Guyana’s Booming Oil Industry: The Key Role of Governance in Fostering Development and Mitigating Risks

Guyana, despite being one of the smallest countries in South America with a population of about 800,000, has gained worldwide attention over the last few years due to recent offshore oil discoveries. In 2015 oil discoveries began taking place in Guyana, and have since skyrocketed with promising results. Oil production presents both opportunities and challenges for the small country. Ultimately, the management of incoming wealth will determine whether an abundance of natural resources will be a blessing or a curse for Guyana. Lessons learned from similarly situated countries will provide guidance for thorough governance and ensure that Guyana can reap the full potential benefits of this endeavor while mitigating associated risks.

The first oil discovery was made in 2015, when ExxonMobil discovered more than 90 meters of high quality oil-bearing sandstone reservoirs about 200 kilometers off Guyana’s coastline. In addition to ExxonMobil, a number of other companies have expressed interest in operating in the South American country, namely Tullow, Repsol, Hess, and CGX. The most recent discovery was made by Exxon, with Hess and CNOOC as partners, at the Tripletail-1 well located in the Stabroek block. This well is believed to contain the raw material to manufacture 6 billion barrels of oil. Taking into account all oil discoveries thus far, Ryastad Energy estimated that Guyana's total oil production will surpass 600,000 barrels per day by the end of the next decade, which could generate total annual revenue of $15 billion.

The potential $15 billion revenue from the gas and oil industry dwarfs Guyana’s current GDP of $3 billion, representing massive wealth potential. However, the new oil discovery does present associated challenges that must be dealt with properly. One potential challenge is Dutch disease, given that Guyana will export most of its oil. This will increase the number of transactions made with Guyanese Dollars and cause the exchange rate to appreciate. Although a sovereign wealth fund would help limit risks, it will be difficult to maintain the cost competitiveness for the country’s traditional exports like rice and sugar. Underdeveloped infrastructure and the lack of a fully developed regulatory environment pose additional challenges to long term success.

The Guyanese government has already begun building infrastructure and implementing a regulatory framework that will secure long term profits from newly discovered natural resources. A variety of regulatory measures have been put in place; these include a regulatory petroleum commission, competitive local content requirements for the Guyanese workforce, robust health, safety and environment standards, the creation of a sovereign wealth fund, and integrity commission laws intended to mitigate the governance and corruption risks associated with the sudden influx of resource wealth. The government’s efforts to establish a regulatory framework to promote good governance are promising for the country’s long term development and serve as a good indicator of steps taken to preemptively stabilize the climate. Nonetheless, potential for growth is threatened by loopholes that remain in the political and regulatory framework.

Guyana must also address the political instability that makes the international community wary of moving forward, despite the potentially lucrative prospects of the oil discoveries. On September 19, 2019, US and European diplomats accused Guyana of breaching its constitution and called for new elections to be held immediately, threatening to withhold funding otherwise. As is the case in many other countries, Guyana’s two political parties are divided along ethnic lines and thus often clash on issues regarding the allocation of resources. It is therefore imperative to ensure political stability and a fair framework that will determine allocation of future wealth. There is great potential growth for the Guyanese economy, given that the government continues to strengthen institutional, governance, and management practices.

About the Author

Anna Spiro

Anna Spiro earned her BSc in International Politics and Government with a focus on economics from Bocconi University in Milan, Italy. Anna is fluent in English and Hungarian with advanced command of Spanish as well as an intermediate command of Italian.

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