LAST week, President Irfaan Ali and his Brazilian counterpart, President Jair Bolsonaro announced that they would hold a meeting later this month to discuss bilateral relations. While the two countries enjoy a partial-scope agreement already, the leaders hope to widen this arrangement with further negotiations.
Naturally, oil and gas will be at the top of the agenda at the upcoming meeting, but both countries have much to gain from this opportunity.
The two heads of state will meet in person at the end of January as part of a larger regional summit that President Ali said would serve as “an excellent platform to develop an integrated project” that will benefit both countries in the long-term.
The timing is excellent for Guyana. Two new offshore oil discoveries in December added to more than 20 others that have already made Guyana into South America’s hottest energy frontier. Production is predicted to reach one million barrels of oil equivalent (BOE) per day by the end of the decade, with reserves at 10 billion barrels and growing. But despite this quick growth and many positive indicators for a successful future, Guyana still has much to plan for and learn. Better integration with more seasoned neighbours like Brazil could go a long way towards helping Guyana increase its own capacity.
Brazil is the largest oil producer in South America, boasting the second largest reserves after Venezuela, with commercial production beginning on a large scale in the late 1960s. Over the last few decades, Brazil has started to focus more on deepwater production like Guyana’s.
Since the country opened up its oil sector to private investment in the late 1990s, Brazil has become a global leader in deepwater offshore production, and the largest market for FPSOs (floating production, storage and offloading vessels) by far. The country has more than 16 billion barrels of oil reserves, largely offshore in areas like the prolific Santos Basin. The size of Brazil’s offshore resources continues to grow, and national oil company, Petrobras, plans to install at least 13 more FPSOs by the end of 2025.
While a strategic partnership with Brazil could prove vital to future energy development, paying attention to lessons learned will also be important for Guyana as it continues to develop and grow its own sector. Brazil has been hugely successful with its energy sector, but the country has also faced setbacks due to corruption, and has struggled with overly strict local-content rules, despite the country’s size and industrial power. In fact, the country had to revise its own local-content policy twice, due to delayed development issues; something Guyana will want to avoid as its sector expands.
Guyana is already faring well in these two areas, but is rightly working to avoid any issues in the future. The government has already finalised its own local-content policy, smartly incorporating input from the public and international experts to help avoid the mistakes that other countries have made with overly strict targets that derailed development at a crucial time.
Brazil may also have lessons to offer about the risks and benefits of a national oil company, and the corruption issues that can sometimes come with it. Many of the regulatory measures that have been put in place since the Car Wash scandal in 2014 that focused on Petrobras may prove valuable for Guyana as it explores its own options.
Collaboration between Brazil and Guyana could be highly valuable, both in opportunities for the future, as well as lessons learned from the past. President Ali is actively promoting regional partnerships like this as a priority, now that Guyana is a rising regional oil power. It will be crucial that the government continues to build connections and create more robust regional networks for energy trade and development. The government is already doing well to ensure that possible pitfalls to development are avoided, but continued efforts to learn from more experienced neighbours will be helpful long-term.