Guyana Eyes Oil Developments, Rising Per Capita Income

(Energy Analytics Institute, 17.Aug.2021) — Guyana’s Vice President Bharrat Jagdeo took part in the Offshore Technology Conference (OTC) held in Houston between 16-19 August 2021. What follows are brief details from his discussion on 17 August during a panel entitled “Guyana: An Emerging Oil Industry in the Context of Net Zero Emissions.”

Jagdeo’s Introductory Remarks

“I hope that the people who are interested in Guyana would want to work with the local private sector because for us this has to be about a shared prosperity. It has to be the oil and gas investors making a decent profit or reinvestment return on their investment, but the prosperity has to be shared with the people of Guyana.

The low carbon development strategy was launched several years ago. We launched this strategy to see if we could establish a different pathway to development, a non-polluting pathway to development given the enormous carbon sink that is our forest. Our forest in Guyana is a carbon sink for 19.5 gigatons of CO2 equivalent, and an annual sequestration of 154 million tons of CO2. That’s a forest, which covers about 86% of the country. It’s as big as England. How does that compare with some countries in the world?  It sequesters the equivalent of all the emissions of Norway, Sweden, and Finland combined or half of the CO2 emissions of the United Kingdom.

So, the forest in Guyana has been making a huge contribution to the fight against climate change. Our forest has more bird species than the entire United States of America. We have about 4% of all known animal species in the world in our forest. So from a biodiversity perspective from a carbon perspective and in terms of ecosystem services, it’s been estimated that our forest produce about $54bn of ecosystem services to the world. So in Guyana’s case we are already a net zero emitter. Where the world is trying to get to by 2050, Guyana is already there. We are net global emitter and even with Exxon‘s production, the emissions from the production, we would still remain in net global emitter.

So, we can grow the industry for our people.  And in today’s The Guardian I saw an article by some people, Guyanese, NGO’s and others who have been calling for us to leave the oil in the ground. There are many others who are saying globally that to get to a decarbonized future to get to net zero by 2050 there should be no further investment in oil and gas assets. So what’s our position on this?  We believe it’s totally unfair. First of all, the world is going to continue to use fossil fuel for the foreseeable future.  Although there’s been a great movement forward in terms of plans for emission cuts and we’re getting closer to pledges of the Paris Club Agreement to deliver on that, we’re still not doing enough. So the demand for energy is far outstripping the investment in renewables. So the world will need to use fossil fuels, even if the transitional fuel, gas, as we get into that future. So, the people who were calling for us not to develop an industry in a small country like Guyana they have to understand that we cannot remain locked into a cycle of low carbon emission, but low income. Guyana’s per capita income is now $6,000. Our people have a legitimate expectation to prosperity too. In the United States the per capita incomes is $70,000. The developed countries are in that range or a little bit lower.  So we have a legitimate expectation to grow the per capita income and rapidly too. This [oil and gas] industry can contribute to that. If we freeze all new investments now in the oil and gas sector, particularly in countries like Guyana there is still a $4tn industry that is the oil and gas industry that is producing for the global demand. What we are doing and those activists are doing is they want to lock this investment in for the incumbents.  Why should we not want to displace some of the higher cost producers in the world? We want to share in that market too. We want to share in that market because if you don’t have any investment in small countries like Guyana or where the prospects are greater for cleaner light sweet, crude and a lower cost producer then effectively we’re lobbying for a monopoly for the existing producers.

First, we believe that we can develop the industry in our country can grow rapidly.  It can produce the wealth that would help us to change people’s lives, and that’s crucial for us. We can do so in Guyana’s case, by continuing to invest in and using some of these resources to invest in a decarbonized future consistent with our low carbon development strategy, which would evolve.

Second, we are making an energy transition at home. We are now entirely bunker sea and diesel. In the future we’ll probably increase our capacity for full national install capacity in terms of megawatts and still because of the new energy mix, gas, hydro, solar emit about the same level of carbon that we are emitting today, but with four times the national capacity. So, we believe we can continue to do that. 

