(Trinidad Guardian) Three local energy and economic analysts, Kevin Ramnarine, Gregory McGuire and Anthony Gonzales, are cautioning Guyana against joining the Organization of the Petroleum Exporting Countries (OPEC), the grouping of some of the world’s largest oil producers, at this time.
Guyana has Latin America and the Caribbean’s fastest growing annual Gross Domestic Product (GDP) and is an emerging oil producer that has attracted much attention in the oil and gas world, including debates about whether or not it should join the powerful OPEC cartel.
Consultant and former energy minister Kevin Ramnarine does not believe it is in Guyana’s best interest to join the Vienna-headquartered group at this time.
“The Vice President of Guyana, Bharrat Jagdeo, has indicated that they are not interested in joining OPEC. This is a logical position given that OPEC isn’t a good fit for Guyana.
“OPEC member states usually have large established national oil companies that dominate their production such as Saudi Aramco. In Guyana, the dominant producer is a multi-national – ExxonMobil.
“It is easier for a government to instruct a national oil company to reduce production to meet an OPEC quota but it would be harder to tell a multi-national to do the same.
“At this stage in Guyana’s development, joining OPEC may also disincentivise further investment and derail the treadmill of projects,” Ramnarine told the Business Guardian.
He noted that Guyana is at an early stage as an oil producer and with OPEC assigning production quotas for countries, Guyana’s growth could be held back at this stage of their oil industry’s development.
“OPEC is an inter-governmental organisation of oil exporting countries that was formed in 1960 in response to the power of the dominant American/European multi-national oil companies of the day. It led to the shift of power from these multinationals to the governments of its member countries.
“OPEC coordinates its members’ production levels to bring stability to the global oil market. To do this, OPEC assigns production quotas to its members. If Guyana were a member of OPEC, it would have to comply with production quotas.
“Given that Guyana is at an early stage of its petroleum industry development, it is in its interest to develop its reserves as fast as possible especially when one considers that peak oil demand is expected in the mid 2030’s,” said Ramnarine.
Benefits of cartel
Energy consultant Gregory McGuire told the Business Guardian that if Guyana joins OPEC, it will benefit them as a young oil producer.
“I think being part of OPEC can be very beneficial to Guyana. They are poised to be among the world’s largest in terms of both reserves and production within the next few years. Membership in OPEC is granted to ‘any country with a substantial net export of crude petroleum which has fundamentally similar interests to those of OPEC member countries.’ Membership in OPEC will give them an opportunity to accelerate both technical capacity and capability with respect to the management of their industry and in dealings with the multinationals.”
He said this enhanced knowledge base would enable Guyana to negotiate more equitable terms in future exploration and production contracts, provide better technical oversight and accountability of production and improve vigilance over payments of royalty and tax revenues.
However, McGuire qualified that by saying that the major constraint that he sees is that unlike most OPEC members, Guyana does not have a national oil company that holds equity share in the country’s oil production.
“While this is not a condition of membership, the fact that the reserves and production are determined by the international companies means that Guyana will be constrained in supporting any action by OPEC to control the flow of oil.”
Economist Dr Anthony Gonzales told the Business Guardian that in the 1970’s he was a big advocate of T&T joining OPEC but those days are long gone.
“Later on, I realised that the non-OPEC countries control more oil than the OPEC countries and the non-OPEC countries are also very important. Being in OPEC, you must make commitments to reduce oil production, when they want to reduce production or increase it.
“T&T was a small producer compared to them and we didn’t want to be in a position to be told what to do. Non-OPEC countries like Russia tend to coordinate a bit with the big OPEC producers.”
Gonzales said Guyana is taking the best decision to stay out of OPEC at this time.
“I don’ think it makes sense for Guyana to join OPEC because that would mean you have to subject yourself to OPEC’s decisions. They want a certain amount of flexibility as they are still a small producer. I don’t see any special benefits from being part of OPEC. They don’t want Saudi Arabia calling them and telling them that they’re not following their quota.”
Cartel rejects T&T bid
While Guyana is an emerging energy player, T&T has had over a 100 years in the energy sector and many T&T companies and professionals have gone there to assist their new industry.
With respect to OPEC, T&T is not a member of that cartel, however attempts were made in the 1970’s to join.
Ramnarine reflected on T&T’s failed attempts to join OPEC back in the 1970’s.
“T&T attempted to become a member of OPEC in 1972. To this end a diplomatic mission led by Sir Ellis Clarke to the OPEC members – Algeria, Iran, Saudi Arabia, Kuwait and Nigeria and to the OPEC secretariat in Vienna. We thought we had been admitted into OPEC on June 26 1972 and to this end an announcement was made by Prime Minister Dr Eric Williams on June 30, 1972 in the Parliament. However, our admission into OPEC was vetoed by Iraq the following month.”
Ramnarine said there has been speculation as to why Iraq vetoed T&T’s admission and called T&T’s failed attempt to enter OPEC as one of the country’s biggest diplomatic failures.
“Reasons range from the fact that the Clarke delegation did not visit Iraq (which the Iraqi’s may have seen as an insult) to our small oil production level compared to other members to our closeness to the United States. This affair was documented by Dr Hamid Ghany in his biography of Kamaluddin Mohammed, who was the Minister of External Affairs at the time. It is regarded as one of our biggest diplomatic failures. However, in my opinion, it was part of our growing up as a nation. The following year (1973) our fortunes from oil would radically change and thereby set in motion the first oil boom.
