A Conceptual Approach to Guyana’s Oil and Gas Wealth
By Dr. Arlington Chesney
News Americas, NEW YORK, NY, Wednesday. March 16, 2022: Guyana has recently become a major oil and gas country. The estimated recovery resource base is 9 to 15 billion boe. Consequently, GDP is expected to grow by 49.7% in 2022.
The Governor of the Central Bank indicated that, for 2021, revenues from the oil and gas sector were $680 million. The Exxon consortium has estimated that six FPSOs (Floating Production Storage and Offloading) are needed to tap into this resource base. Extrapolating from 2021, projected annual government revenues in 2027 are conservatively estimated at $4.8 billion.
Guyana held its inaugural international energy conference “Guyana Energy Conference: Aspirations for a Sustainable Future” from February 15-18, 2022. According to reports, this was not a conference on the oil and gas itself. He presented opportunities for Guyana’s sustainable development, with the oil boom being pivotal to the viability of other sectors.
Keynote speakers identified “climate change, infrastructure, environment, marketing and energy”; “renewable energies, education and health” and “education, health, training and skills development”. These takeaways have facilitated 11 platforms to move forward, including financing renewable energy projects; developing the non-oil sector; training and mentoring.
The agriculture and food sector could benefit from many of these cross-cutting platforms. However, despite numerous government statements about its importance, agriculture has not been singled out as a growth sector. It is surprising but not unexpected. Since 2001, agriculture ministers from across the hemisphere have recognized that the policy space for agriculture in key development conversations is shrinking, particularly for developing countries. This was accompanied by a reduction in resource allocation. Furthermore, this was related to the underestimation of the importance of agriculture to the rest of the economy, which was directly related to the traditional measure of national agricultural GDP.
Therefore, an inter-American group, led by the Inter-American Institute for Cooperation on Agriculture, developed an alternative that measured both production (using the traditional method) and income. It also measured the relationships between agriculture and other parameters, such as the impact on rural development and quality of life, food security and sovereignty, the maintenance of the environment and biodiversity, and backward and forward linkages with other production sectors. Measured in 12 countries in the Americas and the Caribbean, the difference was 1.9 to 11.6 depending on the state of development of the country.
Therefore, it can be extrapolated that the “true” contribution of agriculture to GDP in 2020 in Guyana would have been at least double the 16.9%. With the expected rapid growth of the oil and gas sector and hence the economy, this multiplier can be expected to increase significantly.
This data strongly supports government actions to prioritize the use of oil and gas returns in the revitalization of the agricultural sector. These resources are intended to support potentially viable industries and entities. For example, climate-resilient agriculture can be supported by new protections against sea-level rise and unusual rainfall patterns. But they should not be used to “support” those who are not financially and/or economically viable.
The following paragraphs provide some suggestions, necessarily limited in scope, for possible interventions/initiatives to be supported by the oil and gas windfall.
sugar cane industry
This discussion is about sugar cane, not sugar. Indeed, sugar should only be an economic good whose production is limited to the quantities necessary for profitable markets: offering the forms of sugar required and supplied in the most appropriate packaging.
A second product is ethanol: previous work has shown that the production of ethanol as a fuel is viable once the price of oil rises above US$60 per barrel. Naturally, this critical figure will have to be reconsidered. This profitable commodity also has the potential to significantly and very quickly boost the government’s renewable energy platform as part of its low-carbon development strategy to complement the oil and gas sector. The model from Brazil, another major oil and gas producer, can be adopted/adapted as specific guidelines and a role in their application.
The third product suggested is co-generated electricity: to be developed in an area with the necessary conditions to enable the business to be viable. Despite the difficulties encountered at Skeldon Estate, the concept remains credible. Nevertheless, the preparation of the business plan must be accompanied by a critical examination of all aspects of the development and turbulent operations of this initiative.
The fourth product suggested is feed supplements for livestock (ruminants) based on sugar cane haulm: the imminent commissioning of multi-star hotels will require top quality meat. The Trinidad and Tobago Sugar Cane Feeding Center has established the technology to produce quality meats from feed made from sugar cane haulm and molasses. Guysuco, can “tweak” and commercialize the technology.
The latest proposal is bagasse cardboard: to be used as a binder less laminated particleboard, mainly for interior partitions, and multi-purpose packaging. Jamaica’s experiences for the first product can be reviewed.
This recommendation to revive the cultivation of sugar cane may not be unanimous because of the historical performance linked to sugar. However, even with only three operational estates, 8,000 people are employed and 49,500 acres are under cultivation with a further 50,000 acres abandoned but formed land with drainage and irrigation infrastructure. Due to the predominance of heavy clay soils on the coasts, sugarcane remains one of the few crops that can be easily grown over large areas.
Furthermore, the cultivation of sugar cane improves both national income and production: the two main pillars of the alternative/non-traditional method of measuring agricultural GDP; and satisfies almost all platforms listed at the oil and gas conference.
The large existing area under sugar cane cultivation (with potential for expansion) is essential to the economic and environmental development of the coasts and, with its extensive drainage and irrigation network, also serves as a crucial adaptation measure against the climate change impacts, such as climate change related events.
The challenge is to come up with the right mix of viable products.
Non-coastal agricultural production
Regional agricultural imports are approximately $3.8 billion, with corn and soybeans (for animal feed), meat, white potatoes, niche fruits and vegetables being the major imports. Due to its large land mass and elevation characteristics, Guyana is a CARICOM country that can contribute significantly to reducing this massive bill.
However, the increase in cultivation must occur in the “backcountry”. Maize and soybeans and beef in the intermediate savannahs on large mechanized areas.
White potatoes and niche fruits and vegetables in the interior highlands, dominated by the Pakaraimas. These products can best be produced by MSMEs owned and/or operated by resident indigenous peoples. Particular attention will be required to effectively manage the existing flora and fauna.
The inadequacy and/or unavailability of public infrastructure, roads and utilities is a major limiting factor for the successful economic production of these products. Accelerated provision of these resources by the government, although revenue expenditures are required.
Restructured research for development facilities
Meaningful use of oil and gas revenues for the aforementioned business initiatives and other relevant business initiatives requires a fully integrated, focused, results-driven and time-driven approach from research to development throughout the value chain . This government-led approach has been followed by Chile in the successful development of its grape and wine industry and could be adapted.
The resources are available to succeed in making the agricultural sector a key economic driver. Now is the time for an overwhelming political will from “all of government”. With the growing national concern over local content (local benefits), this will garner support from “all of society”.
This program will also benefit CARICOM with a measurable reduction in its food import bill, as recognized by President Ali at the recent Caricom Heads of Government Meeting. The decades-old adage, “Guyana, the breadbasket of the region”, could quickly become a reality.
EDITOR’S NOTE: Dr. H Arlington D Chesney is a leading Caribbean agricultural professional who has served his country, the Caribbean and the hemisphere. He is an IICA Distinguished Professional and in 2011 he received the Golden Arrow of Guyana for his contribution to agricultural development in Guyana and the Caribbean.