Governance Challenges for Emerging Oil and Gas Producers

This paper presents key questions of concern to emerging oil and gas producers and lays out possible policy options. These producers face a particular set of governance challenges because they are often faced with capacity constraints and have limited information on their resource base. There is a wide variety of national circumstances that affect which policy and investment options are available to them, such as the size of the resource base, state administrative capabilities and oil and gas experience. The paper focuses on two sets of policy challenges. One relates to designing the licensing terms and sector legislation in a manner that attracts the most qualified investors under terms that are beneficial to the country in the long-term. The second is to set up capable institutions to oversee and monitor resource development. This challenge is compounded in a context of uncertainty about the size and lifespan of reserves and, therefore, also about future revenues.

The paper is available to download at the link below.

Guidelines for Good Governance in Emerging Oil and Gas Producers

Guidelines for Good Governance in Emerging Oil and Gas Producers 

Over the last few years significant new oil and natural gas reserves have been discovered in East and West Africa, as well as in the Eastern Mediterranean, the Caribbean and the Asia-Pacific region. These recent discoveries have very quickly added several new countries to the ranks of the world’s oil- and gas-producing nations, and these emerging oil and gas producers have shown a strong interest in receiving advice on governance. They are keen to avoid the mistakes that have led to accountability failures in other more established producers, and which have prevented some producers from reaping the full economic benefits of their resources. The purpose of these Guidelines is to help emerging producers and the groups that advise them to think critically about the policy options that are available, and that would be most effective during the first stages of exploration and development, or during a restructuring of the country’s oil and gas sector. The goal is not to produce a complete guide to governance of the petroleum sector, but rather to offer guidance on making effective decisions about the structure and rules of the sector in an imperfect context.

Guidelines for Good Governance in Emerging Oil and Gas Producers – French

Au cours des dernières années, d’importantes réserves de pétrole et de gaz naturel ont été découvertes en Afrique de l’Est et de l’Ouest, ainsi qu’à l’est du Bassin méditerranéen, dans les Caraïbes et dans la région Asie-Pacifique. Ces découvertes récentes ont vu très rapidement plusieurs pays rejoindre les rangs des nations productrices de pétrole et de gaz, et ces producteurs pétroliers et gaziers émergents ont manifesté un intérêt considérable à recevoir des conseils en matière de gouvernance. Ils ont particulièrement à cœur de comprendre les erreurs qui ont mené à un manque de responsabilisation chez d’autres producteurs plus expérimentés, et qui en ont empêché certains de récolter tous les avantages économiques de leurs ressources. L’objectif de ces Directives consiste à aider les producteurs émergents ainsi que les groupes qui les conseillent à porter un regard critique sur les options de politiques susceptibles de s’avérer plus efficaces dans le cadre des premières phases d’exploitation et de développement, ou en cas de restructuration du secteur pétrolier et gazier d’un pays. L’objectif n’est pas de produire un guide complet sur la gouvernance du secteur pétrolier, mais plutôt de proposer des conseils visant à une prise de décision efficace quant à la structure et aux règles appliquées dans un contexte imparfait.

Guidelines for Good Governance in Emerging Oil and Gas Producers – Portuguese

Durante os últimos anos, foram descobertas novas reservas de petróleo e gás natural na África Oriental e Ocidental, assim como na zona Ocidental do Mediterrâneo, Caraíbas e Ásia-Pacífico. Estas recentes descobertas adicionaram muito rapidamente vários novos países às listas mundiais de nações produtoras de petróleo e gás, sendo que estes produtores de petróleo e gás emergentes demonstraram forte interesse para receberem aconselhamento sobre gestão. Pretende evitar os erros que conduziram a falhas de responsabilidade por parte de outros produtores mais estabelecidos e que impediram que alguns produtores colhessem as vantagens económicas plenas dos seus recursos. O objetivo destas Diretrizes consiste em ajudar os produtores emergentes e os grupos que os aconselham a pensar de forma crítica acerca das opções de políticas mais eficazes durante as primeiras fases de exploração e desenvolvimento, ou durante a restruturação do setor nacional de petróleo e gás. O objetivo não consiste em produzir um guia completo sobre a gestão do setor petrolífero; em vez disso, pretende-se oferecer orientações sobre como tomar decisões eficazes acerca da estrutura e das regras do setor num contexto imperfeito.

