In Guyana, Exxon Oil Project Stirs International Tensions

(Houston Chronicle, James Osborne, 2.Nov.2018) — Almost 4,000 feet beneath the surface of the Atlantic Ocean, off the northern coastline of South America, Exxon Mobil is drilling one of the biggest oil discoveries of the last decade, the so-called Stabroek Block with an estimated 4 billion barrels of crude.

It stands to buoy the oil giant’s fortunes at a time the company’s oil and gas production is flagging. But the discovery has come at a price.

The massive find, located in the waters of the tiny country of Guyana, has reignited a century old territory dispute with its powerful and volatile neighbor Venezuela, flaming geopolitical tension in a region where the United States, China and Russia are increasingly competing for influence.

With Venezuela claiming a portion of Exxon’s field, Guyana has taken the case to the International Court of Justice, the United Nation’s court system in the Netherlands, as U.S. diplomatic and military officials in Washington watch adversaries in Beijing and Moscow warily.

“When we look at the controversy around the territory claims [by Venezuela] it gets pretty complicated pretty quickly,” said Ret. Vice Admiral Kevin Green, who oversaw U.S. naval operations in the Caribbean, Central and South America. “The United States is engaged globally in what is becoming more and more a great power competition. Both Russia and China see opportunities for themselves in that region, to quite frankly frustrate the United States.”

Trouble began even before Exxon, which declined to comment, realized how much oil was in Guyana.

In 2013, the Venezuelan Navy seized a ship contracted by The Woodlands exploration and production company Anadarko to survey the ocean’s bottom for oil. While the boat was in waters recognized internationally as Guyana’s, Venezuela claimed crew members had violated its territory and held them and the ship for a week before releasing them as part of a diplomatic deal.

Then Exxon announced in 2015 it had successfully drilled a test well in Stabroek. Within weeks, Guyana was tossed out of Petrocaribe, the Venezuelan food for oil program, in which countries across Central and South America and the Caribbean provide Venezuela’s 32 million inhabitants with food in exchange for subsidized crude.

Then Venezuela issued a statement asserting its ownership of two-thirds of Guyana’s land and waters claimed not only by Guyana, but also Trinidad and Tobago and Barbados.

The claim dates back to the late 1800s when Venezuela and Great Britain, which then controlled Guyana, could not agree on the border between their countries. An international tribunal intervened, and the dispute fell dormant until 1949 when a memo, written by one of attorneys that represented Venezuela in the tribunal, surfaced with the claim that judges had colluded with Britain.

Ever since, the border has been a rallying cry in Venezuelan politics. Guyana’s Ambassador to the United States Riyad Insanally said for years Venezuela had pressured oil companies not to explore in Guyana, using the threat of cutting companies off from Venezuelan oil fields – among the world’s largest.

But relations between Caracas and the international oil companies began to break down during the rule of the late Hugo Chavez, who nationalized a number of oil fields, including some held by Exxon.

“It was a bit like a Robert Ludlum novel,” Insanally said of the attorney’s memo. “No one likes being bullied and we feel we’ve been bullied for far too long. But we don’t have any military might, and we don’t have any economic clout. All we can is do is rely on the resourcefulness of our people and international diplomacy.”

The Venezuelan embassy in Washington did not return a call for comment.

The presence of Russia and China in a region long dominated by the United States has escalated what might have been a disagreement among neighbors. The U.S. rivals have again and again provided financial lifelines to Venezuela, devastated by an economic crisis, in exchange for increasing claims on their energy supplies. And they are increasingly investing in Guyana.

China recently loaned Guyana $130 million to expand its airport to allow 747s to land. Earlier this year, the nation of less than 1 million people signed onto China’s Belt and Road pact, through which the Asian superpower is investing in developing countries around the globe.

Rusal, the Russian aluminum giant owned by the oligarch Oleg Deripaska, a close associate of President Vladimir Putin, has operated bauxite mines in Guyana for more than a decade.

“Nobody wants to see Russian warships sailing around the Caribbean, and they do that occasionally,” said Thomas A. Shannon, Jr., an attorney and former under secretary of state for political affairs. “The region has largely been ours since we chased out the Germans and the French. We don’t need the presence of adversities or potential adversaries. But the way we do this it by taking care of our friends.”

The hope among U.S. officials is that the discovery of oil in Guyana’s waters will not only bring prosperity to a long impoverished nation, but also bring it deeper into the American fold.

So far, that seems to be proving out. U.S., British and Norwegian officials already are advising Guyana on how to manage its newfound wealth when oil is scheduled to start flowing in 2020. The aim is to avoid the so-called resource curse through which corruption and mismanagement become endemic upon the discovery of oil.

“The U.S. is still our major trading partner. Our links with the U.S. are much stronger than Russia and China. But we enjoy good relations with all three because that is the reality of being a small country,” Insanally said.

The presence of iconic American company like Exxon Mobil is only expected to increase Guyana’s bond with the United States. And so far, the oil giant has shown no signs of wavering in its commitment to drilling there, despite rising tensions around its operations.

It’s a calculated risk. Exxon’s oil and gas production has fallen for eight of the last nine quarters. Were Guyana to develop as Exxon has forecast, the additional production could potentially raise the oil giant’s global production by close to 8 percent, said Pavel Molchanov, an energy analyst at Raymond James.

“Exxon’s legacy production has been so weak in recent years, the company can use all the help it can get,” he said. “Guyana is in some ways the exception that proves the rule. It’s one of the few exploration success stories of this entire decade.”

But developing all of Exxon’s prospects in Guyana will not be quick. And that leaves plenty of time for what is now a legal argument expected to be decided by the courts to potentially escalate into a military conflict.

Brazilian President Michel Temer has already pledged to send in troops should Venezuela invade the disputed area inside Guyana.

“There’s some reports and analysis suggesting Venezuela will start some kind of military action against Guyana,” said Lisa Viscidi, an energy analyst at the Washington think tank Inter-American Dialogue. “It’s still really unlikely they would do that.”

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Author: ENERGY ANALYTICS INSTITUTE (EAI)

Energy Analytics Institute (EAI) is a Houston-based independent think-tank providing unbiased research, analysis, commentaries, opinions and breaking news related to the petroleum sectors in the Latin American and Caribbean regions.

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