POLICY BRIEFS

Guyana: The New Oil Sector and the Environment

By: Meghna Gupta

Ms. Gupta studied with Professor Paul N Tennassee

These are her views and not necessarily those of The Roraima Institute

Date: 10/4/2019

Effects of oil on the environment:
Crude oil is used to create the petroleum products, which are used to fuel airplanes, cars,
and trucks and to heat homes. Though oil makes ‘our’ lives easier, it can have devastating effects
on environment. According to US Energy Information Administration (EIA), exploring and
drilling for oil disturbs both land and marine ecosystems. For example, the equipment used to
search for oil under oceanic floors can harm fish and other marine livestock, whereas drilling of
an oil well on land requires destroying forests and vegetation. In the more recent years a new
technique for oil production, commonly known as hydraulic fracturing or “fracking” for short,
was created. Hydraulic fracturing is used to produce oil from tight areas between rocks, in order
to draw oil from such tight locations requires significant amount of water and hazardous
chemicals. This method of retrieving oil often produces wastewaters that contain chemicals,
which can lead to earthquakes. Another major effect of oil drilling/production is the potential of
oil spills. EIA states “most oil spills are the result of accidents at oil wells or on the pipelines,
ships, trains, and trucks that move oil from wells to refineries”. Oil spills contaminate soil and
water and can cause massive explosions and wildfires (US Energy Information Administration
2018).

Projection of future climate:
To fully grasp the effects of climate change, scientist use computer-based climate models to
generate projections of future climate scenarios. Such projections are made possible by using
atmosphere-ocean general circulation models (AOGCMs), which projects aspects of temperature
and rainfall for several decades or more. The IPCC uses AOGCMs to develop climate change
scenarios that can show different combinations of demographic, economic and technological

forces that could affect future greenhouse gas emissions. It is no surprise that developing
countries are vulnerable to negative effects of climate change often due to lack of resources and
the reliance on climate sensitive for sustainable agriculture.

Introduction to Guyana’s projection of climate:
Guyana’s population and main economic activities concentrate on low lying coastal
areas, making it more vulnerable to the effects of climate change to its economy, ecosystems,
and human capital. The country already suffers from heavy rainfall, acute droughts and severe
flooding. A projection of future climate scenario in Guyana showed that by year 2020-2040 the
temperature may increase anywhere from 1.2-4.2 degree Celsius while rainfall is predicted to
decrease. With the combination of increased temperature and reduction in rainfall is expected to
exacerbate evaporation, which could result in reduced water availability. Sea levels are noted to
rise rapidly, which could intensify storms and flooding along the cost. This could potentially
affect the supply of fresh water through the intrusion of salt water from sea and ruin crops and
livestock, which in turn cause scarcity of food. Now with the recent discovery of oil, will
Guyana’s projection of future climate be worse off, or will oil fortunes help Guyana
economically and effects of climate change be thwarted?

Guyana struck oil:
ExxonMobil Corporation, an American multinational oil and gas corporation, announced
discovery of oil on Stabroek Block (an oil reservoir) only 120 miles from offshore Guyana.
ExxonMobil and its subsidiary Esso Exploration and Production Guyana Limited (ESSO) began
drilling in 2015 and announced that “Guyana’s oil reserves is high quality and requires less
processing”. The exploration project in Stabroek Block has been named Liza-1. Minister of

Agriculture (Guyana) Robert Persaud stated “Guyana has started a very elaborate and
comprehensive process in preparing for the oil and gas economy, commends the US government
for its continued support through workshops in building capacity as we prepare our oil and gas
sectors” (Guyana Chronicle 2015). South America’s third poorest country, Guyana has little to
no experience in dealing with the oil industry, therefore they are fully reliant on multinational
companies such as ExxonMobil and Hess for information, infrastructure and export capabilities.

Role of ExxonMobil:
As stated before ExxonMobil is a multinational oil and gas corporation. ExxonMobil is a
direct descendant of John D. Rockefeller’s Standard Oil Company. According to Guyana
Chronicle’s Exxon has signed a contract with the Guyanese government last year, offering a 2%
royalty on sales and a 50% of profitable oil only once costs of drilling and processing of oil have
been repaid. Meaning that ExxonMobil will first recover its investments before any profits can
be shared with Guyanese Government. Also, as agreed between ExxonMobil and Guyanese
Government, the 2% royalty on sales for Guyana, is surprisingly low as compared to global
standards. According to Dr. Jan Mangal, the petroleum advisor to Guyanese President David
Granger “generally royalties on sales are around 10-20% globally” (Waves 2018). This raises
concerns regarding the transparency for ExxonMobil’s oil empire. The contract also reiterates
that Guyana will pay for large majority of startup expenses such as pipelines, well heads,
equipment, offshore platforms, terminals, direct and indirect services including vehicles, aircraft,
power plants, housing, furniture, community and recreational facilities, as well as legal costs
incurred by Exxon and its subsidies (Hess, Esso, and Nexen). The country will also be paying for
labor costs including bonuses that the management decides to pay themselves and outsourced
employees from affiliated oil companies. According to Stabroek News, economists Janki made a

