Two Nations Under Oil

Letter #15-21/3/21

Three main themes emerged from the Guyana Basins Summit held virtually last week.

1) Suriname and Guyana are potentially heading towards a closer economic and political union driven by a common energy sector.

2) There is an urgency when it comes to the need for more shore bases in both countries but there are major challenges to that happening.

3) Getting local content policy right is hard and it may not be that useful to look to other countries for lessons.

“We are almost the same nation”

Guyana/Suriname relations have not always been as warm as they are now; after all it was Surinamese gunboats that in 2000 chased off a CGX drilling rig from Guyana’s own waters. Ironically that would lead to the establishment of the maritime border and allow exploration of that part of the basin. But generally the two countries have learnt to live side by side with the historical handicaps left over from centuries of colonialism.

The election within months of President Irfaan Ali and his counterpart President Chan Santokhi also coincided with the discovery of oil offshore Suriname. Powered by the prospect of oil revenues, there have been several bilateral meetings and the announcement of a bridge crossing the Corentyne river which would be truly transformative. One element of this closer relationship is the common ethnicity (predominant) of the two governing parties. And one may well see emerging an Indo Caribbean bloc in the Southern Caribbean with Trinidad’s private sector playing a supportive role to Guyana and Suriname as it looks to take part in the oil boom. Some of this was hinted at in the GBS presentations: “We are almost the same nation and maybe that will happen in the future…” remarked Staatsolie’s acting CEO Annand Jagesar.

His Foreign Minister Albert Ramdin talked of the Guyana Basin being where “political influence will be brought together” and even suggested French Guiana and Venezuela join with Guyana and Suriname to create “a second OPEC”. This is obviously some Blue Sky thinking and aside from the Guyana/Venezuela border controversy one wonders how environmentalists in France would react to one of its departments going into fossil fuels, were they eventually to find any commercial quantities. (On a side note it was Tullow which in 2011 first found hydrocarbons offshore French Guiana with its Zaedyus well thereby setting off the extraordinary chain of events.)

On a more practical note, closer political ties between Guyana and Suriname could make room for such initiatives as a common environmental policy and even regulation, a joint oil spill response plan and task force, or a joint customs union to allow free movement of supplies offshore. These kinds of public sector synergies would result in better and cheaper administration of the Golden Lane.

Whither the next shore base?

Of most immediate concern is the need for more shore bases. Tullow’s Richard Donellan warned time is running out and operators, including Total need to have support services in place very soon as it gets ready to make an FID on Block 58. This was discussed at length by several speakers and panelists, with Staatsolie’s Jagesar suggesting some kind of deep water port jointly funded by both governments. Of course this would require a high level of cooperation and a longer term horizon. So it may well be instead some kind of private JV emerges to fill the gap. However that won’t preclude the significant geological challenges given both countries have heavily silted river mouths with shallow drafts.

A panel discussion Thursday got into the nitty gritty with everyone agreeing that any more shore bases around Georgetown run the danger of causing more congestion, even as industrial and residential zones are all mixed up. But if you put one “in the middle of nowhere”, such as Crab Island in Berbice, you have to find housing and other facilities for maybe 500 workers. That could be financially prohibitive. That said Berbice looks to be a contender for any new facility as ExxonMobil invites proposals for a heavy lifting facility. Sean Hill of Guyana Shore Base Inc, which is exclusively contracted to ExxonMobil, said a lot depends now on the IOC’s requirements going forward, and it was important to rightsize capacity. Hill also said that aside from infrastructure, human resource issues also remain a limiting factor to expansion.

Whatever the eventual configuration and locations of shore bases, a closer union between the two countries could allow for cross border servicing of oil fields with minimal paperwork.

Local Content

Then of course there was much discussion surrounding local content. One fundamental point made by Chatham House’s Valerie Marcel was that it is imperative for both countries to start with a vision of what kind of economies they want to become in 10 to 20 years. The Big Vision. That’s tough for Guyana because of the current political divide that does not allow for the necessary expansive consultations. However what is clear is the current government wants to use gas to power a new industrial sector. Marcel said Guyana should forge its own path when it comes to local content, aim for low hanging fruit, while being ambitious on non-oil local content She also advised that programmes for training oil-related graduates should be calibrated to the demand for jobs.

NNF Energy Consultancy's Nelson Filho said Brazil came to the conclusion that local content needed to be part of a larger industrial policy and that even with its large industrial base it had still been hard to meet the demands of the oil sector.
And earlier in the summit Secretary General of the African Petroleum Producers Organisation Omar Ibrahim said given Guyana’s small population and the time limitations tied to the transition to renewables it would be important to get “the best from every part of the world” to help develop the industry as quickly as possible.

As it is quite a lot is being done already in the area of local content. Natasha Gaskin Peters, Director of the Centre for Local Business Development, set up by ExxonMobil in 2017, told the summit some 4600 companies are already part of the supplier portal and there has been substantial training for Guyanese companies and workers.

So does local content still need to be legislated? Nuerty Adzeman, Executive Director of the Ghana Oil and Gas Service Providers Association said just passing a law may not be the best way forward; a strong regulator that can adapt may be more important. Meanwhile another contributor said governments were moving away from prescriptive policies to ones more goals based: in other words more carrot less stick.

END