While preparing to make an intervention in a panel discussion on the future of the oil and gas sector in Guyana a few weeks ago, I came to realise that although I had been reading the almost daily commentaries, I must have missed it but I did not have a broad vision of where the sector is going. Envisioning a future sets the stage for present action, and so I began to piece together a view by considering aspects of where we were and where we are going, in the hope of acquiring an understanding of where we will likely end up. It is quite easy to be knowledgeable after the fact, but given the task I set myself, some amount of retrospective analysis was inevitable and is helpful in foreseeing and preventing future mistakes. This intervention will take more than one article, and a few of my conclusions speak to our laughably alarming state of unpreparedness!
To create an analytical framework, I recalled a 2013 lecture given by a world renowned expert, Professor Paul Collier, at the London School of Economics called ‘Reversing the Resource Curse: How to Harness Natural Resource Wealth for Accelerated Development.’ (http://www.lse.ac.uk/lse-player?id=1803). Conditions might have changed somewhat since then and the Professor was here last year warning against tearing up the agreement with Exxon but I still found what he had to say about the general process of transformative development useful.
He claimed that in the next two decades, poor countries like Guyana, but particularly those in Africa, were likely to be awash with money from their depletable natural resources, and the big problem facing all of us is how to prevent these resources from dissipating and leaving the countries still in a state of underdevelopment. This has happened in the past and is the default mode, but is not inevitable if we take careful note of and learn from history. Collier suggested that a decision chain consisting of five economic and three political decisions must be repeatedly implemented over decades if transformative development is to be achieved.
The first economic link in the chain, which he claimed is usually broken at the start of the process, is that countries should seek to discover their own resources. Without reasonable knowledge of what actually exists, resources are leased in a manner that can lead to various negative consequences. Some companies simply sit on a lease until someone else comes along and makes a discovery nearby and then there is a goldrush – the situation moves quickly from too little prospecting to too much – that has to be carefully managed. Since no one is certain what was leased, once a sizable find is announced, quarrels can quickly develop as to whether the state has been properly compensated and demands are made for contracts to be discarded. To avoid these outcomes, countries should attempt to acquire information about what they are leasing, and in 2010, the World Bank began to give loans for countries to acquire their own geological information.
Anyone following the oil discourse in Guyana will recognise aspects of all of the above outcomes, and even after the first discovery, the APNU+AFC government made little effort to find out more on precisely what existed and thus made only minor changes to the extremely inadequate previous agreement with ExxonMobil. When criticisms of the deal reached fever pitch, national security reasons were given as partly responsible for government actions and this opened a new vista on the issue that calls into question this conclusion. Indeed, if Guyana had been less trusting and had acquired reasonable knowledge of its oil resources, it may not have lost decades of development only to discover oil and gas when they are in their death throes.
In 1999, Guyana signed a petroleum prospecting agreement with ExxonMobil, giving it prospecting rights over 600 blocks (instead of the 60 specified by law) of Guyana’s territory in the geographical area being claimed by Venezuela. Venezuela’s Orinoco Belt is estimated to be have up to 1.4 trillion barrels of oil, of which 70% could be extracted using the most advanced technologies. Let’s place 1 trillion barrels of oil in context. Global oil consumption is currently 35 billion barrels a year, so the Orinoco Belt alone could satisfy 100% of global demand for almost 30 years – until about 2050, when the world should have stopped using fossil fuels if climate targets are to have a 70% chance of being met (www.globalresearch.ca/valuing-venezuelas-orinoco-oil-belt/5667266. ‘Our Zero-Emission Future:’ SN: 16/04/2019).
Exxon was a major player in the Orinoco area and it was idiotic for Guyana to give it possession of such large resources hoping that it would have risked its investments in Venezuela by exploring and then producing oil in a region in Guyana that Venezuela claims and from which it has repeatedly warned away investors. Indeed, Exxon is a huge company with massive technologic capacity and this, coupled to the quick finds it is making, suggests that it did have actual knowledge of what existed in the area leased to it, but could only act when it fell out with the government of Venezuela over the Orinoco Belt.
In retrospect, if only a little thought had been given to this conflict of interest, no lease, and certainly not one for such a substantial holding, should have been given to Exxon. Guyana should have found other ways of finding out what the actual resources are and then exploiting them and it may not have lost decades of development, particularly as it was borrowing from all and sundry for all manner of questionable projects. That said, the present saga in Venezuela still needs to be carefully observed and managed.
I also want to draw attention to another important consideration that has resulted from the discovery of oil. Ever since the Venezuelan government concocted a border problem, our Caribbean Community partners have been among our most important supporters. Although it has not happened in a substantial measure thus far, Venezuela’s PetroCaribe arrangement, which offers oil at concessionary prices to some CARICOM countries, affords it the opportunity to undermine this support. Quite apart from the requirements that may flow from our being in CARICOM, would national security not be served by Guyana locking these important historical partners into some concrete type of energy arrangement that seeks to undercut any aspirations Venezuela might have in this direction? But then again, perhaps when Guyana was negotiating the totally inadequate 2% royalty agreement, it myopically thought it was negotiating only on its behalf!