Oil, politics and climate: 5 interesting facts about Guyana

Guyana is embracing its newfound oil economy to reduce poverty, improve social services, and fund its Low Carbon Development Strategy.

Nestled to the north of South America, Guyana is a small nation with a population of 800,000. Despite its location, it is widely regarded as a Caribbean country due to its historical and cultural attributes. In fact, it is a founding member of the Caribbean Community (CARICOM) – an intergovernmental organisation established in 1973 to address the economic and political interests of countries in the Caribbean – and home to its secretariat headquarters.

Guyana is known for its vast rainforests and is rich in natural resources including gold, bauxite, rice, and sugar. However, for many years it was a considerably poor country. In 2019, 48.4% of Guyanese were living below the poverty line.

Recent oil discoveries have presented the Guyanese government with an opportunity to transform the country and the lives of its citizens for the better. The nation’s ethnopolitics, vulnerability to climate change, plus threats from neighbouring Venezuela, are just some of the challenges it must contend with along the way. Here are 5 interesting facts about Guyana.

1. In 2015, a consortium led by oil giant, ExxonMobil, discovered oil deposits offshore. Now, Guyana is forecast to become the fourth-largest oil producer in the world

Historically, Guyana’s main exports comprised of gold, rice, bauxite, sugar, and timber. In the Bank of Guyana Annual Report 2019, all exports fell into one of these five categories or “others” (consisting of commodities such as fish, rum, and prepared foods). The oil sector, a non-existent contributor until 2020, has eclipsed the contributions of traditional natural resources. In 2020 and 2021, crude oil formed 41.1% and 68.3% of total exports, respectively. This rose to a staggering 87.4% in 2022 and 88.2% in 2023.

At present, ExxonMobil and partners, Hess Corporation and China National Offshore Oil Corporation, are the only active oil producers in Guyana, operating on the “Stabroek Block”. However, there are several other blocks (some controlled by the ExxonMobil group, others by different oil companies) currently in various stages of discovery or drilling. ExxonMobil’s projects alone are predicted to reach an output of 1.2 million barrels per day by 2027. This would position Guyana as a leading oil producer in the Americas. It is anticipated to become the fourth-largest offshore oil producer in the world ahead of Qatar, Norway, Mexico, and the United States.

Guyana’s latest GDP growth reflects its upward trajectory. Between 2020 and 2023, it experienced real GDP growth in the double digits [fig.1]. This was an exceptional feat in 2020 when the Covid pandemic caused a global economic downturn. Predictably, Guyana’s speedy climb to petrostate status has inspired discourse regarding the experiences of developing countries with oil riches. Commonly discussed are apprehensions that Guyana could become “like Nigeria or Venezuela” – economies with oil wealth undermined by corruption, and a victim of the resource curse – when a poor country is paradoxically made worse off after finding oil.

2. While oil production began in 2019, Guyana’s history of oil prospecting started in the 1930s

Since the 1930s, foreign oil companies have attempted to locate oil deposits in Guyana , to no avail. In 1999, ExxonMobil was granted a prospecting licence by the Guyanese government. The licence covered 14.8 million acres, from the Surinamese border in the east to the Venezuelan border in the west. However, ExxonMobil declared force majeure between 2000 and 2008, following tensions between Guyana and its two neighbours. It resumed exploration thereafter. Once the high probability of deep-water oil discoveries became known, the government distributed additional prospecting licences to local entrepreneurs between 2011 and 2015. This was followed by ExxonMobil’s 2015 announcement that it had found one of the greatest reserves of oil and gas in the Western Hemisphere.

The government’s initial response to ExxonMobil’s discovery was integral to the basis of Guyana’s oil sector today. In 2016, the government quietly converted ExxonMobil’s exploration permit into a Production Sharing Agreement (PSA) without renegotiating the existing terms. In December 2017, the contents of the PSA were revealed to the public. Guyana is entitled to a 2% royalty on pre-cost revenues and 50% of profits, with a 75% cost recovery ceiling.

The suitability of the PSA was widely contested. In 2020, Global Witness published a report positing that the agreement unduly favoured ExxonMobil. It argued for a government share of at least 69%, suggesting existing terms potentially cost Guyana up to US$55 billion. The government attributed the agreement terms to Guyana’s weak negotiating position. It needed to incentivise operators like ExxonMobil given its fruitless history of oil prospecting. The broader geopolitical context, including Guyana’s territorial dispute with Venezuela (see point 5), added complexity to the situation.

