September 27, 2007

Dreaming of oil

The Economist

An offshore resolution

It is a thinly populated slice of Atlantic coast backed by a large tract of rainforest. But Guyana reckons it may have struck riches, thanks to a decision by a United Nations tribunal on September 20th. This awarded most of a disputed area of sea to Guyana rather than its neighbour, Suriname. “Think Kuwait,” dreamed an upbeat foreign diplomat.

Not quite, or at least not yet. But the United States Geological Survey reckons that the muddy waters of the Guyana-Suriname basin may hold more undiscovered oil than the proven reserves of the North Sea. What has blocked exploration until now has been the confused borders left behind by former colonial powers. In 2000, a Surinamese gunboat threatened a rig hired by a small Canadian company, CGX Energy, halting its search for oil 160km (100 miles) offshore. When talks failed to find a compromise, Guyana referred the tiff to a tribunal whose verdict is binding under the UN Convention on the Law of the Sea.

News of the settlement saw CGX's share price leap to $2.50, up from 26 cents a year ago. But though the geology is promising, nobody has yet found any oil. Kerry Sully, CGX's president, is bullish but does not expect to drill before 2009.

If there is oil, some Guyanese fear that it will bring problems—especially corruption—as well as benefits. They note that in neighbouring Trinidad oil and natural gas have brought an economic boom but not an instant fix for social problems. In Guyana political squabbles have blocked the appointment of a Public Procurement Commission, a body set up by law four years ago to oversee government contracts. But the tribunal's ruling brought a rare moment of political harmony. For perhaps the first time in 50 years, the mainly Afro-Guyanese opposition People's National Congress hailed a success by its mainly Indo-Guyanese political foes in the government of President Bharrat Jagdeo.

In Suriname, the fractious opposition blames the government for losing, but the damage does not run deep. A Spanish company, Repsol, plans to drill for oil in its undisputed waters next year, and Denmark's Maersk, will follow soon after. A separate border dispute over a triangle of uninhabited rainforest near the Brazilian border remains unresolved. But there are now strong incentives for the two countries to collaborate. One promising geological feature, known as the Wishbone target, straddles the new marine boundary, and cannot be exploited without an agreement to share whatever it may contain.

A bigger problem for Guyana is its longstanding disagreement with Venezuela, which claims almost three-quarters of its land area and a big slice of sea where both CGX and Exxon have Guyanese concessions. Venezuela's case is weak: it accepted a land border fixed by arbitration in 1899 only to reject it in the 1960s.

Relations are patchy. Guyana benefits from oil supplied on easy terms under Petrocaribe, a Venezuelan aid scheme. But there have been some nasty border incidents: a Guyanese was killed by Venezuelan national guards last October on the Cuyuni river. Unlike Suriname and Guyana, but like the United States, Venezuela has not signed the UN Convention on the Law of the Sea. Barbados and Trinidad settled their maritime border by arbitration last year. Time, perhaps, for Venezuela to learn from its smaller neighbours.