How Suriname and Guyana plan to share oil and gas wealth with citizens | Oil and gas news

The small South American country of Suriname plans to share the revenues from newly discovered oil- and gas fields off its coast.

After several discoveries of oil wells through the offshore drilling program known as Block 58 from 2019 to 2023, President Chan Santokhi exposed an arrogant campaign called “Royalties for Everyone” (RVI), which aims to ensure that all Surinamese people benefit from the wealth produced by the society. country, experts worth about 10 billion dollars in the next 10 to 20 years.

“The RVI tool means that every Surinamese living in our country gets $750 worth of savings and an annual interest rate of 7 percent. The money will be paid in the future from Block 58 royalties,” said Santokhi. Oil and gas production will begin in 2028.

The royalty system is designed to distribute the expected profits from the nation’s natural resources directly to its citizens, marking a major shift in the country’s economic policy and potentially transforming the lives of the Surinamese people.

So how were these reserves found, and how will the payment system work?

Where were the treasures found?

Block 58 is a major $10.5bn oil and gas project located off the coast of Suriname, which became a Dutch colonial site after the British traded it for New Amsterdam (now Manhattan, New York) in 1667. Despite gaining independence in 1975, Dutch is the official language in Suriname.

French energy giant TotalEnergies, working in partnership with United States energy company Apache Corporation (APA Corp), is the operator of the Block 58 project.

The venture aims to tap into a large oil field 150km (about 100 miles) off the coast of Suriname with the capacity to produce up to 220,000 barrels of crude oil daily.

Is Suriname the only country that distributes oil wealth in this region to its citizens?

No, and it is not the only country that has benefited from offshore oil exploration in the region.

Guyana, its neighbor, announced last month that hundreds of thousands of Guyanese citizens at home and abroad aged 18 and over will receive cash payments of about 100,000 Guyanese dollars ($480).

Irfaan Ali, the president of Guyana, in a statement in October said: “In the last week, thousands of Guyanese people interviewed me and members of my cabinet, they gave very positive feedback about these measures.”

How was oil found off the coast of Guyana and Suriname?

Although much of Guyana and Suriname’s oil was discovered only in the last 10 years, early offshore exploration in the 1800s and 1900s found “oil waterfalls” — naturally occurring hydrocarbons that are liquids or gases — according to World Oil, an oil and gas exploration magazine.

This first discovery of oil was understood as evidence of the existence of large oil wells and active petroleum and gas systems beneath them.

In May 2015, ExxonMobil, an international oil and gas company based in Texas, and its partners made their first major oil discovery at the Liza-1 oil well, located in the Stabroek Block 193km (120 miles) off the coast of Guyana.

Although early oil exploration in Suriname began in the 1930s, Suriname’s oil industry was not born until the first oil discovery in the Calcutta Field, located in Saramacca District in northern Suriname in 1965 by Nederlandse Aardolie Maatschappij (NAM), a joint venture. between Shell and ExxonMobil.

With the establishment of Staatsolie Maatschappij Suriname NV in 1980, Suriname significantly improved its control of the country’s oil resources. While recent exploration of oil and gas reserves began in the 2000s, TotalEnergies did not begin work on Block 58 until 2019.

Will newly discovered oil wealth change the economic prospects of Guyana and Suriname?

Oil wealth has not always translated into economic growth in nations with large oil and gas economies.

Santokhi told AFP he was “well aware of the oil curse”, also known as the “Dutch disease”, which has hit resource-rich countries such as Venezuela, Angola and Algeria – none of which have seen much improvement. in their economy despite the wealth of natural resources.

Only Norway managed to escape the curse – mainly by creating a sovereign wealth fund, also called the Government Pension Fund, to protect against the rise and fall of oil prices after the discovery of the world’s largest oil field off the coast of Norway. 1969.

Suriname

By learning from this, Santokhi said, Suriname has established a similar fund in anticipation of the inflow of oil money.

