By Kevin Ramnarine – OilNOW
Guyana is at the dawn of a new economic era the shape of which is unprecedented in Caribbean history. By way of reference, Trinidad and Tobago has produced 9.3 billion barrels of oil equivalent in 111 years. Guyana’s reserve base currently stands at 6 billion barrels of oil equivalent and climbing. In 2017, on the invitation of the Guyana Oil and Gas Association (GOGA), I made two presentations on the way forward for Guyana’s nascent oil industry. This included “lessons learned” from Trinidad and Tobago’s experience which comes with well documented failures and successes. In reflecting on these two presentations and other talks I have given in Guyana I thought it would be timely to proffer some advice to Guyana at the beginning of its journey as an oil producing nation.
- Create your own path. There are many models that are held out as good and bad. We are inundated with stories of Norway’s success or Venezuela’s failure. Advise must be assimilated but ultimately, the conditions of Guyana are best known to Guyanese and the prescriptions and economic path that the country takes must be tailored to the present and future needs of its peoples. Norway in 1969 is not Guyana in 2019.
- Temper expectations. There is a long way to go for Guyana’s oil industry and success is never what we think it will look like. There are technical and reservoir conditions at play that present downside risks to the anticipated rate(s) of production. No amount of reservoir modelling can trump the understanding of a petroleum reservoir once production starts and actual petrophysical data is received. As a result, decline rates and depletion rates tend to be moving targets. In addition, as Ghana has learned, there can be technical constraints to the efficiency of FPSO’s. The point is what is happening out on the Liza Destiny, in the sub-sea infrastructure and in the reservoir is very dynamic and subject to a range of risks.
- The future is always in flux. Guyana, like Trinidad and Tobago, will be subject to the vagaries of the world’s oil markets. For the last forty-five years (since 1974), T&T has had a largely bi-polar economy that has been subject to the ebb and flow of the world’s oil markets. In the oil industry, the picture of the future is always changing. What is accepted today is dismissed tomorrow. No one saw the shale revolution coming and now this is the defining event of the world’s oil industry in the twenty first century.
- Protect your economic diversity. Guyana is one of the most diversified economies in the Caribbean with GDP contributions from mining, fisheries, manufacturing and agriculture. It must be ensured that these sectors do not wilt under the shadow of the oil industry and fall prey to Dutch Disease which manifests itself with the movement of labour from “non booming tradable” sectors such as agriculture and mining into services. Another effect is the appreciation of the Real Effective Exchange rate (REER) which makes non-oil exports less competitive and imports more attractive.
- Focus on the supply side. The steep growth curve that the Guyanese economy will experience in the next decade will lead to supply side constraints. In some ways this is already at your doorstep. Building the supply side of the economy speaks to building capacity (infrastructure, services and skills) to meeting the ever-increasing demand of a super-heated economy. In this regard, Guyana is behind the curve and has a lot of catching up to do but it’s not an impossible task.
- Build policy, legislative and institutional capacity. With elections a few months away, we can expect that the Government of Guyana post March 2nd, 2020 will have a monumental task on its hands to put in place the legislative and institutional infrastructure to govern the new oil industry. This is currently not in place and that is to the detriment of Guyana. The Petroleum Commission Bill which I commented on some two years ago seems to have fallen by the wayside. Regulations to oversee the day to day operations of the sector are also absent.
- See multi-national oil companies as partners. There must be a spirit of collaboration and partnership between the Government, the local private sector and the multi-nationals. Capitalism is win-win not win-lose. The relationship between the Government and the multi-nationals must be premised on mutual respect and a realization that the company must get a return for its capital and the country must be rewarded for the commercialization of a depleting resource. It must also be appreciated that companies like ExxonMobil bring more than taxes and royalties but also bring an opportunity for technology transfer and skills development. In summary, learn from ExxonMobil, Tullow, Reposl and the others.
- State participation should be carefully thought out. State participation can have different incarnations. In 2017 I suggested, for Guyana, the establishment of a State oil company. My position on this has changed somewhat since then. The record of State oil companies all over the world has been mixed or bad. Many of them end up becoming liabilities instead of assets. In T&T we have had the case of Petrotrin and there are other examples where political interference has led to inefficiency such as Pemex of Mexico, PetroSA of South Africa and PdVsa of Venezuela. A model for consideration would be Norway’s Petoro which manages the governments financial interest in exploration and production licenses.
The 2020’s will be a decade of great change for Guyana. T&T went through similar changes in the periods 1974 to 1982 and again from 2001 to 2010. A consequence of the latter period has been a level of criminality that outpaces our ability to write new law and resource law enforcement.
We can all dream of what Guyana will look like in 2030 or 2040. Transformation is however not a given and development means different things to different people. There are many examples of countries that had a similar start and tripped and fell. Oil has not brought wide social and economic transformation in places like Angola and Nigeria while Venezuela is an extreme case. Indeed, in some cases oil has led to acute income inequality and social instability (see the Niger Delta). The road ahead is not easy. I have however met a lot of young Guyanese who currently work in the oil industry. I think the future is bright if they are given the opportunity to lead.
A lot more must be said but for now best wishes and happy new year.
Kevin Ramnarine served as Minister of Energy and Energy Affairs of Trinidad and Tobago from June 2011 to September 2015. From May 2010 to June 2011, he served as Parliamentary Secretary in the Ministry of Energy and Energy Affairs of Trinidad and Tobago. He is currently a Lecturer at the Arthur Lok Jack Graduate School of Business in Trinidad and Tobago.