Where is Guyana seeing the benefits of oil production?

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Bobby Gossai, Jr.
Bobby Gossai, Jr. is currently pursuing the Degree of Doctor of Philosophy in Economics at the University of Aberdeen with a research focus on Fiscal Policies and Regulations for an Emerging Petroleum Producing Country. He completed his MSc (Econ) in Petroleum, Energy Economics and Finance from the same institution, and also holds an MSC in Economics from the University of the West Indies. Mr. Gossai, Jr.’s professional experiences include being the head of the Guyana Oil and Gas Association and senior policy analyst and advisor at the Ministry of Natural Resources and Environment.

By Bobby Gossai Jr.

Bobby Gossai, Jr. recently completed his MSc (Econ) in Petroleum, Energy Economics and Finance from the University of Aberdeen. Mr. Gossai, Jr.’s professional experiences include being the head of the Guyana Oil and Gas Association and senior policy analyst and advisor at the Ministry of Natural Resources and Environment.

Major oil discoveries offshore have transformed Guyana from a “frontier” to the oil industry’s global hot spot. Progress both off and onshore are grabbing international headlines as the country prepares to turn a new page in its history. The International Monetary Fund (IMF) has projected that the Gross Domestic Product (GDP) could soon be more than tripled as a result of oil production. But with both first oil and general elections looming, there is much still to be done, for this emerging economy in South America.

ExxonMobil and partners recently confirmed that first oil will come at the end of 2019 in the Stabroek block, earlier than previously expected. Liza Phase 1 will produce up to 120,000 gross barrels of oil per day, at peak production, but that is just the beginning. As the global oil industry has flocked to Guyana, exploration and development have moved quickly, since the first discovery of May 2015. With Liza Phase 1 transitioning from development to the production phase, ExxonMobil is already well underway on preparations for Liza Phase 2, which was approved earlier this year. Other companies are also actively exploring additional blocks.

However, as first-oil flows, Guyana is also due for elections in March 2020, making the industry a major focus. Much debate and excitement centres on how well-prepared the government is for oil revenues management, and what strategies should be deployed to capitalize on the new wealth due to be accruing to Guyana and its population.

The excitement was perhaps most evident earlier this month when Guyana hosted its second annual Guyana International Petroleum Exhibition (GIPEX). The event drew local businesses, international energy companies and potential new investors. Addressing the conference, President David Granger said that “prospects for economic progress and prosperity are limitless.” The development of the petroleum sector will see the country advancing to a level of economic growth that can be reached in the traditional sectors, and the new and emerging areas of business for both oil and non-oil areas.

Though geared towards the industry, the event provided an opportunity for Guyanese to look back at the progress that has been made since oil was first discovered. ExxonMobil’s Hunter Farris emphasized that while Guyana has seen an impressive run of discoveries, the industry is still building the momentum. The company’s target for the Stabroek block is to have at least five Floating Production Storage and Offloading units (FPSOs) to be operational with an estimated 750,000 barrels of oil equivalent to be produced daily by 2025. With much activity focused on the Stabroek, many forget that there are also plans for the Canje and Kaieteur blocks next door.

To date, the industry has employed more than 3,400 people to work on various exploration and development activities of Liza Phase 1, with more than 50% of those being Guyanese. Local content continues to be a major focus, though a detailed policy and implementation framework, as well as the requisite legislation, have still not been finalised. Nevertheless, ExxonMobil has reported that it has already worked with more than 600 vendors and suppliers, with more than 180 million USD in spending in the process. Through the Centre for Local Business Development (CLBD), local content strategies already have a platform to be put into practice. The CLBD is a conduit between industry and local businesses, providing an opportunity to build capacity and improve the competitiveness of Guyana’s industrial base. However, Local Content development for an industry that is pivotal to the growth of the new economy will need to be more integrated than just suppliers and procurement mechanisms.

Further, the industry is making an impact elsewhere as well. At GIPEX, ExxonMobil’s Rod Henson said that Exxon is taking a holistic approach in its commitment to Guyana. Since 2015, the company has invested 2.5 billion Guyanese dollars to fund projects in STEM education, community empowerment and environmental sustainability.

Of course, it is not enough to expect that a rising tide will lift all ships. A governance framework will require legislative action and the development of a holistic industrial policy and approach to the oil industry. There is also an urgent need to finalise other local policies and develop programs to help improve the human resources available to the industry in Guyana. More importantly, these activities need to be clearly communicated to the general population so that Guyanese are aware of the business and labour market opportunities to get involved in the industry.

Moreover, the current focus on elections and politics may complicate matters, though the government and the Department of Energy (DE) have shown an ability to keep the ball moving so far. The DE has continued progress on further developments, announcing that the third phase of Stabroek production, Payara, is expected for early 2020. This continuation to build the future project pipeline is important, as it prevents unnecessary lags and costs that might otherwise accrue, to both the operators and the country. The DE also rightly emphasizes that both revenues and knowledge transfer will deliver the primary benefits to Guyana and some steps are being taken to develop capacity-building programs. However, the industry is advancing at a faster rate than the level of administrative development and as such, greater resources and efforts will have to be given to this new oil and gas sector of the Guyanese economy in 2020.

Guyana is picking up momentum as it moves towards the end of 2019 – the world will watch and see if it can hold its course. Therefore, as Guyana becomes an oil-producing country, more strategic economic and legal principles, along with great fiscal cautions, must be allowed to guide the growth of the country.

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