How Guyana will handle the oil boom

How Guyana will handle the oil boom

Guyana's oil reserves could amount to 8 billion barrels. But their development is threatened by the political crisis

After a recount of votes that went on for months, the victory in the presidential elections on 2 March in Guyana was finally awarded to the opposition. On Sunday Mohamed Irfaan Ali, of the People's Progressive Party, was sworn in as president.

He will therefore have to manage the recent oil boom which – this is the hope – will revolutionize Guyana's economy. The former British colony is one of the poorest countries in South America but this year, compared with a regional contraction of 4.6 percent, it is expected to grow by 51.7 percent, according to the World Bank . In ten years, per capita GDP, now just $ 5,500, should triple. The credit is all of the crude oil.


But the tensions and uncertainty didn't end with Ali's oath. Former President David Granger had initially claimed victory in the election, only to be forced to accept the recount amid suspicions of fraud. Now he says he respects the announcement of the electoral commission, but also that he will challenge the result – which sees him defeated by a margin of about 3 percent (150 thousand votes) – "in a legal and peaceful manner".

However, the Caribbean, the Organization of American States and especially the United States had already lined up against him, with Secretary of State Mike Pompeo who had invited him to step aside, threatening sanctions.

Granger's party – part of a big-name coalition: A Partnership for National Unity / Alliance for Change – had tried to block the announcement of the final results, while activists had threatened to make the country ungovernable for Ali.

Guyana had perhaps never passed through such important elections. The political clash also risks becoming social, given that Guyanese politics resumes ethnic divisions : the population of African descent supports Granger, while that of Indian descent (the majority) supports Ali. The polarization is extreme and each of the two sides feared, in the event of the opponent's victory, of being excluded from the redistribution of oil wealth.


The inauguration ceremony of the Ali administration will be held on Saturday 8. The attention of the oil industry is focused entirely on a specific ministry, that of Natural Resources, which at the moment is not known by whom it will be headed.

Ali's tenure will last five years. 2025 is also the year in which the US company ExxonMobil expects to reach an output of 750,000 barrels per day from the offshore block of Stabroek, where production was started last December.

The output in the Liza field is currently 100,000 barrels per day; in August it should rise to 120,000. Liza's "phase 2" should add another 220 thousand barrels per day by 2022, and the same number of "phase 3".

Despite the uncertainties about the future of fossil fuels , oil could still disrupt Guyana's economy, which today is based on the cultivation of rice and sugar and the extraction of bauxite.

In the Stabroek block – where ExxonMobil operates, together with its partners Hess Corporation and China National Offshore Oil Corporation (CNOOC) – recoverable reserves of crude oil of 8 billion barrels equivalent were found. If proven, Guyanese reserves would be larger than those of Mexico and Colombia, CSIS writes.

The development of Guyana's oil resources, the companies involved fear, could be slowed by the new administration. The Progressive People's Party had in fact criticized the contract signed by the Granger government with ExxonMobil – which provides for a royalty rate of 2 percent and a 50 percent profit sharing – as too generous and disadvantageous for the country. But Ali has adopted a more conciliatory tone towards the company and stopped demanding the renegotiation of the terms of the agreement.

The Ali government, in short, will be called upon to administer the oil revenues. Not an easy task for Guyana: institutions are weak and sectoral skills are absent.

This is a machine translation from Italian language of a post published on Start Magazine at the URL on Sat, 08 Aug 2020 05:19:36 +0000.