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Exploring and exploiting its oil reserves extensively in Guyana

Disaster looms for impoverished Guyana, a South American nation, as oil prices plummet amidst the pandemic. This {potentially} imperils the nation's aspirations for wealth, achieved only recently through oil discoveries. The topic was a key election concern, yet ExxonMobil, in possession of the...

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Plummeting oil prices triggered by the pandemic could shatter the monetary aspirations of Guyana, a...
Plummeting oil prices triggered by the pandemic could shatter the monetary aspirations of Guyana, a financially struggling country in South America that has only recently identified oil reserves. This matter was highly debated during the latest elections, with ExxonMobil, the company holding mining rights, asserting that the predicament won't immediately impact operations.

Exploring and exploiting its oil reserves extensively in Guyana

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In an unprecedented turn of events, the price of a barrel of oil has plummeted into negative territory due to the pandemic-induced slump in demand. Producers are forced to pay to offload their excessive stock as storage space dwindles, a stark contrast to Guyana's recent dreams of oil wealth. The South American nation, one of the continent's poorest, had imagined a different scenario after discovering an estimated 8 billion barrels of oil reserves off its coast.

The World Bank forecasts a 4.6% contraction in Latin America's GDP for 2020, but Guyana buckles the trend, predicted to grow by an impressive 52%. This optimistic outlook, however, comes with a warning from the World Bank not to be overly hopeful. Oil fever has seized the public discourse in Guyana, with much excitement surrounding the potential transformative impact of oil on the economy, previously reliant upon sugar and bauxite mining.

Infrastructure improvements, rising house prices, and budding businesses reflect the anticipation. Changes are afoot; roads are being paved, prices are surging, and there's an air of consumer optimism. This may not be shared by former sugar industry workers, who doubt that offshore oil deposits will significantly improve their current conditions.

The elections held on March 2nd saw the Supreme Court ordering a vote recount due to suspected fraud favoring the incumbent president, David Granger. This uncertainty over the leadership has led the opposition to threaten a parliament boycott. Ethnic tensions run deep, with African descendants supporting the ruling People's National Congress (PNC), while the majority of Indians vote for the People's Progressive Party (PPP). Winning over indigenous voters is crucial for victory.

The issue of oil revenues and their utilization has dominated political discussions. Each party fears the other will misuse the oil money to cater to their own voting bloc. The PNC proposes investing in public employment for farmers, while the PPP plans to support the sugar sector. A government lacking legitimacy amidst fraud accusations may be tempted to use the oil money to buy support, history suggesting that large oil reserves in weak institutions often result in increased corruption and decline rather than societal well-being.

American company ExxonMobil, holder of the contract to exploit the reserves, asserted that the price drop has yet to impact its activities but might necessitate reconsideration if oil demand stays low and storage capacity is reached. Guyana's lack of experience in oil production and inadequate infrastructure to handle crises only intensifies this concern.

The expected oil production growth in Guyana will sustain strong GDP expansion, attract foreign investment, and bolster its international reputation. However, challenges such as governance demands, regional diplomatic sensitivities, and managing oil revenues responsibly remain key aspects shaping Guyana's evolving political environment. From economic growth to political transformation, oil is reshaping Guyana's future.

[1] International Growth Center, (2021), Guyana: Stepping Up To The Global Stage, IGC, [Online]. Available: https://www.theigc.org/publications/guyana-stepping-up-to-the-global-stage/ [Accessed 3 March 2021].

[2] International Monetary Fund, (2020), Guyana: Selected Issues, IMF Country Report No. 20/322, [Online]. Available: https://www.imf.org/en/Publications/CR/Issues/2020/09/24/Guyana-Selected-Issues-46978 [Accessed 3 March 2021].

[3] Inter-American Development Bank, (2018), Operational Matters: Guyana's Oil Exploration and Development, [Online]. Available: https://www.iadb.org/en/corporate-vision/magazine/2018/09/30/guyanas-oil-exploration-and-development,37826.html [Accessed 3 March 2021].

[4] IMF Country Report, (2021), Guyana: Selected Issues, IMF Country Report No. 21/65, [Online]. Available: https://www.imf.org/-/media/Files/Publications/CR/2021/English/text/CR2165.pdf [Accessed 3 March 2021].

[5] Caribbean Council, (2020), Sustainable Oil Development in Guyana's Rainforest, Caribbean Council Brief, [Online]. Available: https://www.caribbean-council.org/assets/docs/Brief_Guyana_15.09.2020.pdf [Accessed 3 March 2021].

  1. The oil and gas industry, particularly in Guyana, is a subject of intense political debate, with various parties fearing misuse of oil revenues to cater to different voting blocs, analogous to past occurrences involving large oil reserves and weak institutions.
  2. The financial sector is paying close attention to Guyana's oil-rich future, with economists forecasting impressive GDP growth and significant foreign investment due to the country's anticipated oil production expansion.
  3. Energy policy and legislation are key components shaping the evolving political landscape in Guyana, as the South American nation grapples with the economic impact of oil production and the associated challenges, including infrastructure development, regional diplomacy, and responsible oil revenue management.
  4. The oil market's volatility was highlighted during the pandemic as the price of a barrel of oil plummeted into negative territory, forcing producers to pay to offload excess stock, while Guyana, rich in oil reserves, brace to face unique challenges in the realm of oil production and governance amidst a shift from a sugar- and bauxite-dominated economy to one driven by energy resources.

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