Troubled transition

5th October 2018


P24 oil platform istock 136997904

Related Topics

Related tags

  • Resource extraction ,
  • Fossil fuels ,
  • Sustainability ,
  • Resource management

Author

Stephen Sprules-Wright

As Guyana embarks on the shift from agrarian to oil-rich economy, Steve Rowan and Leeza Pickering ponder whether it can avoid the pitfalls of the ‘resource curse’.

Guyana is a small, English-speaking country in South America, about the size of the UK but with only 1% of the population. Until recently, its economy has been agrarian – but that could soon change, thanks to the recent discovery of large, high-quality offshore oil reserves. By some estimates, these could produce up to 750,000 barrels per day by 2030. This is great news for a country with a small, low-income population and a parliamentary democracy. However, concern is increasing that Guyana will succumb to the ‘resource curse’ that has dogged so many nations over the years; signs of that path being followed are already starting to show.

Guyana has a history of corruption and mismanagement of resources; racial rather than issue-focused politics; lack of strategic planning; power and influence being limited to a few politicians and families; and weak governance and monitoring systems. Exacerbating this is the fact that the product-sharing agreements between the government and the oil firms are skewed in favour of the oil companies. These agreements include clauses that make Guyana liable for environmental clean-up costs in the event of a significant incident, and exempt oil companies from future legislative changes that might affect operations – such as more rigorous environmental standards.

There are environmental impacts for surrounding countries, too. Given that the main activity is more than 100 miles offshore, with currents and prevailing winds, a large release in that area could well affect the Caribbean, with catastrophic impacts on the environment and tourism industry and a huge clean-up bill. The Gulf of Mexico disaster has shown us that catastrophes are not prevented by companies being savvy about corporate social responsibility, or by hundreds of millions of dollars worth of technical equipment and experts.

Golden opportunities

The anticipated revenue from the oil production will provide a financial boost to a nation with a GDP of around $3bn (£2.3bn), primarily from agriculture, bauxite and gold. The government expects this revenue to be directed in seven areas, highlighted in Guyana’s Green State Development Strategy. Two of the areas are infrastructure development, and human development and wellbeing.

Around 90% of Guyana’s population lives in a low-lying 40km-wide coastal strip, which is at increasing risk of flooding. The area includes the capital, Georgetown, which already struggles to cope with rain deluges. The road infrastructure, welfare, medical, sanitation and education systems need investment, and port infrastructure is limited by port facilities and water depth. Few Guyanese people will see jobs and direct income opportunities from the offshore oil industry, but their lives should benefit indirectly if infrastructure, social and environmental conditions are improved.

There is also talk of bringing gas onshore; this could provide cheaper power than the country’s current banks of diesel turbines, which result in Guyana having some of the most expensive electricity in the region. This is crippling for the manufacturing industry, which has all but disappeared.

However, Guyana has year-round sunshine, a long shallow coastline over which the trade winds blow, hundreds of river systems flowing from highland to lowland areas and hundreds of thousands of tonnes a year of biomass from the agricultural industry. With a population of 700,000 people concentrated in the coastal zone, and an annual power demand of less than 400MW, Guyana is well placed to use renewable energy. Despite this, it has no hydroelectric plants, no windfarms, no biomass plants – other those used by the sugar refineries – and just a handful of solar projects.

There are private proposals afoot to build a small modular refinery in Linden, the country’s second largest town; this would provide cheaper fuel to the Guyanese people, who currently have to import their fuel at high cost. The plans include using some of Guyana’s own oil (up to 30,000 barrels per day) to alleviate high fuel costs in the short-to-medium term, reinvesting profits in a nationwide renewable energy grid. Cheaper energy would fuel economic growth and manufacturing industries.

“The priorities should be diversifying the economy from an early stage, and long-term sustainable planning”

Avoiding the risks

One threat that Guyana faces is the potential for tension between petroleum companies and local communities as more highly paid foreign workers come in. Such an influx could cause economic, social and cultural stress, as market prices rise to match this new income group and outpace the earnings of the local population.

Another risk is the temptation for Guyana to place all its development interests into its petroleum reserves while neglecting other industries and development sectors. The ability to plan and manage revenues effectively is limited, and an adverse tilt in market conditions can be devastating for a small country that has focused on oil alone.

