Augustana government and international affairs prof Dr. Jennapher Lunde Seefeldt writes that sanctions against Russia could help Ghana, Guyana, and Suriname make some good money producing oil.
But wait—making more money producing oil can make countries more authoritarian, corrupt, and violent, can’t it? Dr. Lunde Seefeldt acknowledges that the petro-economy has led to exploitation of smaller nations by Big Oil and despots, but she argues that Guyana and Suriname can use current global trade conditions to get better deals for their people:
As world markets grapple with the current oil price shock, niche producers are in especially favorable positions to secure advantageous contracts and more favorable terms from international energy companies. For example, oil companies typically pay host countries royalties on their revenues that average about 16%. To date, Guyana and Suriname have accepted fees of less than 6.5% in an effort to attract investors. Under current conditions, they may be able to ask for more during new contract negotiations.
Oil production started in Guyana in late 2019, and currently the country produces over 340,000 barrels per day. Guyana learned from its first block contract with ExxonMobil to demand more “local content” – a key condition in oil negotiations that refers to hiring local workers and using locally made goods and equipment. Natural resources minister Vickram Bharrat has called that agreement, made by a previous administration, “one of the worst ever between a government and an oil company,” and Guyanese officials say they will seek more-favorable terms in future agreements.
Suriname’s new offshore oil discoveries offer potential. Small operations are currently producing about 20,000 barrels per day, and major projects are expected to start by 2025.
Suriname is demanding increased insurance from oil companies in the event of an oil spill, along with prepared emergency cleanup procedures. These processes are continually reviewed and criticized, keeping companies on their toes [Jennapher Lunde Seefeldt, “Small Oil Producers Like Ghana, Guyana and Suriname Could Gain as Buyers Shun Russian Crude,” The Conversation, 2022.03.15].
Ghana is a trickier case, as Exxon pulled out of a big oil deal after investigating the proposed offshore oil site, and no one else seems eager to drill there. And any nation investing big in new oil production now had better hope for fast gains, since the world is moving and needs to move to less carboniferous fuel sources. If new oil producers don’t use their black gold to invest in more diverse economic activity, they’ll face greater instability in the post-carbon economy:
Though some countries are increasing fossil fuel investment in the short term, consensus estimates indicate that “peak oil” will be reached in 2030, after which the transition toward a low carbon economy will gather steam and force oil-producing countries to adapt their revenue streams.
Analysts suggested the worst-hit countries could enter “doom loops of shrinking hydrocarbon revenues, political turmoil, and failed attempts to revive flatlining non-oil sectors.”
…“Many, if not a majority, of net oil producers are going to struggle with diversification largely because they lack the economic and legal institutions, infrastructure and human capital needed,” said Head of Market Risk James Lockhart Smith.
“Even when such institutions are in place, the political environment, corruption or governance challenges and entrenched interests mean some may not reform their way out of trouble, even where it is the rational course.”
The most vulnerable countries are higher-cost producers that are heavily dependent on oil for revenues, have lower capacity to diversify and are less politically stable, the report said, identifying Nigeria, Algeria, Chad and Iraq as the first to be hit “if the storm breaks” due to their fixed or crawling exchange rates [Elliot Smith, “Oil Nations Tipped for Political Instability If the World Moves Away from Fossil Fuels,” CNBC, 2021.03.26].
And it would be a shame for Suriname to make a bunch of money selling oil only to have to spend it all and then some diking up its coast to protect the coastally located 90% of its agriculture and small industry from a sea rising even faster thanks to the world’s buying and burning a bunch of Surinamese oil. Hmm… maybe Suriname, Guyana, and Ghana should focus on getting better deals from turbine makers for their offshore wind power.
I’m sure plenty of banks would love to get into new markets to push loans against potential fossil fuel collateral — only for those loan payments to last far longer than boom oil market they were leveraged against.
The solution to the evils of fossil fuel is not going to be more fossil fuel.
O, I noticed the articles about Ghana indicated that the country may go into big debt to buy up those oil blocks that no one else is buying. They might mortgage themselves out for an oil boom that either won’t happen or won’t last long enough to pay off the debt.
It’s hard for us to turn to a smaller nation that’s already in debt and urge them not to develop a resource that could turn an immediate profit for them. Even the existential threat of climate change at their vulnerable coastlines may not deter them from making such investments. What can we do to get these smaller nations to forego the quick profits of oil in what may be the last couple decades of the fossil-fuel market?
Guyana has retro-engineered the argument and declared its status as a net carbon sink economy in the first place on the basis of its outstanding, carbon-sequestering resources as well as having committed to no-flaring policies among other energy policies. See their explanation in their “low carbon development strategy (LCDS).”
“• Guyana has maintained the second highest percentage of forest cover on earth, with more than 99.5 of the forest’s 18 million hectares remaining.
Deforestation rates are among the lowest in the world and Guyana is one of only four countries in the world (and one of only two in the Amazon Basin)
verified to have sustained a High Forest Low Deforestation (HFLD) state.
• Guyana is one of four countries which host the Guiana Shield, one of the most pristine rainforest landscapes in the world. The Guiana Shield stores
around 18% of the world’s tropical forest carbon and 20% of the world’s fresh water,
• The country has extremely high levels of biological diversity and endemism. It is home to approximately four percent of known animal species, including
the following iconic Amazonian species: jaguar, giant river otter, harpy eagle, tapir, giant anteater, and giant armadillo. There are more bird species in Guyana than the entire United States of America. The country is also home to 2.4% of known plant species–and unique tepui and natural savannahs give Guyana exceptionally high levels of endemism. It also maintains a percentage of littoral forest in the coastal area,
• Guyana’s ocean area – more than half of Guyana’s terrestrial area – offers a new frontier for sustainable development through the expansion of the
Ocean/Blue Economy. Estimates of the economic value that Guyana’s eco-system services provide to the world are considerable.
Guyana’s forests alone provide value that is estimated to range from US$40-US$54 billion annually. Yet, this value is not recognized in monetary terms. By contrast, jobs and economic value can be generated by clearing forests for agriculture, mining, infrastructure, and other uses. This is a global problem and one of the reasons that the world’s tropical forests are worth more dead than alive and forest areas that are the size of Greece disappear each year, causing about 16% of global greenhouse gas emissions.”
https://www.lcds.gov.gy/wp-content/uploads/2021/10/LCDS-2030-Final-DRAFT-for-consultation-min.pdf
As far as “what can we do to get these smaller nations to forego the quick profits of oil,” consider:
“For the period 2009 to 2015, Guyana earned US$212.52 million in payments, to be invested in the LCDS. This has created low-carbon jobs, enabled Amerindian villages to receive legal title for communal lands, rehabilitated the Cunha Canal to protect against flooding, and started to equip Amerindian and hinterland communities with renewable energy, digital infrastructure, and sustainable livelihood opportunities.”
https://lcds.gov.gy/executive-summary/
Guyana is looking for more carbon credits to come:
https://www.stabroeknews.com/2022/02/19/news/guyana/guyana-looking-to-market-at-least-8m-carbon-credits-by-july/#:~:text=The%20sale%20of%20carbon%20credits%20is%20not%20a,million%20which%20was%20used%20for%20various%20transitional%20projects.