To secure greater economic benefits from future oil production, the government later introduced a model PSA that demands a 10% royalty. However, existing projects are exempt which has prompted concerns about the gap between potential and actual royalties. Stabroek, currently Guyana’s only producing block, could be generating five times as much revenue.

3. Guyana has a sovereign wealth fund to strategically manage its share of oil royalties and profits. Concerns have been raised about the distribution of its benefits

A sovereign wealth fund (SWF) is a state-owned investment fund, typically financed by surplus reserves (e.g. oil revenues). Setting up a SWF is viewed as a smart move for resource-rich countries, with Norway often referenced as a success story. In 2019, Guyana’s government set up its own SWF called the Natural Resource Fund (NRF). To protect against inflation and Dutch disease, and preserve oil money for future generations, restrictions were applied limiting permissible government withdrawals during years of low oil production.

It is imperative to highlight that, for decades, politics and ethnicity in Guyana have been strongly intertwined. The People’s Progressive Party (PPP) predominately defends the interests of Indo-Guyanese (descendants of indentured Indian workers). The People’s National Congress (PNC) – now part of coalition, A Partnership for National Unity-Alliance for Change (APNU-AFC) – is largely backed by Afro-Guyanese (descendants of African slaves). This arrangement has perpetuated a dynamic whereby during the incumbency of one political party, the opposition and its constituents voice perceived favouritism towards the opposing faction. Anticipation over the control of pending oil wealth made Guyana’s 2020 election exceptionally tense. This was worsened by the closeness of the PPP’s victory and allegations of electoral fraud.

Discussions surrounding the NRF reflect Guyana’s ethnopolitical climate. In 2019, former president, David Granger (PNC/APNU-AFC), oversaw the creation of the NRF. In 2020, after President Irfaan Ali (PPP) was voted into office, legislation was introduced to relax the withdrawal restrictions. APNU-AFC expressed concerns about the PPP distributing oil wealth in favour of its supporters.  William Mao, of Harvard International Review, notes that “in a break from recent practice, the PPP did not give the APNU a seat on the board of the fund. That made the APNU furious. It worries that, left unchecked, the PPP will direct funds to Indo-Guyanese disproportionately”. The NRF closed December 2023 with a market value of US$2.1 billion. In 2023, the government made a total of eight withdrawals, totalling US$1 billion.

Some critics observe that, so far, the PPP’s withdrawals have financed impromptu infrastructure projects without parliamentary consent or supervision. Despite this, the government does have access to mechanisms intended to foster transparency around Guyana’s newfound oil wealth. In 2017, the APNU-AFC government aligned Guyana with the Extractive Industries Transparency Initiative (EITI). An international standard whose members commit to publicly disclosing information on the awarding of resource extraction rights, revenue allocation, and public benefits. This was a positive step towards avoiding the misappropriation of oil revenues. In 2023, Guyana was temporarily suspended by the EITI board for failing to submit its 2020 report. This was eventually provided five months after the original due date.

 The new 10% royalty baseline for future oil-producing blocks signifies an essential advancement in equitable resource sharing.

4. Its rainforests have always been a carbon sink but Guyana’s climate vulnerability has led some to question the government’s endorsement of oil drilling

Approximately 80% of Guyana’s landmass is enveloped by rainforest. It also has an exceptionally low deforestation rate, with 99.5% remaining untouched. Therefore, it is widely recognised as one of the world’s few carbon sinks. Able to sequester more greenhouse gases than are emitted by its populace. Guyana stands among an exclusive group of four nations that have maintained a High Forest Low Deforestation (HFLD) status. It is also the first HFLD to be awarded the REDD+ Environmental Excellence Standard (TREES) credits. The first market-ready carbon credits to be made available to regions with low deforestation rather than predominately high deforestation, as has been the case with traditional carbon credits.

The government’s decision to authorise oil production has sparked debate regarding Guyana’s carbon sink status. Some local groups contend it is detrimental to the country’s position as a global climate role model. Activists have equated ExxonMobil’s activities to a “carbon bomb”. An oil or gas production project that could evoke irreversible climate change. However, an environmental impact report published by Guyana’s Environmental Protection Agency found that the country will remain a carbon sink, even when ExxonMobil’s activities reach peak emissions.