Guyana has vast agricultural lands, bauxite, gold and diamond reserves, renewable energy opportunities and a low-cost but intelligent labour resource. It also provides an Atlantic gateway to northern Brazil, which has a much larger population, providing a shorter route to the Atlantic than through the Amazon. Furthermore, 85% of Guyana is untouched Amazon rainforest, providing a huge biodiversity and ecotourism resource. It would be a tragedy if this hydrocarbon windfall was not used to develop these other resources equitably and sustainably.

The combination of specialisation in the natural resource sector and neglect of other industrial sectors can cause long-term erosion in a country’s economic development. In the short term, the injection of foreign currency into the economy will spark growth and development – but in the long term, all the developments that would have been funded and maintained by the natural resource revenue, such as healthcare, education and infrastructure, will not be fully sustained unless other, sustainable industries are encouraged to grow alongside oil and gas.

The resource curse is not inevitable. Several countries have avoided it through economic diversification, investing in other sectors and having an equitable distribution of income. Such measures require a strong, mature political system and a socially inclusive culture.

Guyana is going to be an interesting place to work in over the coming years, with the environmental stakes being high. The government should welcome the petroleum industry, but remain aware that the risks are myriad. The pitfalls are avoidable if the will is there and if the government seeks strong advisory partners.

The priorities should be diversifying the economy from an early stage, and long-term sustainable planning. This will allow Guyana to meet the needs of its people, develop as a nation and ensure the production of this finite resource becomes a blessing rather than a curse.

Steve Rowan is managing director

Leeza Pickering is a consultant at Earth & Marine Environmental Consultants

Subscribe

Subscribe to IEMA's newsletters to receive timely articles, expert opinions, event announcements, and much more, directly in your inbox.


Transform articles

UK’s CCUS strategy based on outdated assumptions, government warned

The UK government’s carbon capture, usage and storage (CCUS) strategy is based on optimistic techno-economic assumptions that are now outdated, Carbon Tracker has warned.

13th March 2024

Read more

The UK government’s latest Public Attitudes Tracker has found broad support for efforts to tackle climate change, although there are significant concerns that bills will rise.

13th March 2024

Read more

A consortium including IEMA and the Good Homes Alliance have drafted a letter to UK government ministers expressing disappointment with the proposed Future Homes Standard.

26th February 2024

Read more

Global corporations such as Amazon and Google purchased a record 46 gigawatts (GW) of solar and wind energy last year, according to BloombergNEF (BNEF).

13th February 2024

Read more

Three-quarters of UK adults are concerned about the impact that climate change will have on their bills, according to polling commissioned by Positive Money.

13th February 2024

Read more

The reality of delivering net zero is that we need solutions tailored to specific areas. Peter Gudde explores models that local authorities could adopt

15th January 2024

Read more

Heat pump installations in UK homes increased by nearly a fifth last year, with over 200,000 now having been installed across the country.

11th January 2024

Read more

Last year was the warmest ever recorded, surpassing the previous annual high set in 2016 by a large margin, scientists have confirmed today.

9th January 2024

Read more

Media enquires

Looking for an expert to speak at an event or comment on an item in the news?

Find an expert

IEMA Cookie Notice

Clicking the ‘Accept all’ button means you are accepting analytics and third-party cookies. Our website uses necessary cookies which are required in order to make our website work. In addition to these, we use analytics and third-party cookies to optimise site functionality and give you the best possible experience. To control which cookies are set, click ‘Settings’. To learn more about cookies, how we use them on our website and how to change your cookie settings please view our cookie policy.

Manage cookie settings

Our use of cookies

You can learn more detailed information in our cookie policy.

Some cookies are essential, but non-essential cookies help us to improve the experience on our site by providing insights into how the site is being used. To maintain privacy management, this relies on cookie identifiers. Resetting or deleting your browser cookies will reset these preferences.

Essential cookies

These are cookies that are required for the operation of our website. They include, for example, cookies that enable you to log into secure areas of our website.

Analytics cookies

These cookies allow us to recognise and count the number of visitors to our website and to see how visitors move around our website when they are using it. This helps us to improve the way our website works.

Advertising cookies

These cookies allow us to tailor advertising to you based on your interests. If you do not accept these cookies, you will still see adverts, but these will be more generic.

Save and close