Transforming billions of barrels of oil resources deep beneath the surface into cash in hand which can be used to directly benefit a country and its people comes with a multitude of challenges, which if overlooked, can see the initial euphoria from the promised oil riches lead to disappointment and anger.
“The mere mention of a natural resource discovery, especially of oil and increasingly of gas, ignites personal and national dreams of riches and hopes of prosperous times, fuelled more than ever by recent dramatic changes in oil prices,” notes Guyanese Economist, Bobby Gossai Jr., writing in his weekly OilNOW column, the Energy Journal.
The massive discoveries which have been made by ExxonMobil off the Guyana coast since 2015 – 18 to date – have served to dramatically raise the hopes of a country yearning for a better and brighter future.
“The “emerging” players optimistically view such a valuable treasure as a fast track to development,” Gossai Jr. said, pointing out that this is often equated to the transformation of oil-rich nations such as Kuwait and the United Arab Emirates of today. “However, the emotional euphoria of a beautiful tomorrow often runs into reality — namely, the financial, commercial, and political challenge of transforming locked underground assets into a useable liquid asset – cash.”
The Economist points out that dashed emotions can then turn to anger. “Ruined dreams pose significant political and economic risks for the energy industry, for the consuming nations, as well as for the producing nations.”
The discoveries at the prolific Stabroek block are estimated to be around 9 billion barrels of oil equivalent, which even at an average oil price of $40, are expected to see Guyana bringing in billions of US dollars in revenues as the oil fields are developed.
“We see at a $40 per barrel scenario, the income generated from the discovered fields would be around $96 billion dollars and at $60 it would be around $200 billion dollars, and if that increases to $80 per barrel, we see $310 billion dollars being generated to the Government,” Sonya Boodoo, Vice President of Upstream Research at Rystad Energy, has pointed out.
Still, tempering expectations and ensuring it is understood that there will be no ‘overnight windfall’ is a necessary approach and one which government officials have been taking, both in explaining the pace of revenue inflow and need to diversify the economy for long-term benefits.
“We are going to get between now and say 2025, 200 maybe to 300 million [US dollars] depending on the price for oil, per year,” Vice President, Bharrat Jagdeo said in a recent interview when asked about the possibility of cash transfers for Guyanese. He explained that paying out US$5,000 per household per annum, as was suggested by Guyanese Economist, Professor Clive Thomas, to around 200,000 households amounts to US$1,000,000 dollars each year. “We are nowhere near collecting the magnitude of money that will make a difference to people alone,” he said. “After 2025 then you’re going to see a little ramp up of how much we collect, and you can start exploring grants to households.”
The Vice President said for the country to truly benefit, oil revenues must be invested in several areas. “First of all, in world-class education and health care for our people. So we want to do 20,000 scholarships, we want university education to be free because we believe if our kids all across the country, every community is educated, that is the best investment we can make in them.”
He said next on the list is investment in infrastructure and other key sectors such as agriculture ‘to catalyse future growth’ and to avoid reliance on the oil and gas sector.
“And then we said targeted cash transfers…we want it to be targeted so single-parent households, the pensioners must get some more, like our school kids…That is where we want in the short term to make sure we take care of people and generate jobs,” the Vice President said.