality that we don’t have to be prepared,” Trotman told a national consultation on the drafting of the National Oil Spill Response Contingency Plan at the Civil Defence Commission.
“It has to be taken seriously and whilst the industry standards are very high, we do have a risk. We recognize that there is a risk. However, government is making every effort to prepare for that risk. We expect that in 24 months when we go to production in the first quarter of 2020, we will meet not only minimum standards expected, but we will go past that and dare to say to ourselves and particularly to the world that we are ready for any eventuality,” he said.
Cautionary Tales of Oil Windfalls
The recent economic collapse of Guyana’s nearby neighbor Venezuela provides a cautionary tale of creating an economy too dependent on oil. While Venezuela discovered oil centuries ago, the country developed into a prosperous economy but almost entirely dependent on the oil industry. Oil prices crashed, and Venezuela’s economy went with it.
The IMF predicted that inflation in Venezuela would hit 1,000,000 percent in 2018, making it one of the worst economic crises in history.
Equatorial Guinea, a small West African nation, experienced an oil windfall in recent years as well, but its tale warns of the potential for corruption once oil is discovered. The country brought in $45 billion in oil revenue between 2000 and 2013, but the country remained one of the world’s poorest reportedly because of corruption in government that resulted in spending sprees on luxury homes, cars, and other luxury items.
Belize is another country one expert is recommending Guyana look to for guidance. Tyrone Hall, a Ph.D. Candidate at York University who is following Guyana’s discovery, urges Guyana to look at how Belize handled a potential economy-changing growth in its oil industry.
Belize’s portion of the Mesoamerican Barrier Reef System, perhaps the world’s longest living barrier reef, was removed from the World Heritage Sites’ endangered category in June of 2018 after almost a decade on the list. The decision was made after Belize scrapped plans to expand its oil industry.
“There are lessons we can draw from the Belizean experience for raising the bar and boldly re-imagining environmental responses in the face of a petro-economic reorientation,” Hall said.
“In other words, while oil exploration is unlikely to be halted in Guyana at this point, the environmental community, and broader civil society must not settle into vassal like, aid-recipient disposition,” Hall added.
How it all plays out may well be decided in 2020, when oil is expected to first go into production and when the country has its next election. The results of the election could determine the fate of the oil windfall and the fate of the country.