Bigger houses. Bigger bridges. Bigger plans. It’s of the poorest countries in the region.
Now the tiny South American country of Guyana is one of the world’s fastest growing economies.
Because of oil.
The government’s approach at the moment is we’re going to take as much as we can.
Guyana isn’t alone. Countries across South America are pursuing new drilling projects
despite a shifting oil market and a world that’s pushing towards decarbonization
Others are taking a different path.
Voters in Ecuador have rejected government plans to drill. Colombia
says it’s done with new fossil fuel projects to focus on renewables.
We have this conjunction of water, sun and wind at the same time, at the same place.
One continent. Two different approaches to the wealth buried underground. But which one is right?
What's the point on destroying this land for a couple of years of oil?
You’re going to look to extract every last barrel
from these reservoirs. And I think the demand is going to be there.
On this episode of Transforming Business. South America at the oil crossroads.
Guyana joined the ranks of the world’s oil producers for the first time on Friday, as
US oil company Exxon-Mobil said it began producing crude off the coast of the South American country.
This video is from Dec. 2019. But change in Guyana really started four years earlier.
That’s when Exxon-Mobil made the first of a series of major discoveries. Oil in an
offshore field. And not just a little. An expected 11 billion barrels in total.
And it’s good oil. Low in density, low in sulfur. That keeps production costs low.
New oil wells are now set to come online throughout the decade, growing Guyana’s
production by hundreds-of-thousands of barrels at a time. By 2028, the country could be pumping
1-point-2 billion barrels a day, making it one of the world’s top oil producers.
And that could change everything for the country.
Guyana sits on the northeast coast of South America. It has less than 800-thousand residents.
For many in the Americas, it’s still known as the site of the ‘Jonestown Massacre’,
a massive cult-suicide led by the American preacher Jim Jones.
In 2021, its poverty rate was nearly 50%. Now the economy
is growing by double-digit figures. And that growth is already visible.
It’s changed massively. You would not recognize very much.
Anand Persaud is the editor of the Stabroek News, an independent newspaper in Georgetown.
Every building that’s going up is four stories or five. Every road
that you might have seen before is being changed into four lanes.
Guyana is now building thousands of new homes to meet growing demand.
New hotels and corporate offices are rising in downtown.
And the government is replacing a decades-old floating bridge in
Georgetown, which should speed up driving times.
The oil boom has also brought new problems.
Costs have risen rapidly in the small country. And not everyone is profiting immediately.
The killing is occurring at the upper- and middle-income levels. That is, people are making
oodles on all of these contracts that are going out. But the people down at the bottom complain,
I’m not seeing any increase in my income. My cost of living has gone up because the demand up at the
top for basic services has forced prices up and I’m not seeing any alleviation of my bottom line.
That hasn’t stopped Guyana’s neighbors from looking at their own offshore projects.
Brazil is preparing to develop oil blocks along its northern coast.
So is Suriname, which is working with French driller Total.
And all of this at a time when new oil projects should be a thing of the past.
That’s at least according to the International Energy Agency. If the
world wants to reach zero emissions by 2050, it needs to live off existing oil projects.
The past few years have challenged that goal. Oil demand surged when the pandemic ended. The
war in Ukraine hit energy markets hard and forced some countries to look for new supplies of oil.
In South America, most new projects involve offshore drilling: That’s
especially attractive to investors as the oil is easier to access, keeping costs low.
But much of South America’s oil-wealth is still on-shore.
And overall production there has been falling after decades
of lower investment. That’s hit traditional exporters like Mexico
and Venezuela the hardest. Their output has fallen in recent years.
Many of those countries, the production is 100 years old,
and without replacing it, there’s a natural decline.
In that case, how long does it make sense to continue new drilling?
Demand for oil should finally peak and then level off this decade,
driven in part by the rising popularity of electric vehicles.
But so far there are few signs that global demand will plummet in the coming years.
We think that the oil demand decline story is a little bit overblown. In the sense that,
yes, oil demand may start declining, and we have it declining in the early 2030s,
so 2031 and 2032 but that does not mean that in less than 10 years time oil demand is going
to fall off a cliff. It’s going to plateau and then fall off at a very steady rate.