statement about these cost, by saying “Guyana will pay for every poor business decision and
every extravagant business decision made by these oil companies” (Stabroek News 2018).
It is important to note that in 1989 the leading oil producer Exxon Mobile caused a major oil
spill in Prince William Sound, Alaska. Though this unfortunate event took place over thirty years
ago, its effects are experienced to this day. Suggesting a long-term effects of oil spill on
environment, a study released in 2015 by Alaska Fisheries Science Center reports that many
years after the oil spill, it continues to cause decline in the population of pink salmon and
herring (ENN 2015).

Role of Hess Corporation:
Hess Corporation is an American global independent energy company engaged in the exploration
and production of crude oil and natural gas and is headquartered in New York City. The
corporation currently has exploration and production operations both on-shores: United States
and Libya and off-shore: Canada, South America (Guyana & Suriname), Europe (Norway &
Denmark), and Africa (Ghana & Equatorial Guinea), Southeast Asia (Malaysia and the Joint
Development Area of Malaysia and Thailand), and Australia. In June of 2017, Hess announced
the first phase of development of the Liza Field, located on the Stabroek Block offshore Guyana.
In 2018 Republic of Guyana provided Hess with 30% transfer of interest. In May of 2019, Hess
announced it had received regulatory approval from the government of Guyana and will proceed
with the second phase of development of the Liza Field on the Stabroek Block, Guyana. Liza
Phase 2 will utilize the Liza Unity Floating Production, Storage and Offloading vessel (FPSO),
which will have the capacity to produce up to 220,000 gross barrels of oil per day. Six drill
centers are planned with a total of 30 wells, including 15 production wells, nine water injection

wells and six gas injection wells. First oil production on Liza field is expected by mid-2022.

(New Releases: Hess Corporation)

How ExxonMobil has effected other countries (Chad, Nigeria, Papua New Guinea):
Contracts like the one with Guyana are nothing new to Exxon; in fact the corporation has
a history of exploiting poorer countries for oil. Some countries that have felt the negative effects
of ExxonMobil include Chad, Nigeria, and Papua New Guinea. Chad is central African nation
that is well known for its internal corruption, discovered oil in 2000. ExxonMobil opened the
first oil field in Chad in 2003. The field is known as ‘Kome oil field’, and is located in the town
of Doba. Chad reportedly made a hefty profit of $9 billion in profits since 2003, but later on it
was discovered that ExxonMobil was underpaying in royalties that were originally contracted to
the nation. However, instead of using profits to improve public services, healthcare, lower
poverty, and increase education funding, the country became more corrupt. Such corruption led
to an increase in civil conflict and worsening of governance (Kaieteur News 2017). Will Guyana
follow the same path of corruption and deceit as Chad? Or will Guyana implement good public
policies that will benefit its people? These are questions that Guyanese people and their
government should take into consideration as oil profits start rolling in.
Nigerian nation’s agricultural and manufacturing sectors were the heart of their economy
prior to the discovery of oil. Once oil was discovered, Nigerian people neglected all
agricultural/manufacturing sectors because the oil was considered more profitable. However, as
oil price stagnated and revenues started falling short of expectations; lack of diversification in its
economy led to the countries’ inability to advance finically. In 2017 Kaieteur News reported that
due to numerous oil spills, Nigeria faces more pollution, and more environmental challenges

than ever. Guyana needs to take into consideration how more jobs in oil sector will affect other
traditional areas of employment and diversification within its economy, and how it plans to face
environmental challenges that come with drilling of oil and its transport.
When ExxonMobil arrived in Papua New Guinea, the company promised that is has the
potential to transform the country’s economy by boosting GDP and money from exports. With
increasing government revenue, providing royalty payments to landowners and jobs to locals
could increase quality of life. Yet the country of Papua New Guinea is worse off than before, and
has fallen into hands of corruption, according to Kaieteur News segment (Kaieteur News 2017).
In 2015 ExxonMobil walked into Guyana with similar promises of profits and quality of life to
its people, but will these promises be kept? Or will Guyana join the list of third world countries
(like Chad, Nigeria, Papua New Guinea), that have felt the downfall due to increase in corruption
and greed.

Policy Recommendation for Environmental Health:
As discussed earlier on, oil can have some major effects on the environment and our
ecosystems. Therefore, it is recommended that Guyana place emphasis on environmental
regulations, such as adopting the “Clean Air Act”, the aim of this act is to reduce the emissions
of greenhouse gases (that cause climate change).According to the American GeoScience Institute
(AGI), “The clean air act stipulates that operators must take measures to capture natural gas that
escapes into the air (green completion)”, in hopes of reducing waste that is disposed into the
environment (Allison AGI, 2018).

