More international assistance to develop oil and gas sector

Jun 26, 2016 AFC Column, Features / Columnists

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A team of experts from the Mexican Petroleum Institute (IMP) just last week conducted the first round of discussions with Minister of Natural Resources, Raphael Trotman, and his growing team of local and foreign experts.
The IMP technologists have joined the Guyana Oil scenario in company with American, Canadian and Trinidadian experts who have come with critical advice and technical support directly related to developing a lucrative oil and gas sector in Guyana.
The MNR/IMP partnership will see Guyana receiving technical support for the development of a Petroleum Regulatory Agency and Skill Development Institute to deliver tertiary level technical training in mineral mining and extraction, oil and gas resource management, and environmental protection, among other disciplines.
During this first visit the Mexican team had in-depth discussions with Education Minister Dr. Rupert Roopnaraine; the University of Guyana’s Vice Chancellor, Dr. Ivelaw Griffith; and representatives from the university’s School of Earth and Environmental Sciences.
On their return to Mexico, the team proposes to develop three (3) “White Papers” for consideration by the Guyana Government premised upon production and consumption; creating a regulatory agency; and the development of a Petroleum Institute.
This intervention brought to the front burner the myriad issues that Guyana must confront as we prepare our people, our institutions and our environment for the changes that a petroleum industry will bring.
The AFC takes this opportunity to repeat a section of our column of that was first printed on 31 May, 2015.
“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 accommodations, 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.”
Since then we have had the benefit of the experience residing in the Energy Chamber of Trinidad & Tobago.
The Guyanese business community also heard directly from Dr. Roger Hosein, author and researcher at UWI.
Here is a brief synopsis of his address.
Using experiences in his home country, Trinidad and Tobago between 1983 and 2008, he demonstrated that an Oil and Gas economy is extremely difficult to manage.   Oil, he said, has the potential to adversely affect an economy and strongly urged the Guyana government to guard against “irrational exuberance”.
“It is critical to transform resource capital into other kinds of working capital,” he stressed while urging the Guyanese people to hold our President true to his commitment to utilize for incidental spending only the monetary interests gained from the Petroleum Fund that will be set up.  This approach would protect the Guyanese economy from irrational spending on projects and luxury goods that would not return funds to the treasury.
With respect to the Dutch Disease, he cited the likelihood of skilled labour migrating from the manufacturing and agricultural sectors to the petroleum sector which generally offers better pay and conditions of service.
In Trinidad, it was found that much of the taxes and other revenues the state earned from the petroleum sector were spent on services sector goods and consumables.
As was anticipated, the Services sector grew quickly as more and more workers were needed, but it led to the phenomenon called ‘direct de-industrialization’.
He advised the Guyana Government to ensure that the manufacturing, wood and agricultural sectors create and retain a reliable, consistent supply of workers in order to avoid de-industrialization.
In addition, by keeping all other sectors performing at optimum, the economy would avoid being ‘knocked sideways’ whenever world oil prices dip or plummet.
The highly respected Lecturer and Researcher ended his lively and informative discourse by advising the Guyana Government to avoid heavy subsidization of fuel and fuel products during the period of a booming economy.
The Trinidad economy in the past year approximately has been negatively affected by extremely low global oil prices. The government has had to implement some unpopular austerity measures to compensate for lost oil revenue. This exemplifies Dr. Hosein’s admonishments.

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