Which means for many countries there's still an incentive to
drill – provided they can keep costs down.
The way we see it, whether you’re Norway, whether you’re Colombia,
whether you’re Saudi Arabia, you’re going to look to extract every last
barrel from these reservoirs. And I think the demand is going to be there.
But there are growing reasons why South American countries might hesitate to drill:
Including opposition in their own countries.
Every single time an oil spill happens, it goes through the rivers,
it goes through all of these ecosystems and it impacts all of the communities.
Jorge Espinosa is part of an organization in Ecuador
that opposes government drilling plans for Yasuni national park.
Yasuni is considered to be, per square meter, one of the most biodiverse regions on earth.
It’s also home to several indigenous tribes and sits on an estimated 750-thousand barrels
of oil. Activists have fought drilling plans there for more than a decade.
In August, they scored a major victor:
When voters across Ecuador clearly rejected the drilling in a referendum.
We won by almost sixty percent. So that's the biggest consensus
of all of Ecuador that we've had since we became a democracy again in the 70s.
It’s not just Ecuador where public concern over drilling is growing.
Brazil wants to drill in an offshore region known as the equatorial margin. It’s right next to the
mouth of the Amazon River. But protestors in the country have pushed hard against the move.
There are other concerns. Like the very climate change being caused by burning
fossil fuels like oil. Studies show it will also take its toll on South America.
Brazil has struggled with serious droughts in recent years -- which
are expected to become more severe in the future.
It is a tangible, very very tangible and one of the most efficient ways to combat climate
change. Scientists have said that two-thirds of all fossil fuels need to be kept underground.
But no South American government has been become as vocally opposed to oil as Colombia’s. President
Gustavo Petro has moved to ban fracking and suspend new oil, gas and coal exploration.
Petro has said that oil is ‘poisoning the earth’ and that his country needs
to focus on the transition to renewables.
While they let the jungles burn, while hypocrites persecute the plants they
convince us to hide the disasters of their own society, they ask us for more and more coal,
more and more oil, to calm the other addiction: that of consumption, that of power, that of money.
In some ways, Colombia has one of the better economic cases for transitioning away from oil:
Its reserves were never as large as its neighbors’ … and they’re
getting more expensive to extract as they shrink.
Many of the basins in a country like Colombia are what we would say,
mature. So the average discovery size is small.
Colombia has between 7 and 10 years of oil production left, the country
says. And it'll likely depend on that revenue for some time.
And its no small amount of money: Revenues from
oil have consistently made up more than 10 percent of the government’s budget.
The plan has not been well received, and it's generated a lot of uncertainty in the sector.
Amilkar Medina is the former minister of mining in Colombia.
The oil and coal industry are our two main export sectors and therefore are
the two sectors that generate most of the country's foreign exchange.
Bogota says tourism, and clean energy exports can make up more of that revenue.
Even with a solid base of clean energy, much of it hydropower,
Colombia has imported more electricity in recent years than it’s exported. And experts say tourism
figures would have to jump dramatically to begin to approach fossil fuel revenues.
And this is tricky part of the GLOBAL transition away from oil,
the obligations of individual countries, especially traditionally poorer ones.
Unless global demand for oil falls rapidly in the coming decade or the costs for oil-producers rise
massively, the economic case for any single country to drill still remains compelling.
So which is the right way for South America?
Do countries there have the same responsibility to limit fossil
fuel projects because of global climate goals?
Or maybe even a greater one, because of the Amazon basin?
Will locals see resource-extraction as a scourge…
They also understand what's the point on destroying this land for a couple years
of oil and after everything is taken out, what's going to be left? An empty land, a destroyed land.
Ir, as in Guyana, an opportunity to improve their lives, that they won't be lectured about.
That is a big position of the government here. That is, we don’t want to hear from
the first world and the developed countries that we must restrain what we’ve done,
because they’ve been pumping for hundreds of years and polluting and destroying their forests. We
have a right to be able to develop our resources. In the end, it may depend on the type of drilling,
the buy-in from local populations and what it means for the environment.
Even if the consequences of continued oil drilling, on a global level, is quite clear.
For South American countries at the oil crossroads,
two different directions, and no simple answer.