Guyana should not only be known as a primary producer of oil …Chief Planning Officer calls for consideration of downstream activities

Feb 09, 2018 News

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By Kiana Wilburg

While millions of dollars will be gained as a result of Guyana’s 50/50 oil agreement with ExxonMobil, the Government should not be comfortable with this alone. In fact, there are several other opportunities for earning more revenue if one considers the possibilities of downstream activities.

This point was alluded to on Wednesday at the Marriott Hotel by Dr. Nelson Modeste. He is the Chief Planning Officer at the Ministry of Finance. The former Central Bank staffer was at the time, speaking at the Guyana International Petroleum Business Summit (GIPEX).

The official’s presentation focused on the macroeconomic variables that would be impacted by the oil sector, the trade and industrial transformations to come and the opportunities for growth which must be considered.

Dr. Modeste noted that there will be an immediate effect on the labour market. He said that there would be an increase in the demand for skilled and unskilled workers as well as an increase in the number of immigrants flocking Guyana’s shore to fill certain employment gaps. He said that this is already taking place.

With the further development of the oil and gas sector, the Chief Planning Officer said that overall, income in Guyana would be affected in a positive way as the confidence of investors will grow, thereby leading to an increase in investments in the economy.

He also stated that Guyanese will notice an increase in the demand for foreign exchange as well as in Government revenue.

But while all these changes and variables will be taking place before one’s eyes, Dr. Modeste was careful to highlight the temptation of becoming comfortable with this state of affairs. He stated that Guyana can even be in a better fiscal place with moves to downstream activities. He said that Guyana should not only be known as a primary producer of oil.

Dr, Modeste noted that the move to downstream activities would see the production of lubricants, pesticides, propane, fertilizers, pharmaceuticals etc. He commented that this move would be in Guyana’s favour.

ADVICE FROM TT

Many countries which are on the verge of developing an oil and gas sector for the first time are often caught up in the sweet rapture of earning billions of dollars in revenue.

The leaders of these very states quickly forget to keep their agriculture or manufacturing sectors on the developmental trajectory leaving the citizenry to feel the economic consequences when the oil market faces a hard time.

There are territories, however, which have taken stock of the mistakes made by such nations.  Guyana’s Caricom sister, Trinidad and Tobago (TT), is a prime example of this. In an interview with Kaieteur News recently, one of TT’s energy leaders, Mr. Ashley John advised that the Guyanese authorities seriously consider getting into downstream activities.

John has been the President of the Point Lisas Industrial Port Development Corporation Ltd. (PLIPDECO) for the past eight years. PLIPDECO is the manager for one of Trinidad’s leading ports which is a hub for downstream activities and makes a 30 percent contribution to the Caribbean island’s Gross Domestic Product (GDP).

The PLIPDECO President told Kaieteur News that the emphasis for many countries that have gotten involved in the oil and gas sector has been “to go after the quick bucks”. He said that Guyana should not fall sweet on the quick money that will come.

“The investors would come in and promise the moon and stars and the country could fall into the trap of failing to look at what the long term vision should be and the long term benefits to the country is. I would suggest that the government really surround itself with very good advisors who are knowledgeable in the industry, be it local or international and work with them on developing a long term strategic plan for the energy sector.”

John said that this long term plan would take into account what information is available from companies of the likes of US oil giant, ExxonMobil. From that, he opined that they would be able to determine what the short term or the medium term opportunities should be.

On that basis, the experienced businessman said that the country can then be able to lay out a proper road map which would therefore focus usage of the raw materials and resources of the country so as to ensure sustainable development for Guyana.

John also noted that there are many other downstream activities that one can get involved in when it comes to oil and gas. He noted however, that regardless of the direction the country heads in, be it the production of methanol or ammonia, a number of factors must be considered.

“The thing about it, ideally, is that the country should look as much as possible at getting into downstream-type operations because at the end of the day, the further downstream you go, the higher the margins you would stand to make for each molecule of oil extracted.”

“If I extracted the gas and I just sold it, the mark up you make on that is marginal. But if you use raw materials to manufacture different things like, methanol, ammonia or plastics, you are able to put a much greater mark up on those things. But they require more input. It is not just a matter of saying I am going to get into it…there has to be a critical mass in terms of how much of this raw material you are actually producing to facilitate implementation of a major downstream sector.”

“So for example, if you are only producing five hundred million cubic feet of gas per day, that in itself would not warrant or give you the ability to establish a major downstream and energy sector and put in place a large company of the likes of what is going on with Trinidad and Tobago, because one plant or two plants can utilize your entire production…”

With this in mind, he said that Guyana’s authorities would have to determine based on what is available, if it wants to establish a major plant. He noted that while he advocates for it, Guyana must decide the best way to go based on analyzing all the available data before plunging head first into downstream activities.

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