Kevin Ramnarine: Guyana's time has come
ExxonMobil's second exploration well on the Stabroek block
off Guyana's Essequibo area confirms a "world-class discovery"
with a recoverable resource of 800mn-1.4bn bl of oil equivalent.
For many years Guyanese politicians joked that God couldn't have been that unfair to give Suriname, Venezuela and Trinidad crude oil and to have left out Guyana. It was not as though Guyana was not trying to find oil. They had been searching for oil since the first half of the 20th century. They came close in 1974 when Shell drilled offshore and encountered hydrocarbons but had to abandon the well. In more recent times efforts intensified with attempts from companies like CGX. However, a border dispute with Suriname stymied exploration until the matter was resolved by the UN Tribunal for the Law of the Sea in 2007.
One source of hope that there was petroleum in commercial quantities was a report from the United States Geological Survey (USGS) published in 2000 and entitled “The USGS World Petroleum Assessment”. This report provided estimates for undiscovered petroleum resources outside of the United States. It noted that the Guyana – Suriname basin had the potential for 15.2 billion barrels of oil and 42 trillion cubic feet of natural gas. This is an average. Only the Santos and Campos basins of Brazil held more potential in the South and Central America areas. It was therefore only a matter of time before hydrocarbons were discovered in commercial quantities in Guyana given that the economic geology of the entire region was underpinned by a cretaceous source rock that had given birth to oil industries in all Guyana's neighbours.
Success finally came in May 2015 when Exxon announced that they had encountered hydrocarbons in their Liza 1 well. The Liza 1 well was drilled in 1743 meters of water which qualifies as deepwater or ultra-deepwater depending on how you look at it. On June 30th 2016 Exxon announced that the appraisal well (Liza 2) had confirmed a world class discovery with a recoverable resource of 800 million to 1.4 billion barrels of oil equivalent. The discovery is considered to be the largest of 2015 and is a giant oil field. The question we must ask is - what is the role of T&T in the development of Guyana's new oil industry? Naturally this must be a tremendous opportunity for the 400 plus energy service companies that operate in T&T.
But what does 1.4 billion barrels of oil equivalent mean? For purposes of comparison, T&T has produced 8.4 billion barrels of oil equivalent in the period 1908 to 2015 (107 years). That means the Guyana discovery is 17% of all the oil and gas ever produced by T&T. In addition, the long history of the oil industry tells us that when discoveries like these are made it is only the start of things to come. That means that Guyana could be at the beginning of a long period of exploration that could result in more discoveries. This idea is explained in what exploration geologists call “the creaming curve”.
Guyana is therefore on its way to being a major oil and gas producer. They would of course be wary of the fact that the discovery of hydrocarbons has led to what the academics call “Dutch Disease” and what British economist Richard Auty coined “the Resource Curse thesis”. In the case of Dutch Disease the dominance of the oil and gas sector leads to the weakening of other sectors such as agriculture and manufacturing and the appreciation of the real effective exchange rate.
Guyanese policy makers must be getting a lot of advice these days. I suppose if you win the lotto everyone would be calling to offer advice on investment and to try to sell you something. Guyana must take steps to avoid the pathways taken by other oil and gas producing countries where wealth has been mismanaged.
Last October I recommended that the coming windfall in Guyana should be used to develop the country's health and education sectors as a priority. Investments should also be made in the development of much needed infrastructure such as highways, power plants, electricity transmission lines, telecommunications and modern ports which can actualize the development of other economic sectors such as agriculture and mining. A portion of the new oil and gas revenue should also be saved in a sovereign wealth fund.
While Norway is always held up as best practice, it should be noted that Guyana in 2016 is not where Norway was in 1969 when that country discovered oil. In 1969 Norway was already a well-developed economy.
The Exxon – Guyana discovery has the potential to dramatically change the economy of Guyana and the rest of the Caribbean. I posit that it could be the most significant development of our generation as it has the potential to unlock the economic potential of the Caribbean's hinterland. Commercial oil production won't start anytime soon. Having gone through exploration and appraisal phases, Exxon and its partners must allocate capital to the development phase. This will take five to seven years. The interregnum gives Guyana time to plan and to put things in place to manage a new sector that will dwarf its entire economy. For the T&T private sector, Guyana is the next frontier. Kevin Ramnarine is the former Energy Minister of Trinidad and Tobago
Kevin Ramnarine is the former Energy Minister of Trinidad and Tobago. Petroleumworld does not necessarily share these views
This commentary was originally published by te Trinidad Guardian, on July 12, 2016. Petroleumworld reprint this article in the interest of our readers.
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