Oil and Gas Kindle Hope of Economic Progress in South America
South America will be one of the largest producers of oil and gas in the near future.
By Vijay Jayaraj
South America has been a major producer of oil and gas, with the fossil fuel sector contributing significantly to economic growth. Its emergence out of poverty will depend not just on production of fossil fuels but also on their use to drive an industrialized economy.
Recent developments in the oil and gas sectors indicate that some of the struggling economies might benefit from the production and export of oil and gas. Here is a look at some of those developments in 2021 that offer a glimmer of hope to the economies of South America.
Going Big With Oil and Gas
A number of countries in South America are betting their future on the newly discovered oil reserves off the coast of Guyana in the Atlantic Ocean. Suriname, Guyana, and Brazil made up three of the top five largest oil reserve discoveries in the year 2020.
Guyana is estimated to have around 10 billion barrels of oil and gas reserves, and production began in 2019. Even as production was increasing rapidly there, another three to four billion barrels of reserves were discovered in Suriname towards the end of 2020, and the number rises every month. Together, the offshore region is now termed the Guyana-Suriname basin.
Guyana and Suriname have attracted the interests of big oil companies like ExxonMobil, Royal Dutch Shell, Petronas, Total, Apache, and others in recent months. One of the major reasons why big oil companies are excited about Suriname and Guyana is that both the countries have cut industry costs.
Both states have reduced the royalties they collect from production, which benefits the oil companies by helping them to produce oil and gas more cheaply than in traditional oil-producing regions like the Middle East and the Gulf of Mexico.
Marc Gerrits, Shell’s executive vice president for exploration, said, “We are excited about entering into a highly promising new basin in Suriname, which saw some of the largest oil discoveries in the world in 2020.”
GDP growth in both states has been poor, but the newly discovered oil reserves provide an opportunity to get their economies growing, despite shrinking profits from production cost.
Guyana’s finance minister Ashni Singh said, “Oil revenue drove up Guyana’s GDP by 43.5pc in 2020, and growth is expected to hit 20.9pc in 2021.” According to Singh, “The government is predicting a 4pc year-on-year increase in the Brent crude price to around $43.9/bl.” In comparison, the current global Brent crude spot price (March, 2021) is around $64.56 per barrel, making prices available from Guyana attractive.
Effuah Alleyne from GlobalData commented, “Guyana’s ultra-deepwater projects in the frontier Guyana-Suriname Basin have breakeven oil prices as low as $23/bl [November 2020], with short-term production expected to grow 10-fold by 2024 from projects such as Liza Phase 2.”
The discoveries in Suriname — Maka Central-1, Sapakara West-1, and Kwaskwasi-1 — promise a lot of income to the country. Rudolf Elias, CEO of Suriname’s National Oil Company, said, “With these three finds alone, the Government of Suriname will get an income anywhere between $20 and $60 billion dollars, and $20 billion is the lowest possible income if we develop all three of the finds that we have.”
Recovering From COVID Downturn
There has been a revival of oil and gas production in some South American nations after a steep decline in 2020 due to COVID-19 lockdown measures. Income from oil production is a critical part of Colombia’s struggling economy, but it has been adversely impacted since March 2020.
Reuters estimates that Colombia has around two billion barrels of oil reserves. Colombia’s three largest privately owned oil producers began increasing production after the economy reopened in September 2020 and announced increased investments in exploration and production. The country’s Vice Minister of Energy Miguel Lotero is hopeful that production in 2021 will reach 2019 levels, when it contributed around 4% of Columbia’s GDP.
Meanwhile, South America’s biggest oil producer, Brazil, came unscathed out of the pandemic. In 2020, Brazil’s “offshore oil industry experienced strong growth,” with its annual average hydrocarbon output growing 5% in daily barrels of oil equivalent.
Together, these developments mean South America will be one of the largest producers of oil and gas in the near future. Industry analyst GlobalData headlined a story, “South America’s Offshore Output Set to Surpass North America’s by 2024.”
With their competitive prices and a potential drop in production from the United States due to Biden administration policies, South America will benefit from oil and gas export. As opposed to the Western media’s demonization of fossil fuels, the industry is actually serving as a lifeline to countries where persistent poverty kills thousands every year.
These South Americans are expected to continue increasing their oil and gas production at least during the next decade. If they do, their economies will grow accordingly.
Vijay Jayaraj (M.Sc., Environmental Science, University of East Anglia, England) is a research contributor for the Cornwall Alliance for the Stewardship of Creation and resides in India.
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