– the 5 – 10% probability (risk) of an oil spill is very materially real, and the cost could be economically devastating to Guyana
Last week’s article extended on the discussion to the extent where a framework of the cost components of a potential oil spill were outlined. This framework was premised upon the lessons learned in hindsight of previous oil spills in other parts of the world where oil exploration activities were carried out, especially in a similar deep-water exploration – as is the case in Guyana. For ease of reference, some of the major cost items identified were: cleanup costs, litigation costs, and there are broader and more impactful social and economic costs. Social costs could be enormous. For example, the average social cost of the Deepwater Horizon of the Exxon Valdez was about US$15 – US$20 billion, and possibly even US$40 – $60 billion up to 2010, according to Cohen (2010), who authored a research paper which was premised upon a study done on the taxonomy of oil spill costs, a paper published by Resources for the Future, Washington D.C.
Incidentally, parallel to this oil spill series featured under this column, of which the first article was published on April 15, 2018 and today’s is the third, this author noted with interest that an oil spill response workshop was held sometime early last week, and another such event was scheduled to take place on April 26, 2018, at the Splashmin’s Resort, for the members of the National Oil Spill Contingency Plan Committee and other stakeholders. This, of course, is a commendable initiative, and the participation of ExxonMobil is also well received in the positive. What was difficult to fathom, however, were the statements made by the Country Manager of Esso Exploration and Production Guyana Limited, wherein it was posited that the oil finds will benefit the country to improve the quality of life, but it cannot be at any cost to ExxonMobil, because they are doing everything that they can to ensure an oil spill is prevented. So what if it does occur, which is very materially possible. Whose cost will it be? Now, the man on the street would say — to analyze this statement in ‘Guyanese dialect’ – let’s make sense out of nonsense. Put differently, a professional analyst would say let us examine the sensibility of such a statement, holistically and in a scholarly manner. The sections that follow seek to do so.
Firstly, the author notes the claim which the oil exploration companies made, which was also echoed by the Environmental Protection Agency (EPA), stating that they have extensive preventative measures in place where any potential oil spill is concerned. This therefore means effectively that the local authorities and ultimately the Government of Guyana (GoG) bought this statement at face value. It is something as critical as this that the GoG ought to have solicited the service of an independent international consultant to conduct an independent assessment of these self-claimed extensive preventative measures for an oil spill and advise the GoG and the people of Guyana in this regard accordingly. To take something at face value, especially of this high national importance, from the very stakeholders involved, who will naturally seek to protect their own interest, and not conduct any kind of independent evaluation is absolutely nonsensical, an assertion any sound minded intellectual person would endorse. And, regardless of how small the risk is of an oil spill occurring, it does not negate the materiality of such an occurrence.
With that in mind, within the framework established from previous oil spills to compute a potential cost;, that is, using costing information from the Exxon Valdez and the BP oil spills, the average cost of an oil spill cleanup is about US$18 per gallon, which means that one barrel of oil — which is usually 42 gallons — would cost (42×18) US$756 per barrel. So, in the event there is a spill equivalent to the magnitude of the one that occurred in the Gulf of Mexico, which was a spillage of 4.2 million barrels, then the cleanup cost alone for Guyana would be US$3.175 billion dollars. Then you have to add to that litigation costs, which would far exceed that should it adversely affect Guyana’s neighbouring countries. Then you have to factor in the social and economic costs to Guyana, wherein a worst case scenario would virtually wipe out the entire fishing industry, causing the nation to lose US$80 million in export earnings from fish and shrimp annually, it will directly affect the employment of approximately 2000 plus employees from the commercial fishing industry in Guyana etc. In essence, a large scale oil spill could cost Guyana in excess of US$4 – 5 billion, and this would absorb and even exceed almost all of the revenues Guyana is poised to earn from oil, depending on the magnitude of potential damages.
The Author is the holder of a MSc. Degree in Business Management, with concentration in Global Finance, Financial Markets, Institutions & Banking from a UK university of international standing.
