Features
This week I start a discussion on the upside potential/opportunities facing the Guyana economy. I shall begin by first describing the features required to constitute an upside potential/ opportunity (from the perspective of this column) and then proceed to examine one of these. It is important for me to stress at this stage that I am looking for signs of development, which would have a significant impact on the course of performance of the economy.
To qualify for consideration as an upside potential/achievement it is necessary that first of all there is, all things considered, a high probability of the project or scheme under consideration coming on-stream over the short-to-medium term. Second, given the size of the economy and its needs, significant resources should have already been committed to preparatory and start-up costs for the project/scheme. This requirement is introduced so as to rule out those projects and schemes, which are at a preliminary stage of discussion/consultation with no firm/binding commitment for their financing.
Third, when the scheme/project does come on-stream, it must have the potential to significantly alter the size and/or composition of the country’s GDP, thereby significantly improving its performance. Finally, the project/scheme must involve technological development and/or transfer in the widest sense. This can be attained through a variety of means ― the use of new methods and/or techniques utilized in the production/distribution process; the systematic introduction of Research and Development (R&D); the application of training and skills-development to the Guyanese labour force, and so on.
All the features listed above can be graded by their intensity, for example. Level 1, Level 2, Level 3, etc. For the purposes of a newspaper column, however, such technical effort is not required. It should be pointed out though, that other analysts may want to add other features. What I have portrayed constitute the minimum features required for labelling an upside potential. These minimal features would ensure that the project/scheme under consideration would have a transformational impact on the economy.
The potential of oil/natural gas:
New growth pole!
The first upside potential/achievement I shall consider is the successful exploration and coming on-stream of oil/natural gas production in the country. This potential production has been recently recognized in both IMF and World Bank evaluations of the country’s economic prospects. Thus in its Article IV Consultation (2009) published last year (2010), the IMF states: “the eventual exploitation of Guyana’s oil resources (expected to begin in 2014) is an upside potential” (my italics). In a joint World Bank/IMF Debt Sustainability Analysis of Guyana, published in March 2010, it was also stated “the positive prospects for eventual oil production and export (currently expected for 2014) could further support a boost to growth”. It should also be noted that the Government has referred to the potential production and export of oil/natural gas as a “new growth pole for the economy”.
Exploration for oil reserves in Guyana has been on-going for several decades. In 2000, Suriname expelled the Canadian company CGX while exploring for oil in what it claimed to be “disputed waters”. Guyana took the maritime boundary dispute to the International Law of the Sea Tribunal in Germany, and in 2007 the Tribunal ruled in favour of Guyana. This lifted the freeze on exploration in that off-shore area resulting in a number of international companies pursuing discussions with the Authorities about further exploration.
Rich Potential – Off-shore
The disputed area of the Guyana-Suriname Basin has rich potential for oil and natural gas. The United States Geological Survey has estimated recoverable oil resources in the Basin to be 15.3 billion barrels, yielding an annual output of about 50 million barrels and gas reserves to be of the order of 42 trillion cubic feet. This makes the Basin one of the largest unexplored oil/natural gas reserves in the world.
Recently, it has been reported that Tullow Oil, a British Company is to start drilling soon in this area (GINA, January 17, 2011). Tullow Oil has a joint venture with REPSOL, a major oil exploration company located in Spain. CGX of Canada is also engaged in exploratory operations. Indeed CGX has publicly announced that it expects to come on-stream in 2014, based on results from operations on its Corentyne Petroleum Prospecting Licence (PPL). It is estimated that this Licence has the potential for 400 million barrels of crude oil.
Disappointing Land-based potential
There is also drilling for oil in Region 9 in the Takutu Basin by Groundstar Resources Inc. The first of two wells ─ the Apoteri K-2 has been unsuccessful and has been recently terminated. As originally scheduled, a second well is to be drilled in the Rewa/Pirara river area. Groundstar Resources is operating in partnership with Canocol Energy and Sagres Energy.
Readers should note that this is the area that Home Oil had previously explored in 1982 and where the Karanambo discovery was made, but the oil found was not in commercial quantities.
Benefits
The commercial production and export of oil/natural gas from Guyana would make a huge difference to the overall performance and potential of the economy. Clearly it would bring enormous relief to the foreign exchange pressures created by spending so much on imported fuel. Additionally, it would secure a massive expansion in export income.
The global economic crisis had led to a sharp decline in the price of oil, falling substantially from its pre-crisis peak of about US$150 per barrel for crude. In recent months, as signs of global recovery have become visible and oil speculators have played the global oil markets, the price of oil has taken a sharp up-turn. While it has not regained anywhere near the pre-global crisis peak, it has reached peaks near the US$120 per barrel for crude and importantly continues to rise over the medium-term trend. This suggests that if oil production comes on-stream on or around 2014, Guyana would stand to be a big winner from this development.
Next week I shall wrap up this discussion on oil/natural gas and then move on to consider a second upside potential/achievement over the near to medium-term.