Guidelines for Good Governance in Emerging Oil and Gas Producers – Swahili

Katika miaka michache iliyopita kiasi kikubwa cha akiba mpya ya mafuta na gesi asilia kimegunduliwa katika Afrika Mashariki na Magharibi, kama vile katika Bahari ya Mashariki, Caribbean na kanda ya Asia-Pacific. Uvumbuzi huu wa hivi karibuni uliongezea kwa haraka sana nchi kadhaa mpya kwa safu ya mataifa ya kuzalisha gesi na mafuta duniani, na hawa wazalishaji wanaoibuka wa mafuta na gesi wameonyesha nia imara katika kupokea ushauri juu ya Usimamiaji bora. Wamekuwa makini kuepuka makosa ambayo yamepelekea kushindwa katika uwajibikaji miongoni mwa wazalishaji walio imara zaidi, na ambayo yamezuia wazalishaji wengine kuvuna faida kamili za kiuchumi kutoka kwa rasilmali zao. Madhumuni ya mwongozo huu ni kuwasaidia wazalishaji wanaoibuka na makundi ambayo huwashauri kufikiri kwa umakinifu kuhusu chaguo za sera ambazo zitakuwa na ufanisi zaidi katika hatua za kwanza za utafutaji na ukuzaji, au wakati wa kuunda upya sekta ya kitaifa ya mafuta na gesi. Lengo sio kutoa mwongozo kamili wa Usimamiaji wa sekta ya petroli, lakini badala yake ni kutoa mwongozo wa kufanya maamuzi ya ufanisi kuhusu muundo na sheria za sekta katika muktadha wa mazingira yasiyo kamili.

Institutional Design in Low-Capacity Oil Hotspot

This paper focuses on low-capacity countries courted by investors seeking access to petroleum resources during the exploration boom. In emerging oil hotspots, there has been growing interest in promoting national participation, largely by securing stakes in projects for national oil companies (NOCs). Some of these countries are new producers or remain in the exploration phase without having made any significant commercial discoveries, while others are established producers on a relatively modest scale and are now attracting renewed interest. The key question that emerges in all cases is how to organize and manage the petroleum sector in order to maximize the public benefit derived from oil and gas resources. In particular, what role should the NOC and other governing bodies have? This paper addresses the relationship among institutional structure and the goals of economic development and political accountability. It also examines the argument that oil producers are most likely to succeed when they separate commercial, policymaking and regulatory functions across distinct public bodies and restrict NOCs from performing any regulatory duties. Following on existing literature, this paper argues that the capacity level of a country at the time it seeks to establish an institutional structure has a major impact on which sorts of arrangements are most likely to succeed.

The report is available to download at the link below.

National Seminar for Suriname – English

The National Seminar for Suriname was held in Paramaribo on 18 October 2017, during the annual meeting of the New Petroleum Producers Discussion Group. The National Seminar for Suriname brought together representatives from the ministries of natural resources, labour, finance, commerce and industry as well as the maritime authority, members of parliament, Suriname’s business association, civil society leaders, and oil industry representatives. This seminar was designed to help policymakers and national stakeholders understand the changes in laws and institutions that would be required in the event of a confirmed discovery.

A summary of the National Seminar is available below.

National seminar for Guyana, Good Governance: Preparing for First Oil

The Good Governance: Preparing for First Oil in Guyana seminar was held in Georgetown on the 17 and 18 November 2016. A high-level discussion on 17 November featured ministers, members of parliament, high-ranking civil servants, and civil society leaders. Following the significant oil discovery made offshore in Guyana, this seminar was designed to help policymakers prepare for first oil production; to review policy options (and the trade-offs involved in pursuing the various options); and to discuss what changes in laws and institutions would be required to best prepare for oil production. On 18 November, members of the legal and accountancy professions were invited to participate in a more focused training session on finance and the legal framework for the petroleum sector. Discussions on both days were enriched by participants from other emerging and established producer countries as well as oil industry representatives.

A summary of the National Seminar is available to download at the link below.

Annual Meeting 2019

The 7th Annual Meeting of the New Producers Group was held in Kampala on 11–15 November 2019 and hosted by Uganda’s Ministry of Energy and Mineral Development, the Petroleum Authority of Uganda and the Uganda National Oil Company. The meeting included two days of specialised training covering topics such as risks relating to the development of the petroleum sector, revenue management, contract negotiation, communications in the natural resource sector, national oil company performance drivers, and oil metering, valuation and marketing. The remainder of the meeting consisted of discussions and exchanges between the participating countries. The theme of the discussions was ‘Building Capacity and Institutions’. The 2019 discussions showed a heightened concern for the impact of the global energy transition on emerging petroleum producers and their pursuit of long-term economic benefits from oil and gas production. The uncertainties surrounding the transition permeated discussions throughout the week, including a dedicated training session on navigating emerging risks in the sector, a plenary discussion examining various market scenarios and a discussion of the intersection between Uganda’s oil ambitions and climate commitments as part of the national seminar organized by the host government. These discussions provided an opportunity for a nuanced and detailed sharing of perspectives as governments seek to manage risk. The week’s informal and plenary discussions also demonstrated the growing maturity of the network and the interest of participating countries in deeper cooperation.

A summary of the Annual Meeting is available at the link below.

Gushing Money, Staying Green

Guyana has long existed outside the world’s gaze. The South American country has seen its historic industries of sugar and bauxite suffer a slow and gradual decline, leading many Guyanese to go abroad in search of better opportunities. But the slumbering capital Georgetown, with its old wooden houses built on stilts and interlaced with canals designed to control sea water levels, is suddenly bustling.