According to the 2022 Suriname Poverty and Equity Assessment, conducted by the Inter-American Development Bank (IDB) and the World Bank, the national poverty rate in Suriname is 17.5 percent. This is almost double the average of 9.2 percent of the world’s population (about 700 million people) who are currently living in extreme poverty.

in Guyana

According to 2019 estimates from the World Bank, the poverty rate in Guyana is very bad – at 48.4 percent, down from 60.9 percent in 2006, making it one of the poorest countries in the Caribbean and Latin America despite the oil boom there.

Although Guyana has the largest share of the world’s oil per capita, almost half of the population still lives on less than $5.50 a day, according to a 2021 USAID report, and has been hit hard by the global cost of living crisis recently. years.

According to the report, “Political instability in Guyana raises concerns that the country is not ready to recover its newfound wealth without a new revenue management system and equitable distribution of financial benefits.”

Although poverty remains a challenge, the discovery of oil reduced the poverty rate and opened the door to more government projects.

In September, the government unveiled plans to build a $1.9bn energy project aimed at doubling energy output.

“If you haven’t lived through what we live in, you won’t understand what this amazing growth means,” said Guyanese news analyst and businessman Alex Graham told The Guardian newspaper.

What other countries use wealth from natural resources for the benefit of their citizens?

Mongolia

In 2008, Mongolia established the Human Development Fund, which is responsible for distributing mining revenues to citizens through cash payments. The program was also designed to use revenues from state-owned coal and copper mining companies such as Erdenes Tavan Tolgoi and Erdenet Corp to fund social programs, infrastructure projects and healthcare.

According to a 2012 article from the Brookings Institution, a nonpartisan policy think tank based in Washington, DC, Mongolia’s parliament approved in 2011 that 805 billion tugriks (about $567m) from in the fund given to all citizens. The allocation was intended to cover the cost of health insurance and tuition fees for students. Additionally, a cash payment of 21,000 tugrik (about $15) is made for each citizen.

However, after the 2012 elections, the government implemented austerity measures to deal with Mongolia’s dire economic situation. It stopped paying fees and went back to a more targeted approach, focusing only on monthly payments for the children.

Due to the dysfunctional structure of the Human Development Fund, it was finally removed in 2016 in place of the Fiscal Stability Fund, which focuses on stabilizing the economy rather than directly distributing financial benefits.

Botswana

Botswana’s Sovereign Wealth Fund, the Pula Fund, was established in 1993 to manage the proceeds of diamond exports. The fund underwent significant restructuring in 1997 under the Bank of Botswana Act of 1996.

The Pula Fund does not pay citizens directly. Its main purpose is to protect the economy against financial fluctuations.

According to a 2023 estimate from GlobalData, a data analysis and consulting firm, Botswana is the world’s second largest producer of diamonds and accounts for about 20 percent of global diamond production. But in 2023, Botswana exported $3.2 billion worth of diamonds – a 31 percent drop from 2022 exports.

After gaining independence in 1966, Botswana was the second poorest country in the world, but according to the latest World Bank economic reports, it is now considered a middle-income country with much of its growth driven by diamond exports.

United States

In the US, some states are heavily dependent on oil and gas revenue, while others have found ways to directly benefit citizens.

Alaska

Alaska’s Permanent Fund Dividend was established by a constitutional amendment shortly after oil production began in 1977 from the state’s oil reserves – the largest ever identified in North America. The oilfield is located in Prudhoe Bay in the North Slope region.

The fund was established to use revenues from oil production to make dividend payments to “present and future generations of Alaskans”. According to state officials, about 600,000 Alaskans are eligible for this benefit, which costs $1,702 this year.

Alabama

In Alabama, 28 percent of revenue from oil and gas sales goes to the Alabama Capital Improvement Trust Fund. This government fund mainly pays for technology and infrastructure projects including the construction and maintenance of roads, bridges and government buildings, all of which provide an influx of jobs to the government.

Montana

In 1976, the Montana Coal Severance Tax Trust Fund was established by a voter-approved constitutional amendment. Part of it is funded by taxes on coal mining revenues. This fund is responsible for job creation, school facility projects, new infrastructure and renewable energy projects.