Beliefs regarding Guyana’s climate vulnerability are central to debates about oil production. Around 90% of its population lives on narrow coastal plain along the Atlantic Ocean and its capital city, Georgetown, sits below sea level. The seawall is frequently flooded, with increasing incidents due to rising sea levels and climate change. This poses a significant risk to the population, economic activity, and much of Guyana’s agriculture. Moreover, it raises the question of whether it is sensible for the government to support oil drilling.

The current government views oil as a paradoxical, yet crucial, component of its climate action plan. It offers the chance to self-fund climate adaptation initiatives, improve social services, and transition to a low-carbon economy. Objectives which are incorporated into the government’s Low Carbon Development Strategy 2030 (LCDS). Simultaneously, Guyana would remain carbon negative thanks to its rainforests sequestering more CO₂ emissions than those emitted by its oil rigs.

On the issue of Guyana’s complex ethnopolitics, especially pertaining to the NRF, transparent management and distribution of oil revenue is key.

5. In 2023, a long-running dispute between Guyana and Venezuela escalated once more, raising fears of military conflict

Essequibo is a densely forested region that forms two thirds of Guyana, sharing its western border with Venezuela. It is home to around 15% of Guyana’s population. During the Spanish colonial period, Essequibo formed part of Venezuela. However, in 1899, it was assigned to Guyana by international arbitrators. Guyana was under British control before gaining independence in 1966. It cites the 1899 decision in defence of its continued control of Essequibo. Venezuela has always contested the outcome. Nonetheless, the border has become cemented over time. Following ExxonMobil’s 2015 announcement of oil reserves off the coast of Guyana, President Nicolás Maduro revived Venezuela’s territorial claim.

In December 2023, Maduro conducted a controversial referendum to garner support after threatening to annex Essequibo. The referendum occurred despite a warning from the International Court of Justice (ICJ), who was referred the issue by the UN in 2018. Following which, Venezuela maintained its rejection of the ICJ’s jurisdiction over the matter.  A resounding 95% of Venezuelans reportedly voted to declare Essequibo a new Venezuelan state. Essequibo residents were not included in the poll. After the referendum, Maduro commenced various legal manoeuvres to establish a Venezuelan province in Essequibo. Even instructing the state oil company to issue licenses for the region. The referendum and subsequent actions exacerbated the dispute. Resulting in significant military posturing and diplomatic tensions between Guyana and Venezuela.

In response to Venezuela’s actions, the United Kingdom deployed a warship to Guyana in support of the latter. The move was denounced by Maduro, who stated that “the threat of the decadent, rotten, ex-empire of the United Kingdom is unacceptable”. He then activated a joint defensive action by Venezuelan armed forces off the coast of Essequibo. By the end of December, both countries agreed to refrain from using force to resolve the dispute. However, their relationship remained strained. In February 2024, ExxonMobil announced plans for new wells off the coast of Essequibo. Venezuela warned of a “proportional, forceful response” if drilling began. ExxonMobil proclaimed that it would proceed with its plans despite the threat.

Navigating oil and development in a tricky terrain

From its flourishing NRF to its distinctive climate action strategy, Guyana has made an indisputable effort to navigate its unique path. It is a developing country and a new petrostate, facing growing international pressure to abandon fossil fuels. The previous government certainly stumbled during the initial formation of the oil sector, accepting sub-par royalties from its PSA with ExxonMobil. The new 10% royalty baseline for future oil-producing blocks signifies an essential advancement in equitable resource sharing.

On the issue of Guyana’s complex ethnopolitics, especially pertaining to the NRF, transparent management and distribution of oil revenue is key. For the nucleus of President Ali’s One Guyana initiative – a movement founded in 2022 to promote unity and prosperity amongst Guyanese – to be fulfilled, no room should be left for any group to be economically side lined. Further, while setting up the SWF was a sensible decision, the relaxation of rules, large 2023 withdrawals, and plans for even larger outgoings in 2024, could negate its core purpose altogether. Protecting against inflation and Dutch disease while preserving wealth for future generations.

Oil production is undoubtedly problematic from an environmental perspective. Yet, if the government can use oil money to reduce poverty, improve social services, and fulfil its LCDS, this could benefit the whole country. Guyana needs its oil revenues. Maintaining a robust contingency plan for oil-related environmental issues is one way to help mitigate its more immediate risks.

With the Guyana–Venezuela dispute still looming, the road ahead for Guyana’s development offers much hope, but not without some obstacles. Notwithstanding its potential adverse implications, oil revenue is undeniably a critical factor in securing a more prosperous future for the country.

Featured image credit: Aboodi Vesakaran.