Eight years after a consortium led by ExxonMobil announced the discovery of vast oil and gas deposits off the coast of Guyana in May 2015, this small South American country of 800,000 people is now poised to become the world’s fourth-largest offshore oil producer as well as a major fossil gas supplier. The billions of oil dollars pouring into this largely impoverished nation have transformed it into the world’s fastest growing economy. Experts worry that Guyana lacks the expertise and legal and regulatory framework to control the political and economic power of the international oil industry — let alone protect its own environment and rich biodiversity. With Exxon now predicting that Guyana will become a bigger producer than Texas, Michael Buchsbaum sheds a light on this nation’s oil boom and other media outlets sounding an alarm.

Birth of a petro state

Once known as the ‘Venice of the West Indies’, today many of Guyana’s slowly decaying colonial-era wooden structures stand next to gated communities as oil-boom fuelled buildings made of glass, steel and concrete rise ever-higher into the sky above Georgetown, its capital and largest city.

Historically one of the poorest countries in South America despite its large gold, diamond and bauxite reserves, before oil production commenced in December 2019, its economy was mainly based on tourism, agriculture and fishing. At the time, more than 40% of its population lived on less than USD 5.50 a day.

But the black gold rush has changed all that.

Astounding figures

To put it into perspective, just one single oil block from out of the dozen plus recently discovered off Guyana’s coast has been estimated to hold some USD 41 billion worth of petroleum.

A fifth major field now being developed by the ExxonMobil-led consortium will add another 1.3 billion barrels of recoverable reserves to the already immense 10-billion barrel Guyana-Suriname basin, according to a January 2023 Guyanese government announcement.

As of 28 February 2023, according to the Ministry of Natural Resources, Guyana is pumping more than 383,000 barrels per day from offshore deep water wells, a number expected to rise precipitously as more drilling and new technology come online.

By 2027, the Ministry expects production to jump over 300% to a staggering 1.2 million plus daily.

Exxon itself is projecting that Guyana will be producing more oil by 2025 than its flagship Permian Basin production field in Texas. With USD 1.6 billion in oil revenues received by May 2023, the government has launched infrastructure projects including the construction of 12 hospitals, seven hotels, scores of schools, two main highways, its first deep-water port and a USD 1.9 billion gas-to-electricity project.

By decade’s end, Georgetown now estimates oil will generate USD 10 billion annually for the government.

The International Monetary Fund (IMF) states that the immense oil revenues now flowing into the country has catapulted Guyana into the world’s fastest-growing economy.

With GDP expected to expand this year by over 37%, as petroleum production and investment increase, the IMF forecasts Guyana’s GDP to grow by another 45.2% next year too.

Political instability and bad deals

Critics, including Guyana’s opposition leader and former auditor general, worry about how the boom will affect the nation’s political institutions.

The speed and size of the cash influx is almost certain to spark bitter fights over how the wealth should be spent throughout the country where politics is sharply divided along ethnic lines: 29% of the population is of African descent – most of whom trace their heritage there to slavery.

Another 40% of the country’s population is of East Indian descent stemming from indentured servants brought to Guyana after slavery was abolished. Indigenous populations dominate in the interior of the nation, while the descendants of European colonialists live mainly along the coast or in Georgetown.

According to 2021 USAID report, ‘Guyana’s political instability raises concerns that the country is unprepared for its newfound wealth.’ Without a plan to manage the new revenue and equitably disburse the financial benefits, a ‘lack of transparency in negotiations and oil deals with investors’, plus the tremendous influx of money will ‘open many avenues for corruption.’

Guyanese climate bombing

Environmental and climate scientists have also raised concerns that Guyana’s oil boom will negatively contribute to climate change, given that one barrel of fuel oil produces on average about 940 pounds (about 425 kilograms) of carbon dioxide, according to the U.S. Environmental Protection Agency.

If even less than half of the immense volumes of oil and fossil gas lying off their coast was burnt, the resulting emissions could exceed 1 billion tons of CO₂, a veritable carbon bomb, says German NGO Urgewald.

Guyanese politicians say they are acutely aware of climate change, countering that their country currently is at net zero for carbon emissions thanks to its extensive rainforest cover which covers almost 80% of its territory and functions as a carbon sink.

Getting ‘Drilled’

Beyond its planetary impacts, some are charging that the deal Guyana struck with the ExxonMobil-led consortium might also be terrible for the nation too.

Signed in 2016, but not made public until 2017 despite demands to release it immediately, the contract grants extremely favorable terms to the producers. Though on paper, Guyana would receive 50% of eventual profits, they would only earn 2% of any future oil royalties.

Award-winning climate journalist and podcaster Amy Westervelt addresses Guyana’s oil boom throughout the 8th season of her acclaimed true-crime podcast about climate change, ‘Drilled’.

She breaks down the original contract further, stating that before there is any profit to split, Exxon takes 75% of all revenue off the top to pay for previous exploration and development costs. So for a hypothetical USD 100 barrel, the first USD 75 goes to the oil companies straight away, ‘so-called cost oil’. The remaining USD 25 dollars, or ‘profit oil’, gets split between Guyana and Exxon; with an additional 2% in royalties going to Guyana. In this scenario, Westervelt calculates Georgetown’s share to about UDS 14.50/barrel. She also reminds that royalties are normally between 8% to 25%.

‘The contract is front-loaded, one-sided and riddled with tax, decommissioning and other loopholes that favour the oil companies’, according to a report from the Ohio-based Institute for Energy Economics and Financial Analysis, who sees it creating a potential 6 to 1 split.

Moreover, the Exxon-led consortium has created an incredible litany of charges to negate any sense of financial rewards for the nation. She points out that under the deal, Guyana will be paying Exxon’s Guyanese income taxes, plus has taken out loans to support some of Exxon’s costs, like building deep water ports.

Worse, as Westervelt explains, in the event of a well blowout, like what happened with the Deepwater Horizon in the Gulf of Mexico in 2010, under Exxon’s own environmental impact assessments, oil would hit up to 14 different Caribbean islands plus various countries along the northern coast of South America – a region that has virtually no experience nor ability to contain the spill.

The views and opinions in this article do not necessarily reflect those of the Heinrich-Böll-Stiftung European Union.