Competition accelerating in the Caribbean

IN early December, Trinidad and Tobago launched an auction seeking bids for 17 deep-water oil-and-gas blocks. The government recently shortened the bidding timeframe to ensure that it can more quickly announce results, which are expected in about nine months’ time. As this bidding round began, the government announced yet another round in 2022 for both onshore and shallow-water areas. In mid-October, Suriname signed a 30-year production-sharing contract with Chevron to develop Block 5, which sits near the border of Guyana’s lucrative Stabroek Block, after concluding a year-long auction process of its own.

This news is typical of aggressive efforts across the Region to boost exploration while oil prices are high and seize the same opportunities Guyana has been able to capture. While some environmentalists continue to call for a halt to development, most countries are pressing ahead, at least in the short term, to meet rising demand for oil and gas.

A longer-term switch to cleaner energy sources is still expected, but will take time and significant investment. While that shift is widely supported, it will not happen overnight. Most importantly, for the developing world, energy development is necessary to make the above transition possible. Developed energy producers such as the United States and Australia are also moving forward aggressively on both fronts, opening up areas for oil and gas to meet demand and reduce prices for their citizens, while building up their clean-energy sectors.

For its part, Guyana is moving to more than double production in 2022 with the recent arrival of its second floating production storage and offloading (FPSO) vessel. Production company ExxonMobil is already in talks with contractor SBM Offshore NV to build a fourth multibillion dollar FPSO to further increase production capabilities in the country, after signing off on a third in late 2020.

The country just delivered its fifth and final oil lift of 2021, its ninth lift since production began in 2019. According to the government, the country’s Natural Resources Fund (NRF) now stands at over USD$534 million, and although the government has yet to use this money, the NRF has been accumulating funds to be spent on domestic infrastructure and social programmes.

This early success has been partially due to the phased approach to oil-and-gas development. That strategy of bringing on production vessels one at a time while exploration continues has enabled Guyana to begin development quickly and safely, while allowing time to adjust regulations and make plans to use energy revenues. In contrast, Suriname has yet to bring any major offshore production online and will likely miss out on this period of high prices and high revenues.

Starting with a lower-capacity FPSO has allowed Guyana to begin production, while also providing time to manufacture a larger FPSO that required more time to build. The phased approach has also allowed the country to develop a local content strategy, which will soon be presented to the National Assembly for review. By starting smaller and earlier, local companies and workers have been able to develop their capabilities and safely take on more responsibilities gradually as the industry grows. More than 800 local companies are involved in the industry to date.

With a successful start to oil-and-gas development, Guyana’s future is bright. The country is on the cusp of much higher revenues as global demand and prices of energy products remain high. But pausing development now, as some have suggested, might be risky. While demand for oil is predicted to remain high for at least the next decade or two, the longer-term is uncertain. Oil is seen by many as a “use it or lose it” resource, given the likelihood of increasingly strict global measures to reduce emissions.

Calls to pause Guyana’s blossoming energy sector could be detrimental to the long-term development prospects if other countries seize the opportunity instead. Pausing now might also risk undoing the progress that has already been made. Vice-President Bharrat Jagdeo highlighted this concern in remarks to the Georgetown Chamber of Commerce and Industry last week and explained his views about the hypocrisy behind it. “If you add all of the emissions from ExxonMobil in Guyana from the FPSO and all the emissions from every sector in Guyana, it will not be equivalent to the emissions of the world in one hour. And yet we are contributing to climate change? President Biden and the others have just asked their oil-and-gas producers to pump more oil because oil prices are skyrocketing in the U.S. and in many places in the world. So, these NGOs believe we must shut down operations here. But in the developed world they want more oil pumped because prices are escalating and affecting their people, their businesses, and their consumers,” Jagdeo said.

Many new industries and services, like hospitality, legal offices, and financial services, are just taking off due to increased demand from the oil-and-gas industry. Companies in these and many other spaces are now beginning to rely on this heightened demand to expand and improve their businesses. Pausing development could hurt this new activity and keep out much-needed continued investment in local business.

Right now, Guyana is lucky enough to be in a privileged position as an attractive destination for major investment. It is crucial that we take advantage of that opportunity before others do so.

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