Oil set to bring economic opportunities with huge challenges

May 31, 2015 AFC Column, Features / Columnists

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The discovery by ExxonMobil of huge deposits of oil within Guyana’s Economic Maritime Zone spells progress for every citizen, economically, socially and even psychologically. One more positive element is a US Geological study conducted several years ago which surmised that the Guyana Basin was the second largest unexplored area for hydro-carbon deposits in the world.
The Coalition government understands very clearly that the road leading to massive capital revenues for the national coffers will be long and challenging. This road, however, is laid with paving stones for thousands of jobs in the manufacturing, services and commercial sectors, new upstream and downstream support industries that will evolve in the years of preparation for actual oil production, and which will be needed to sustain the operation of extraction when it comes on stream.
It is clear that actual petroleum mining is years away, but along the way, and as more viable deposits are discovered, the government intends to grasp every opportunity to facilitate specialized technical and vocational training for our youth and women, and to invest in education, health, research and development, environmental studies and assessments of the likely impact on the population as a whole.
A much broader Education sector is one major main spin-off benefit for a nation in preparation for a hydro-carbon industry. The immense range of skills that will be required includes mechanical, electrical, and heavy duty machinery engineering for maintenance of oil extraction rigs and peripheral equipment; specialized communication and other technological systems; and automotive maintenance.
Our capacity for support services is set to improve hundred-fold in the areas of hospitality including hotels, bed-and-breakfast facilities and other types of accommodation, water and food industries. In fact, there are an estimated 116 types of secondary industries that could evolve in the preparatory and operational stages of hydro-carbon mining. The skills of Accountants, Environmentalists and laboratory analysts will be needed alongside research developers and primary to advanced health care providers.
There have already been offers from oil-producing countries, the United States and Canada in particular, to assist with Guyana’s preparation for the benefits this oil find will bring. The very first and most essential stage of the entire process is the crafting of appropriate laws and regulations, and the systems to ensure unrelenting application of these regulations.
They must encapsulate the potential effects of seismic surveys, drilling and extraction operations upon the natural environment and upon other users of that environment. It must take into account the effects on marine wildlife, on the livelihoods of the people who subsist on marine life and those who dwell in the vicinity of on-shore oil-related operations. It takes into account every potential environmental emergency such as oil spills to ascertain that there are immediate response measures in place.
THE “DUTCH DISEASE”
The accounts of the ill effects of several countries’ failure to craft and enforce such regulations have become legendary. The African states of Nigeria and the Congo head the list. The rampaging corruption and abuse of their oil and non-oil economic resources saw their citizens lose their hopes for betterment because the respective governments failed to plan ahead and institute the necessary industry regulatory models and fiscal framework. One Economics pundit found a label for the syndrome – the “Dutch Disease” named for the economic fiasco that the Netherlands became in the 1960’s.
This country had experienced a vast increase in its wealth after discovering large deposits of natural gas in the North Sea. Unexpectedly, this positive development delivered serious negative repercussions on important segments of that economy. The Dutch guilder became stronger which made Dutch non-oil exports more expensive and, therefore, less competitive. In other countries including Indonesia and Ecuador in the 1970’s, those governments failed to address the social and environmental impacts of oil production and so under-development ensued.
THE NEWFOUNDLAND EXPERIENCE
The challenge of realizing the potentials of an industry as large and diverse as petroleum production is as immense as the opportunity itself, according to a former Head of Mission in Guyana. This challenge is a road well travelled by highly successful economies in the first world from whence Guyana’s help cometh, to protect the environment and equalize the national distribution of benefits. The experiences of the Canadian province of Newfoundland are very instructive.
Since the discovery of huge quantities of oil and gas in the Atlantic Ocean due north of New York State, USA, (1979) the province has prospered and the financial, social and economic benefits spread out to the citizenry and the private sector. Effective Management, foresight and a strict Regulatory Model with Environmental Protection as a key element were the pillars that transformed the province into its current position of wealth.
Newfoundland today records the highest GDP growth in the country and its capital, St. John’s, is regarded as one of the world’s 16 ‘energy cities’. It now records the second highest GDP per capita, the second lowest unemployment rate, and high re-migration rates as jobs became more available in the public and private sectors. This, of course, translated into a booming housing sector and a wealthier population whose interests were protected, including the people involved in the traditional fishing industry.
The search for oil and gas began in offshore Newfoundland in the 1960’s. The four largest basins were discovered in 1984 and actual production commenced in 1999 but this holdup was due mainly to bureaucratic delays. They did not have the advanced technologies available today. The province was poor in 1979 with the lowest per capita GDP in Canada, lowest wage rates, highest unemployment statistics and heavy dependence on fiscal transfers.
Between the first find and actual oil extraction, the provincial government had established the Offshore Petroleum Impact Committee with a mandate to forecast impacts and opportunities and recommend strategies for industry development, economic and social growth.
Widespread training was instituted and as the industry grew along with its downstream businesses, so too did the universities and tertiary vocational institutions that were re-tailored to produce the necessary skills. A slew of research projects were commissioned to ascertain labour force needs, tax and royalty regimes, environmental impacts and potential complications to marine life. The development and implementation phase also involved close collaboration with the public service to ensure continuity, and interactive relationships with communities located close to installations.
The Newfoundland petroleum company now employs close to 3000 Canadians. The province continues to record budgetary surpluses which have been used to address the remaining deficiencies in the socio-economic framework in the province.

US INTERVENTION
The US embassy in Guyana has already begun to deliver a planned series of Energy Governance sensitization programmes to help boost Guyana’s technical and human resource capacity for creating new laws and regulations for the emerging oil and gas industry. The appropriate legal mechanisms and effective policing of those regulations will minimize or at best remove the likelihood of corruption, mismanagement and sectoral conflict.
The US has been sharing its experiences on science, environmental analyses, public input, safety, rigorous oversight and enforcement. The experts have reiterated that transparent management of the energy sector will deliver and sustain the benefits from the energy resources to the citizens of this nation.

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