Will Guyana fall victim to the oil curse?

Rapid oil and gas development is expected to transform Guyana's economy over the next decade as international companies tap one of the world's most promising unexplored basins. 

Signs of the impending boom are already evident, with ExxonMobil and its partners stepping up multibillion-dollar investments in exploration and production initiatives in the prolific Stabroek block.

The International Monetary Fund has declared Guyana the world's fastest growing economy. GDP is expected to expand 26.2% in 2020, 12% in 2021, 49% in 2022 and 28% in 2023, according to the Washington-based entity.

However, the burgeoning local sector is also facing increasing opposition as critics warn that unhinged growth could have catastrophic consequences for the former British colony. 

"I would say that Guyana is totally unprepared for oil and has had a disastrous year [in 2020]," said Melinda Janki, the executive director of Justice Institute Guyana. 

Speaking to local radio station Kaieteur, Janki criticized a perceived lack of government transparency and said major offshore investments have so far done little to improve the life of ordinary Guyanese citizens. 

"We have strong laws in this country yet we have a sector that is riddled with illegalities," she said. "You've heard the lie of vast wealth when in fact we're going to end up with massive debt. The oil curse is here."

Particularly harsh criticism was reserved for the Payara field, which an Exxon-led consortium received approval to develop last year. 

According to Janki, an environmental license and drilling rights for the area were issued without the necessary studies and protocols. 

The international law and human rights expert said a 2018 feasibility study by US firm Energy Narrative showed that US$300mn of investment was needed to bring Stabroek's natural gas to shore. 

However, ExxonMobil would be responsible for less than 60% of the overall cost, with the remainder to be financed by taxpayers, Janki claimed. 

She also questioned the long-term viability of Guyana's oil and gas projects amid falling global demand for fossil fuels as investors prioritize renewable energy.

BNamericas contacted Guyana's natural resources ministry but did not receive a reply. ExxonMobil declined to comment in an emailed response to a BNamericas call. 

Tom Sanzillo, financial director at the Institute for Energy Economics and Financial Analysis (IEEFA), said efforts to bring gas to shore would help to reinforce Guyana's power grid and reduce electricity costs. 

But he feared that "lopsided deals" for oil companies would do little to benefit Guyana's population. 

"I have to be frank about this. The way the contracts were negotiated for this oil endeavour gives me no confidence that the country has any ability to negotiate the best price for a pipeline and other infrastructure to bring gas to shore…There is no evidence of that. In fact, one has evidence to the contrary,” he said. 

The current Irfaan Ali administration, which assumed power in August, has stated that terms of future drilling contracts will not be so advantageous towards private oil and gas companies.

Officials have also flagged changes to local content rules that would benefit Guyana's oil and gas supply chain while promising to reduce gas flaring as part of a commitment to cut emissions. 

In addition, the new government has outlined plans to provide greater legal and regulatory certainty to investors through the creation of a petroleum commission that would "depoliticize" the hydrocarbons industry.

But will these efforts be enough to ensure Guyana avoids the paradox of plenty?

William Clavijo, a public policy expert at the Federal University of Rio de Janeiro (UFRJ), said Guyana's hopes of fulfilling its vast oil potential depends largely on the effectiveness of a regulatory framework that ensures tangible gains for Guyana and its people. 

"This will only be possible through investment in human capital and infrastructure so that citizens can develop capacities and skills, and progressively insert themselves in productive activities linked to the oil industry or other sectors of the economy," Clavijo said in a research note published last August. 

He opined that a failure to prevent corruption and fiscal irresponsibility could expose Guyana to "devastating" consequences similar to those seen in other ailing petrostates such as Venezuela, Angola or Mozambique.

In a report published late last month, the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) estimated that US$53.4bn would be invested in the Guyana-Suriname basin over the 2019–2030 period, but warned that such heady growth could also bring pitfalls. 

"These new circumstances offer the country great opportunities, but they also pose the risk that the oil sector will exclude traditional sectors and prevent the diversification of the Guyanese economy," it added.