Policy Recommendation for Oil Companies:
Guyana being the third poorest country in South America’s, has little to no experience in
dealing with the oil industry, and is forced to be fully reliant on multinational companies such as
ExxonMobil and Hess for information, infrastructure and export capabilities. Therefore the
country needs to put into place regulations to monitor the activities of these companies. For
starters, in order to explore/drill for oil companies need to obtain certain permits from the
Guyanese Government (development permits, drilling permits, operating permits). There should
also be a “public reviewing” period, where the public is fully informed about the businesses
goals for operations, and legal contracts between oil companies and the government are made
public (this will allow the citizens of Guyana to have a voice).

Work Cited:

The New El Dorado: How Will Guyana’s Newly Discovered Oil Impact the Environment? | International & Executive Programs | UC Berkeley, iep.berkeley.edu/content/new-el-dorado-how-will-guyanas-newly-discovered-oil-impact-environment.

Chabrol, Denis. “President Granger’s Petroleum Advisor Criticizes ExxonMobil’s Low Royalty Payment, Control of Large Concession.” Demerara Waves, 7 Feb. 2018, demerarawaves.com/2018/02/07/president-grangers-petroleum-advisor-criticizes-exxonmobils-low-royalty-payment-control-of-large-concession/.

“Given Costly Mistakes Made with Statoil/ExxonMobil…Tanzanian Politician Warns Nations to Make Oil and Gas Contracts Public.” Kaieteur News, 17 Sept. 2017, www.kaieteurnewsonline.com/2017/09/17/given-costly-mistakes-made-with-statoilexxonmobiltanzanian-politician-warns-nations-to-make-oil-and-gas-contracts-public/.

“Home Search Sitemap.” Office of Climate Change – Guyana, 28 June 2018, climatechange.gov.gy/en/index.php/news-and-events/press-releases/111-governments-of-guyana-and-norway-met-today-on-climate-forests-and-sustainable-development-partnership.

“Home Search Sitemap.” Office of Climate Change – Guyana, 28 June 2018, climatechange.gov.gy/en/index.php/news-and-events/press-releases/111-governments-of-guyana-and-norway-met-today-on-climate-forests-and-sustainable-development-partnership.

“News Release.” Hess Corporation | News Release, phx.corporate-ir.net/phoenix.zhtml?c=101801&p=irol-newsArticle&ID=2397084.

“Oil and the Environment.” Oil and the Environment – Energy Explained, Your Guide To Understanding Energy – Energy Information Administration, www.eia.gov/energyexplained/index.php?page=oil_environment.

Reporter, Staff. “ExxonMobil Makes Significant Oil Discovery.” Guyana Chronicle, 21 May 2015, guyanachronicle.com/2015/05/21/exxonmobil-makes-significant-oil-discovery.

“Rystad Energy Part of Exxon’s Lobbying Machine – Dr. Mangal.” Kaieteur News, 16 July 2018, www.kaieteurnewsonline.com/2018/07/16/rystad-energy-part-of-exxons-lobbying-machine-dr-mangal/.

“Top Stories.” ENN, 8 Sept. 2015, www.enn.com/articles/48953-the-long-term-effects-of-the-exxon-valdez-oil-spill.

“What Guyana Needs to Know about ExxonMobil– Pt 1….Will the Country Get a Fair Share for Its Oil Wealth?” Kaieteur News, 18 June 2017, www.kaieteurnewsonline.com/2017/06/18/what-guyana-needs-to-know-about-exxonmobil-pt-1-will-the-country-get-a-fair-share-for-its-oil-wealth/.

“U.S. Regulation of Oil and Gas Operations.” American Geosciences Institute, 18 June 2019, https://www.americangeosciences.org/geoscience-currents/us-regulation-oil-and-gas-operations.

Writer, Staff. “Oil Facility at Crab Island Will Create 600 Jobs – Trotman.” Stabroek News, Stabroek News, 30 Dec. 2016, www.stabroeknews.com/2016/news/guyana/12/30/oil-facility-crab-island-will-create-600-jobs-trotman/.

Writer, Staff. “First Steps in Oil Spill Contingency Plan Tabled.” Stabroek News, Stabroek News, 13 Aug. 2018, www.stabroeknews.com/2018/news/guyana/03/29/first-steps-in-oil-spill-contingency-plan-tabled/.

Writer, Staff. “Economists, Janki Pessimistic about Oil Future.” Stabroek News, Stabroek News, 13 Aug. 2018, www.stabroeknews.com/2018/news/guyana/05/25/economists-janki-pessimistic-about-oil-future/.