The third point is we will continue to advocate globally for a decarbonized world.  We support removing subsidies on exploration. In Guyana’s case there is no subsidy on exploration.

I saw there’s a call globally by Europe and others to remove subsidies from the industry, but in Europe, it’s a $55bn subsidy that the industries get. So we support that call. We support a carbon pricing because that’s critical to send signals to the industry to invest in renewables and we support the need for more enhancement of the ambition at the Paris Club. Because right now, the pledges that are there are not adequate to deliver on the conditions that would prevent this existential threat, which is a 1.5-degree rise above pre-industrial levels. So, we support all of this, so we will continue to advocate globally for changes. We will continue to pursue a rigid, strong low-carbon development strategy and we will develop the industry in a manner and put in place the regulations that would allow the industry to develop in a safe manner, introduce cutting edge low-carbon technology, and that would also ensure that it brings benefits to our people.

Q&A SESSION

Question: How are you bringing in local talent to help with the development of the oil sector?

Jagdeo: As I mentioned, let me develop on the point about shared prosperity.  We believe that the industry and the model for its growth in Guyana has to avoid some pitfalls that we’ve had historically. The oil and gas industry in many parts of the developing world has operated in an enclavic way. It has had a lot of negative publicity. Many locals do not benefit from the industry. A lot of the resources are wasted on prestige projects by the countries themselves, or squandered, stolen. And then the sector in many countries sees itself as separate from the economy and the development of people. So we are hoping that the industry will not operate in an enclavic way and we’ve had these discussions with Exxon. They need to find a new model that is consistent with a low carbon future but creates a corporate responsibility. And so that model has to emphasize the integration of people and people’s benefit. People who live in their country or nationals of that country have to judge the success of the model as to how the industry can help to transform their lives and that is why we’re pursuing an aggressive local content policy. Many of our people are not capable at this point in time to build their FPSO’s or to supply the advanced technologies, but they can do a lot of things that the industry requires. They can do transportation, logistics, and so we’re carving out some sectors for local involvement.

We hope also that the investors who come in, because the local content policy will mandate that they will work with locals, and that’s why many of the local companies are here and I hope those who are interested seek to work with the with their locals.  And so we believe through the local content policy that we could do that, get people more involved. Then in terms of use of the resources, two things would have to characterize the use of resources: fiscal discipline from the government side, to ensure that a lot of the oil proceeds are invested in the non-oil economy so that we can have sustainability in the long run. We don’t have the “Dutch Disease” that has characterized so many countries where you find you have the resource windfall and now you see those countries as soon as the resources are depleted, suffer enormous loss of welfare. So we are very careful about that and that spending doesn’t change relative prices in the economy and that we can use some of the resources to put in the conditions for the expansion of the economy. And for those of you who are interested, we are talking about growth in agriculture, enormous capabilities in Guyana. The tourism sector. The hotel industry, which now needs not just to supply oil and gas but the really huge demand for hotel rooms. Nobody is there, so it’s catalyzing that. Fiscal discipline also means spending on our people. 

Investing in world-class education for the locals so they have a growing capability to become part of the industry, training et cetera and of course healthcare. And then, in terms of transparency and use of the resources, we expect transparency from the oil companies themselves but more so from the government in utilizing the oil and gas resources. So, we have to evolve all of those issues. We promised when we’re contesting elections that we are going to legislate so any money received by the government from the oil and gas companies would have to be published in the Official Gazette and reported to the Parliament and if the Minister of Finance refuses or doesn’t do so within a defined period he/she could be charged criminally and go to jail and we are putting in a 10 year penalty. So that’s just to give you an example as to what we want to do to make sure that every cent of the resources that we get would not be squandered. 

Question: Do you see other forms of offshore sectors being attractive to investment, say wind energy, solar, the development of biofuels?

Jagdeo: So, that’s huge for Guyana. Right now, as I mentioned, some new opportunities are opening up, and I know quite a few of the investors here, because soon those issues will be put out to tender, are very very interested, so we’re bringing in this pipeline and then using the gas to generate power. This is crucial for our development. Right now, power is all generated from bunker, it’s unreliable. The cost is approximately $0.30/kWh. It’s debilitating for industry and for people to, their families. So we have to get the costs of power down if we’re going to develop other industries and that’s crucial for us.

