Professor Jennapher Lunde Seefeldt of Augustana Government and International Affairs writes that sanctions against Russia could help Ghana, Guyana and Suriname earn big bucks producing oil.
But wait, making more money producing oil can make countries more authoritarian, corrupt and violent, right? Dr Lunde Seefeldt acknowledges that the petro-economy has led to the exploitation of small nations by big oil companies and despots, but she argues that Guyana and Suriname can use current global trading conditions to secure better deals for their population:
As global markets grapple with the current oil price shock, niche producers are in particularly favorable positions to secure advantageous contracts and more favorable terms from international energy companies. For example, oil companies typically pay host countries royalties on their revenues which average around 16%. To date, Guyana and Suriname have accepted fees below 6.5% in an effort to attract investors. Under current conditions, they may be able to ask for more when negotiating new contracts.
Oil production began in Guyana at the end of 2019 and the country is currently producing over 340,000 barrels per day. Guyana learned from its first global contract with ExxonMobil to demand more “local content” – a key condition in oil negotiations that refers to hiring local workers and using locally made goods and equipment . Natural Resources Minister Vickram Bharrat called the deal, struck by a previous administration, “one of the worst ever struck between a government and an oil company,” and Guyanese officials said they would seek terms more favorable in future agreements.
Suriname’s new offshore oil discoveries offer potential. Small operations are currently producing around 20,000 barrels per day, and major projects are expected to start by 2025.
Suriname requires increased insurance from oil companies in the event of an oil spill, as well as prepared emergency clean-up procedures. These processes are continually reviewed and critiqued, keeping companies on their toes [Jennapher Lunde Seefeldt, “Small Oil Producers Like Ghana, Guyana and Suriname Could Gain as Buyers Shun Russian Crude,” The Conversation, 2022.03.15].
Ghana is a trickier case, as Exxon pulled out of a big oil deal after investigating the proposed offshore oil site, and no one else seems keen on drilling there. And any nation investing heavily in new oil production now had more hope of quick wins, as the world moves and needs to switch to less carbon-intensive fuel sources. If new oil producers do not use their black gold to invest in more diversified economic activity, they will face greater instability in the post-carbon economy:
Although some countries are increasing their investments in fossil fuels in the short term, consensus estimates indicate that “peak oil” will be reached in 2030, after which the transition to a low-carbon economy will gain momentum and force oil-producing countries to adjust their revenue streams. .
Analysts have suggested that the countries most affected could enter “catastrophic loops of declining hydrocarbon revenues, political unrest and failed attempts to revive flat non-oil sectors”.
… “Many, if not the majority, of net oil producers are going to find it difficult to diversify largely because they lack the necessary economic and legal institutions, infrastructure and human capital,” said James Lockhart Smith, head of market risk.
“Even when such institutions are in place, the political environment, corruption or governance issues and entrenched interests mean that some may not reform out of trouble, even where that is the rational path.”
The most vulnerable countries are the higher cost producers who are heavily dependent on oil for their revenues, have lower diversification capacity and are less politically stable, the report says, identifying Nigeria, Algeria, Chad and the United States. Iraq as the first to be affected “if the storms” due to their fixed or creeping exchange rates [Elliot Smith, “Oil Nations Tipped for Political Instability If the World Moves Away from Fossil Fuels,” CNBC, 2021.03.26].
And it would be a shame for Suriname to make a lot of money selling oil only to have to spend it all and then dam its coast to protect the 90% of its agriculture and small industry on the coast from a sea that rises even faster thanks to the world buying and burning a lot of Surinamese oil. Hmm… maybe Suriname, Guyana and Ghana should focus on getting better deals from turbine manufacturers for their offshore wind power.