After a series of major oil discoveries in its territorial waters, the impoverished South American country of Guyana emerged as one of the world’s hottest offshore drilling locations and the world’s fastest-growing economy. With over 30 significant oil discoveries, more than 11 billion barrels of oil resources identified so far, and growing petroleum production as well as exports Guyana is poised to become the wealthiest country in South America, a mantel once held by Venezuela. The rapid as well as catastrophic implosion of oil-rich Venezuela, which possesses the world’s largest oil reserves totaling 303 billion barrels, is a cautionary tale for petroleum rich nations. There are fears that Guyana could suffer a similar fate with many oil-rich countries suffering from endemic corruption, political instability and conflict.
The rapid development of Exxon’s 30-plus oil discoveries, which went from first discovery to first oil in a mere four years, in the Stabroek Block offshore Guyana now sees the former British colony pumping around 400,000 barrels per day. Petroleum exports are also soaring, with Guyana shipping an average of 265,693 barrels per day for 2022, according to data from Refinitiv Eikon published by Reuters, or more than double the 100,645 barrels daily exported during 2021. The key recipient of Guyana’s oil exports for 2022 was Europe, which received nearly half of all cargoes shipped from the South American country.
Those events have delivered a tremendous economic and financial windfall for Guyana. During 2020, when most countries’ economies contracted because of the pandemic, Guyana emerged as the world’s fastest-growing economy, with gross domestic product expanding by a notable 43.5%. Guyana returned to that position in 2022 when the economy grew by a whopping 62.3%, and the former British colony will retain that position during 2023 with GDP estimated to grow by 37.2%.
The financial windfall for Guyana’s government in Georgetown is tremendous despite the extremely favorable agreement secured by Exxon and its partners, Hess and CNOOC, in the Stabroek Block. For May 2023 alone, Guyana’s Natural Resource Fund received $87 million in oil profits. Data from Guyana’s central bank shows during 2022, the country earned $1.4 billion in revenue from petroleum, with nearly $1.26 billion coming from oil profits and $155 million of royalties. According to Finance Minister Ashni Singh oil revenue, from exports and royalties, will grow this year by 31% to $1.63 billion.
This tremendous fiscal windfall is being used by Guyana’s government in the capital Georgetown to fund the building of crucial infrastructure. In 2022, Georgetown allocated $96 billion to developing infrastructure in what is one of South America’s poorest nations. Of this, $64 billion alone was earmarked for the construction and maintenance of roads as well bridges. Improved infrastructure will go along way to bolstering the economy, developing trade as well as investment inflows and improving the lives of everyday Guyanese who still struggle with deeply entrenched poverty.
There are fears that the vast oil wealth flowing into the country of less than one million will fuel already endemic corruption and poor governance, causing Guyana to fall victim to the oil curse. Georgetown only needs to look next door to Venezuela to see how an overreliance on oil and the vast wealth the fossil fuel generates to see how it can breed corruption, erode civic culture, foment conflict and even destroy a country. In less than three decades, Venezuela, after Hugo Chavez’s socialist Bolivarian revolution began, emerged as a near-failed state. Not only has the OPEC member’s oil industry collapsed by Venezuela’s economy had imploded, triggering the worst humanitarian crisis to ever occur outside of war, with an estimated seven million Venezuelans fleeing their homeland. Massive endemic corruption, economic myopia caused by an overdependence on oil rents when prices were high, and rising conflict over control of Venezuela’s vast oil wealth all contributed to the state’s failure.
There are fears that the massive oil boom underway in Guyana, coupled with the former British colony’s history of corruption, chronic poverty, electoral fraud and political chaos, will create ideal conditions for the oil curse to emerge. While there are certainly risks of this occurring, there are many differences between Guyana and its neighbor Venezuela. The crisis which emerged in Venezuela during the 1980s oil price crash was rooted in a stagnant political system where the two major parties not only overlooked the growing economic fallout but for years ignored the needs of everyday Venezuelans. It is important to note that the administration of President Irfaan Ali is focused on strengthening governance frameworks with regard to Guyana’s burgeoning oil industry, rooting out corruption and using petroleum profits to lift the population out of poverty.
This includes reworking Guyana’s production sharing agreement to eliminate the overly favorable terms conceded to the Exxon-led consortium for the Stabroek Block. The new PSA has a 10% royalty rate, compared to 2% for the Stabroek Block, and a reduced cost recovery ceiling of 65%, against 75%, with the 50/50 profit sharing unchanged. Georgetown also introduced a 10% corporate tax when none had existed previously. That goes a long way to addressing many of the criticisms of the lop-sided agreement secured with Exxon and its partners in the Stabroek Block. The new PSA will boost government income from any future oil production that occurs outside the Stabroek Block.
Growing oil production, which is tipped to reach 1.2 million barrels per day by 2027, and additional discoveries will further boost Guyana’s economic growth. That, in turn, will build considerable wealth for the tiny South American nation. For 2023, Guyana’s GDP is forecast by the International Monetary Fund to reach $16.3 billion, which means its economy remains significantly smaller than South American heavyweights like Brazil with a GDP of $2 trillion, Argentina at $641 billion and Chile with $659 billion.
It is on the basis of GDP per capita that Guyana will become the wealthiest country in South America. According to the IMF Guyana’s 2023 GDP per capita will be $20,540 or three times greater than the $6,590 recorded for 2019 when oil production commenced. That number makes Guyana the second-wealthiest country in South America behind Uruguay, which has forecast 2023 GDP per capita of $21,680, and ahead of Chile where GDP per capita is expected to top $17,830 this year. BY 2024 Guyana’s GDP per capita is forecast by the IMF to be $27,640 seeing it overtake Uruguay to become South America’s wealthiest country by a solid margin compared to any of the other major economies.
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By Matthew Smith for Oilprice.com
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