We now are out to tender also for hydropower and we’re going out to tender before the end of the year and we already have the resources for about 30-50 megawatts of solar energy.  So these are new opportunities that are available and they are all in the renewable energy sector. I know that gas is still in some countries, they’re saying we must not go to gas, but to really decarbonize, you cannot get anywhere near to satisfying global demand for energy without using gas as a transitional fuel and some people are saying we shouldn’t do so, but it’s going to make a big difference in the lives of not just Guyanese but investors and it can catalyze a whole series of new industries. So wind is crucial to, to come back to renewables, wind energy is vital. We’re looking at the sugar industry to see if we can do some biofuels there so maybe a blend on transportation because that’s another big source of emission globally. In Guyana’s case is not that large, but to see if we can do a blend of fuel there. So we’re open to any idea that would see a more decarbonized supply of energy, or on the transport side to power transport. 

Question: How is the government working with universities to help build the right skills to grow your own leaders, your own engineers, scientists, and geologists you know internally? 

Jagdeo: I saw this mentioned in the same The Guardian article that we were taking advantage of by Exxon because we don’t have the capabilities. I believe in full transparency and it’s true that for an industry that is developing so rapidly that the government, and especially a small country, will not have the capability right at the beginning to put in place immediately the entire framework for the optimal management of the sector and that has to evolve and it has been evolving in Guyana’s case.

So, for example the permits for the two first development Liza 1 and Liza 2, the environmental permit for was for 25 years, its been reduced to five years now. And we then had a third permit issued for the development of Payara, its environmental permit included quite a few features that were not in place and now that has been issued and we’re moving forward. For example, we just don’t have a no flaring policy which was there in Liza, but now there is a fee structure that if you flare beyond commissioning you have to pay a fee and it’s based on carbon emissions. That’s a new feature of the environmental permit. Secondly, it deals with waste-water manage.  Thirdly, it deals with cradle to grave management of waste. On safety issues we are now getting a contribution I think it’s $2mn from Exxon over four years to do safety inspections. In terms of addressing environmental spills, we are addressing all of those issues in a new permit. So what I’m pointing out that it is the growth of capacity. The Liza permits will now evolve early next year into the Payara conditions, so the capacity grows, the conditions go and similarly at the government level we are now looking at enhancing or changing the Petroleum Act because it’s dated, it was passed in 1986. We have to have a modern act in place that will see the development of this sector. So these things will happen right now. Locally we don’t have all the talent and we import this skill through consultancies. A lot of local people are training on their own through universities, and we intend to spend more money investing in young people, particularly so that they are trained to manage the sector way into the future. 

Right now, there’s a greater urgency and training people with skills for jobs immediately, welders, suppliers, etc. These can be trained in a very short period, uncertified and their job opportunities because we’re in construction phase there in the oil and gas industry are available immediately if you can train those people. So training not just through university, but technical colleges, is a crucial part of how we allow our people to access these opportunities and it’s on our agenda. 

Question: What is the status of the energy policy to have the oversight required to monitor development of the industry?

Jagdeo: We have an energy policy and we’ve already defined that. If you talk about energy supply to our country, we’ve defined what the energy mix will be. What our demand shall be at the national level for the next five years and we are meeting that demand by a combination of these fuel sources that I’ve spoken about.

People ask me, oh, do you have a depletion policy, that’s a big issue? And I say to them because we’re a low cost producer, because our energy has less sulfur than fuel from other parts of the world, and because there is this imperative of climate change and they need to decarbonize, our policy is to get as much of the oil out of the ground as quickly as possible, and it sounds a bit harsh for people who think you should be environmentally sung and don’t get any fossil fuels, but that’s the reality of it is that a small country like ours has to maximize the benefits from the industry and use those benefits to change our people’s lives and support still a decarbonized world. We don’t know how safely we’ll get there but we have to make use of this period when there is still demand as I said before, to get as much of this out of the ground, and that’s why we support the rapid pace of the growth in the industry, but it must be done safely. I’ve heard there have been a lot of new technologies and you’ve had presentations here about technologies that can be used that are lower emitting, no carbon emitting, to extract the oil, and we have to use those technologies to.

