Guyana must decide on pace of oil development – money now or later?

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Guyana’s flag – the Golden Arrowhead – is hoisted for the first time onboard the Liza Destiny FPSO, the country’s first oil production complex, after it arrived offshore in August 2019.

Director of Guyana’s Department of Energy (DE), Dr. Mark Bynoe says the South American country of Guyana faces some tough decisions going forward as it relates to the pace of offshore oil development and that this must be taken in the context of what is in the country’s best interest.

Oil production, initially scheduled for Q1 2020, could potentially begin as early as December with the 120,000 bpd Liza Phase 1 Development project. The second phase of the Liza project, slated for a 2022 start-up, has already been approved and a third development at Payara, targeted for 2023, is currently under review and is expected to be approved by Q1 2020.

“Is it in Guyana’s interest to keep the oil in the ground for a longer period like when the Norwegians began exploring, or is it in Guyana’s interest to extract as quickly as it can, get its money, bank that and move towards more sustainable industries?” the DE Director asked at a recent press conference in Georgetown.

What is clear is that Guyana’s economy is not at the same place Norway’s was when that country began developing its vast oil resources.

The World Bank has reported that Guyana’s human capital is below the median for the region and for its income group. The country is among the poorest in the western hemisphere with one of the highest emigration rates in the world. The IDB has reported that Guyana’s performance at the Caribbean Examination Council Examination is below the Caribbean average. Also, despite governance and transparency-related reforms, Guyana stands at 93rd out of 180 countries on the Corruption Perceptions Index.

Dr. Bynoe said the rate of depletion of the country’s oil resources is an important policy discussion to be had since the outcome will impact all Guyanese.

“If I were to come to you and say I am feeling very charitable and I have a million dollars to give away – no Guyana dollars but US – you can get it today or you can wait five years, what would you prefer? I am sure the average man would say to give it to me now. These are decisions Guyana has to make as a country,” he pointed out.

With volatility in global oil prices and a high degree of uncertainty about the long-term value of these resources, UK-based global consultancy group, Wood Mackenzie has said rapid development of Guyana’s oil fields will maximise benefits to the country.

“People have borne in mind the timeliness needed to develop these resources so they always question what will be the value of these resources if oil is still in the ground in fifteen years from now. So, bringing the oil revenues in earlier and then using it to diversify the economy and also to provide the country with cheaper energy – I think these are two of the key goals,” said Luiz Hayum, Senior Analyst at Wood Mackenzie’s Latin America Upstream Research team.

Caribbean Economist, Marla Dukharan, says Guyana is arguably on the verge of its first major opportunity to meaningfully transform not just its economy, but the quality of life for all its people.