| THE OIL CURSE: Can these new wells shape Guyana’s Development? By Sase Singh INTRODUCTIONGuyana’s oil potential was under consideration since 1917, when a well was drilled in the estuary of the Waini River. For those who can remember, a Canadian company called Home Oil in the late 1970’s did some exploration in the Rupununi. One of the wells at the time had potential to produce up to 400 barrels of oil per day. Then there was the French company called Total S.A. and then CGX out of Canada. After several attempts at finding oil in commercially exploitable amounts, today we have struck liquid gold.In May 2015, Exxon Mobil (Exxon) broadcast the discovery of substantial offshore oil reserves in the Stabroek “block” at a location labeled as the “Liza-1” well, which was reported to be sitting on top of reserves of more than 700 million barrels of oil. This translates into royalties of just under US$1.2 billion; that is homes for 100,Discount NFL Jerseys,000 families. This is BIG!REVERSING THE CURSEFirst of all we must be realistic; we shall not see any of this money before 2021. There are two determinants working against the extraction of this oil immediately. Firstly the oil prices; they are too low. The long forecast from the experts in the industry states that surpassing US$50 before the end of 2017 is a tall order.At a conference in 2015 in Washington DC, I found out that Exxon “cannot afford to bring this oil out at a price below US$65 per barrel”. So while it is important we prepare for oil, we must ensure that the people are aware they may not see a penny in their pockets before 2022.Secondly, the Venezuelan border issue is an irritant that has to be mitigated. We must commend the Granger administration for doing an excellent job at advocating on this matter internationally. Guyana is no longer referred to as the land of Jim Jones, but as the small country that Venezuela is bullying for its land and oil.But in spite of these challenges, Guyanese will benefit from this oil wealth in the future. However, if we are not careful we could end up like Nigeria, where the people in the Niger Delta have little to show for all the oil pumped from their territory.Being aware that this fuel will flow in just over four years from now, the policymakers have a good enough planning runway to set up the governance systems to regulate the extraction of these resources so that a fair share of the wealth is allocated to the locals and appropriately spread. If these resources can be properly managed, it offers a significant opportunity to transform Guyana. The secret is professionally programming the expenditures from the Sovereign Wealth Fund (SWF). But how?GOOD GOVERNANCE, VALUE-ADDED ACTIVITIES AND A STABLE MACRO-ECONOMIC FRAMEWORKPetroleum revenues have four distinctive qualities – scale, source, stability and secrecy. As we start commercially exploiting this reserve, we can expect more reserves to be discovered in the future. Thus, the scale of the oil revenue is massive and can dwarf our local institutional capacity to spend,Jerseys NFL Cheap, which can lead to mal-administration of the projects.It is, therefore, important that we start building a cadre of petroleum managers and public sector project managers – be they engineers,Cheap Nike NFL Jerseys, financial specialists,Cheap Jerseys, project management specialists and so on. It is imperative that this squad be allowed to effectively monitor and evaluate the projected benefits under the SWF. If there is a gap in technical personnel, it is important that we start training some of them at technical schools in the United States.Guyana also has to be prepared for unstable oil prices for a long time (today it is low, tomorrow it is high), since the oil trade is very political. The cash inflows from the oil wealth are unpredictable and,Wholesale MLB Jerseys, therefore, we have to always plan for the “days of depressed prices”. Thus, a national plan of programming for minimum constant cash inflows over a 10-year period from the first oil flows can be an asset to the nation.If the oil price increases,Stitched NFL Jerseys, then those extras should be used to pay down debt or reduce the deficit rather than be programmed into the capital budget. This 10-year plan stabilizes the expected deliverables from the industry; no pipe dream.But this now brings me to the point of value added in the industry. Guyana needs an oil refinery within 10 years of the opening of this well or else we shall be receiving pennies on the dollar for this oil. The true economics of crude oil will illustrate that the real money is in refining. According to a US Government Report, from a barrel of oil, 70 percent is refined into fuel products, 17 percent in petrochemicals feedstock, 4 percent in propane, 10 percent in jet fuel and 3 percent in asphalt (more than 100 percent because there are processing gains).Therefore, from now we have to be developing the framework to engage Exxon or a conglomerate including Exxon, to build a small refinery in Guyana in the North West. The cheapest such a project will cost is between US$6 billion to US$8 billion. That is a huge investment, but the size of the reserves creates the feasibility for such an investment, and in the process, hundreds of new jobs and billions of United States dollars in value added revenue for Guyana. Right now there are only about seven oil refineries in the Caribbean region including Aruba and Curacao, where the Venezuelan company PDVSA processes some of its crude. So this is a real option that has to be studied and programmed from now.Lastly,Cheap NFL Jerseys China, investors will not sink US$8 billion in Guyana unless we can maintain a stable macro-economic framework that will allow them to have free movement of resources in and out of Guyana. Inclusive in that framework is the measure to keep an increasing number of our University graduates to stay at home. Pay the workers now; not next year.CONCLUSIONIt has been close to a year in which this announcement has been made, but when one looks at the local establishment, not much has been done to build and expand our capacity to ensure the interest of Guyana is properly looked after. There is a very good reason for this; there has been a change of government and thus, the new government needs time to get up to speed. But come 2017, this explanation will not have validity anymore.My inner wish is to see a Government of Guyana-funded scholarship every year to position one of our brightest every year in Texas to study this industry from top to bottom. Cheapness is not an option on this project. The time is now! |