Hotels are full, with businessmen and consultants rushing in to be a part of its good fortune, which began in 2015 when ExxonMobil and its partners first discovered oil offshore. Since then 12 further oil discoveries have been made, making Guyana an oil hotspot.

Guyana is expected to produce 750,000 barrels a day by 2025, on a par with Brazil, its huge neighbour to the south. But the transformation is better grasped in per capita terms – Guyana will produce almost one barrel of oil per person per day. That is three times more oil per capita than Saudi Arabia or the United Arab Emirates – though per capita revenues to the state are closer once the oil company’s costs and profits are deducted. The transformative nature of these discoveries for Guyana cannot be overstated.

Let us first take a step back and focus on the moment of the discovery for a new oil producer. This period is very intense, even in countries without such an exceptionally large windfall. Guyana can draw on the experience of other countries involved in the New Producers Group, a knowledge-sharing network for emerging oil and gas producers.

In these states, the oil sector is new and there are often only a handful of people in government with experience in the petroleum business. The pressure on these five or so individuals becomes overwhelming.

They – and soon the government more broadly – come under immense pressure from a number of sources: private sector consultants flock to government offices, lining up for opportunities; local job seekers get in touch hoping to find work in the oil sector; international donor agencies compete to be advisers and have their policy framework adopted; the public is also clamouring, asking how the discovery will transform their lives; and, of course, political opponents wait at each corner to challenge the soundness of any decision made.

There is also time pressure and the runup to first production – which might take anything from two to ten years –is the period during which the small team must draft and execute appropriate policies, laws and regulations to oversee the oil sector. This overwhelming pressure does not create the space for debates about big policy decisions. But this is just the time that a country wants to think about the direction in which it is heading, what kind of producer it wants to be, what it wants to do with its oil and gas and how it will spend the revenues.

Guyana was fortunate that President David Granger’s government came to power with a vision to guide the country’s development. It had set the course on green growth. Even after oil was discovered, it continued to develop its Green State Development Strategy. The goal is to ‘transition to a diversified green and inclusive economy, become a leading example of a Green State and serve as an inspiration to other countries in the region and worldwide’, according to the Guyana Department of Environment.

The strategy guides Guyana along a low-carbon pathway, with investments in ecotourism, renewable energy, emission caps and forest conservation, coupled with a concern for providing the Guyanese with a ‘better life’. But the big question is whether this vision sits well with the country becoming a leading oil exporter. No other country with oil reserves as large has pursued such an ecological vision.

So far the plan has held strong, most notably with the government’s decision not to bring the oil to shore for refining or other sorts of processing, and to use the export revenues to support renewables development and the diversification of the economy, as well as saving for the future through a sovereign wealth fund.

Investing revenues strategically is not as easy as it seems. The revenues are huge in relation to the national economy. Setting Guyana’s oil in context, its one-barrel-per- person-per-day target is many times greater than other emerging producers, such as Ghana, where the resource flows are only three barrels per person per year. The economy’s capacity to absorb revenues of this scale will be limited. The government can raise prosperity levels by investing in infrastructure, education and health but will need to contend with inflation. Expenditure will also need to grow incrementally, in line with the state’s administrative capacity to manage the spending.

There will inevitably be temptations to pursue a different course. Domestic pressure will mount to bring the oil ashore and to refine it in Guyana, making sure the country takes control of the industrial process and escapes the legacy of colonialism – British rule did little to develop the country. There will be calls for cheap oil and gas feedstocks to support Guyana’s industry and for subsidized fuel and power for consumers. In other words, there will be political pressure to benefit from the oil itself, not just the oil revenues.

But Guyana has the benefit of hindsight. It can see the experience of Gulf Arab producers, who created oil-intensive industries and introduced subsidies on petrol, power and water that created unsustainable patterns of domestic consumption. Subsidies and dependency on oil are very difficult to reverse, and they lock the country into a high-carbon economic model.

Guyana is starting its journey as an oil producer with information established producers did not have. The world’s energy usage is changing and oil is not forever. It is not yet known when oil demand will peak, but the industry agrees that it will peak. This means that Guyana must reap the benefits while it can, limit its dependence on oil, invest in diversification, create long-term wealth and save for the future.

Guyana is a unique test case of a new, major oil producer country guided by an environmental vision. It is in this sense emblematic of our changing world. As a developing nation, it wants to use its natural resources to invest in its future prosperity, but also avoid the mistakes of carbon lock-in made by others. This vision has great potential, if Guyana can stay the course.

Headwinds are already being felt. There will be elections by the end of the year which were triggered by a no-confidence motion. The opposition party, the People’s Progressive Party, has not yet taken a position on the high-level vision for Guyana, only calling for a critical review of oil contracts and institutions overseeing the sector, as well as a bigger push for local opportunities for Guyanese people and businesses to participate in the oil sector. The run-up to the elections will surely be the time to debate what kind of producer Guyana should become.