Question: How much of the resources will be used in the country and how much may potentially be exported? 

Jagdeo: We already have national demand that is just a fraction of what we will be producing. So that’s why the externalities, if carbon creates externality, we support a carbon tax or carbon pricing. So, we believe if you consume then you pay. But, would those countries be prepared to pay the externalities? 

We’re about two tons per capita. The United States is about 20 tons per capita emission and Canada is about 17 tons.  So, we don’t expect our rate to go from 2 tons per capita, if you’re asking about national, to 20 tons because we’re constantly trying to decarbonize our efforts.

Question: Is there any onshore oil and gas potential, or is really focused in the offshore? 

Jagdeo: As a policymaker, I wanted to say that we’re taking ownership of the industry. It’s not developing like a stepchild. Often that happens and the country doesn’t take ownership. We support the development. We support the investment. We want investors to do well. We want the people of the country to do well to and we have set in place the framework so that can happen, both the fiscal framework, and the regulatory framework and that’s what I wanted to say here as a policymaker, because often there are lots of questions about that. 

Question: If we’re looking forward about 10 years, what would you think success looks like when people are describing how Guyana took their resources and how Guyana developed in a fiscal, social and environmentally responsible way?

Jagdeo: We’re trying to target our per capita growth to about $30,000. So, moving that’s a major job. So that’s the first thing, moving from $6,000 to $30,000 per capita. An economy that is diversified. An economy that is producing the oil and gas but, an economy that can make an enormous contribution to food security and doing that globally and regionally, like the entire Caribbean because our food import bill runs into billions of dollars in the region. So, a diversified economy that is ensuring food security. Globally there are many countries, almost 80% of the countries are already water stressed. They don’t have fresh water. In Guyana’s case, we’re not going to have that problem, and then food production is going to become crucial, because if you manage to cut deforestation rates, now every year we lose a forest the size of Greece. Every year we lose that. And if we’re going to cut that back, these forest generally are converted into food production, mining, etc.  So you’re not going to be able to expand land and agriculture into those areas. But in our case we don’t have to cut the forest to expand agriculture, so food will be vital for the future. So diversify the economy with tourism, and agriculture where all of these sectors are making a major contribution to national well being, job creation, along with the oil and gas industry so a diversified industry where all of our people have a top quality education, and healthcare and have jobs. So, that’s what I’m looking at in the future by 2030. Looking at these things, a diversed economy, Guyanese enjoying a greater sense of well-being, the elimination of poverty.

Question: Are you able to work together with Suriname regarding net zero goals and country development targets? 

Jagdeo: The Guiana Shield is four countries: Suriname, Guyana, French Guiana and part of Brazil. They store an enormous amount of carbon and biodiversity. And often species migrate across these areas so working together in the Guyana Shield would be vital in the future and Suriname is a country similar to ours with a very low rate of deforestation. So, we believe we can work with Suriname in that context to enhance the contribution that forest may make globally. We had the largest per capita forest-trading scheme in the world with Norway for its carbon-trading scheme, we earn upwards of $200mn. We believe that unless forest are viewed as a mitigation solution and they get globally the same attention that transport gets, which is another big source of emission and energy, then you can’t reach the global goal of net zero emissions by 2050. So, we have to create a model where forests are paid for, and they’re valued more alive, the trees are valued as living trees more than when they’re dead, that is, when you cut them and convert.  So, I think we can work out a model with Suriname and others and then on the energy side too, because they’ve had some discoveries. I think we can share infrastructure. The President of Suriname is in Guyana now. We’re talking about the energy hub in between Guyana and Suriname and maybe even exporting some of our power to other countries like northern Brazil, which needs power so there are lots of things we can do together.

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By Ian Silverman and Piero Stewart. © Energy Analytics Institute (EAI). All Rights Reserved.