Avoid being trapped; sign short term oil, gas deals – Institute of the Americas

Guyana should avoid being trapped in long term deals which force it to adhere to terms that could make its energy sector financially unsustainable. The Government can learn from its past negotiations with companies like ExxonMobil and sign deals that are short term, with an option to renew, and manage the terms.

This advice comes from the Institute of the Americas, an independent non-profit policy center.
In a report titled ‘Guyana’s Gas-to-Power Potential’, the Institute said “Guyana can learn from Ghana and work to negotiate competitive terms that do not leave the country in financial strife.”
Ghana had approved a gas project in 2015 under a long-term contract. That contract includes a ‘take-or-pay’ clause which forces the country to pay hundreds of millions of dollars every year for unused gas.
Ghana failed to properly assess its demand for gas, and so, it did not sign an agreement based on that demand.

The Institute said that having a short term contract would be good for Guyana, as it would allow it to make beneficial changes when it is time to renew the contract.
“This will allow the country to respond to changes in demand and gas prices,” the report states.
In any case, when the contract is being signed, the Institute advised Guyana to make the terms flexible and competitive.
“Ideally, any contract should allow for maximum flexibility in both pricing and volume to accommodate fluctuations in demand… The pricing in the agreement should be competitive and tied to the global natural gas market to ensure that the country avoids overpaying for its resources.”
Ghana is currently overpaying, due to an oversupply of natural gas and tariffs criticised as unfair. In 2019, its bill for unused gas was US$250M.

The role of the World Bank in Ghana’s project has also been questioned, with non-governmental organisations dubbing the project a fiscal burden. The Bank financed the project with over US$1B.
The World Bank is now being challenged to prove that Guyana’s gas project will not end up like Ghana’s. A joint letter was sent to the institution by International Lawyer, Melinda Janki; former Auditor General, Anand Goolsarran, and co-founder of the Oil and Gas Governance Network, Darshanand Khusial.