Key Takeaways:
ExxonMobil, Hess, and Cnooc have discovered significant offshore oil reserves in Guyana, leading to substantial investments and the potential for Guyana to become a top global oil producer.
In addition to the energy sector, US business investments in agriculture, mining, and technology could strengthen ties and reduce Guyana’s partnerships with China.
While US firms dominate the energy sector, Chinese companies are expanding in other areas such as infrastructure and technology, which could challenge US business opportunities if left unchecked.
Tensions between Venezuela and Guyana pose the greatest but unlikely risk to US businesses. As China’s presence in Latin America grows, America is likely to face increased challenges to maintaining its global presence - particularly in Europe.
Background:
For the past several years, US companies have capitalised on the discovery of new sources of crude oil and subsequent market growth in Guyana. A consortium of ExxonMobil, Hess, and the Chinese group Cnooc discovered large deposits of offshore oil in the Stabroek Block. After an initial $55 billion investment, the group decided to expand its operations following the discovery of more oil reserves.
In July of this year, Guyana’s Environmental Protection agency began to review Exxon’s latest project: Hammerhead. The project is expected to produce up to 180,000 barrels of oil a day by 2029. Moreover, Exxon reports that its project “Whiptail” is expected to generate 250,000 barrels a day by 2027. If Guyana continues this level of production, it could become one of the top 20 oil producers in the world by 2027. Following the significant investments of US and other oil companies in Guyana, Guyana’s economy was expected to grow 37% in 2023 by the US State Department. Some even anticipate Guyana’s economy to grow by more than 100% by 2028.
As global oil supplies could be threatened by rising tensions in the Middle East, and as a US-led consortium has already established a strong foot-hold in the state, Guyana is likely to distinguish itself as a valuable producer of oil for the US. However, KSG assesses that growing Chinese influence in other markets within Guyana and potential conflict within Latin America means that US business opportunities in Guyana may encounter challenges in the future.
Opportunities and Risks for US Businesses in Guyana:
The most significant presence the US has in Guyana is currently through oil and gas. ExxonMobil and Hess have made substantial investments in the country through its projects in the Stabroek Block. Following an oil agreement made with Guyana, the Exxon-led group can take 75% of the revenue from the project until it recovers its costs. After that, Guyana and Exxon split the revenue 50:50. Guyana has also agreed to take a 2% royalty on the production from the oil field and will pay Exxon’s income and corporation taxes. KSG thus assesses that Exxon and Hess’ position, and favourable treatment for US energy companies in Guyana, is highly likely to be secure. KSG also assesses that China’s influence in Guyana’s energy sector is unlikely to increase at the cost of US businesses in the near future.
Beyond oil, Guyana is looking to attract international investors in other sectors too. The government is likely to be worried about the “resources curse” which has plagued other states; oil and gas accounted for more than 50% of Guyana’s total GDP in 2022. Therefore, it is highly likely that Guyana will increase efforts to diversify its economy. The government has thus far used its oil profits to support other sectors, like agriculture and mining. KSG assesses it is in these sectors that US companies can exploit the US presence established by ExxonMobil and Hess. For instance, the State Department reports that Guyana is offering development incentives for agricultural, health, energy, and information technology manufacturing. US companies have unique opportunities to leverage this investment and develop a stronger foothold in the country, and possibly decrease Guyana’s partnerships with China. For instance, Guyana has lithium deposits, and is seeking investors to explore lithium and copper mining. Guyana also exported 705,631 tons of bauxite in 2022, making it a potential source of aluminium for US companies. This would provide US companies with opportunities to divest from importing aluminium from China, which has been the third-largest supplier of aluminium in the past year. Finally, US manufacturers of machinery and technological products to increase agricultural efficiency have opportunities to invest in Guyana. KSG assesses that US businesses may be able to exploit resource competition and influence competition between the US and China to gain support from either the US government, or simply invest in Guyana to forge more partnerships with the state in industries other than oil and gas.
Risks from Chinese businesses’ expansion:
KSG assesses that if US firms do not take advantage of investment opportunities in infrastructure and development, Chinese companies are highly likely to continue doing so. In fact, as Chinese influence grows, the US’s window of opportunity shrinks. Although US companies are dominant in Guyana’s energy sector, the same is not true in other sectors. China’s economic activity in Guyana resembles its economic development and influence strategy in Africa: providing financing for infrastructure and technology projects to create economic opportunities for Chinese firms, and thus garner influence. For instance, the China Harbour and Engineering Corporation completed upgrades to the Cheddi Jagan International Airport as of July 2022. In 2017, China donated trucks, motorcycles, all-terrain vehicles, buses, and “scores of computer and other technical equipment” to Guyana. Huawei is also interested in creating a research and development centre in Guyana. During President Dr. Irdaan Ali’s trip to China in July 2023, President Ali expressed that China was “providing valuable assistance in developing infrastructure, connectivity, healthcare and other areas”.
As Chinese companies in Guyana expand their influence and capitalise on business opportunities, US firms are likely to have fewer and fewer opportunities to invest in sectors other than energy. KSG assesses that if left unchecked, China’s presence may grow to where it can extract preferential treatment, or bid separately from US companies, in the auctioning of future off-shore oil blocks. As China’s presence grows, Guyana is likely to become an area of greater contestation between the US and China. If competition between the US and China escalates in the region, US mining companies, technology companies, and agricultural companies could receive encouragement and investment opportunities from the US government. For instance, technology companies may benefit as the US attempts to prevent the spread of Huawei within the region, and across the globe.
Looking Forward:
1 - Risk of conflict between Guyana and Venezuela in the context of US-China competition:
Competition between Venezuela and Guyana is the greatest potential risk to US interests – particularly its oil interests. Over the past six months, Venezuela has more aggressively pressed its claim over territory in Guyana – the Essequibo; part of the maritime portion of this territory includes Exxon’s oil projects in the Stabroek Block – see the map below. Venezuela’s access to oil in the context of American sanctions may be a pressing reason why tensions in the region have escalated over the last year.
KSG assesses Maduro is unlikely to abandon these claims; rather, post-election, and feeling increased pressure from the international community to abandon his power, he may feel pressured to increase militant rhetoric and further increase Venezuela’s military buildup. Increases in tensions provide risks to US oil and gas companies operating in the Block, as they may come under the threat of direct military attack or seizure. However, KSG still assesses direct hostilities between Guyana and Venezuela as unlikely.
China has tried to balance its interests in Venezuela and Guyana – China provides military support to Venezuela while also publicly supporting its economic ties with Guyana. KSG assesses this delicate balance will be challenging for China to maintain as Venezuela becomes more aggressive in its stance over the Essequibo. Venezuela has been the largest regional purchaser of Chinese military equipment after the US prohibited such sales in 2006; therefore, KSG assesses China is more likely to be negatively associated with Venezuela’s threats against Guyana. Consequently, KSG assesses that US firms and the US government have an opportunity to win more favourable contracts in Guyana and support from the government by focusing on this narrative. China is likely to be placed on Venezuela’s ‘side’ as it supplies Venezuela with weapons; in contrast, the US provides steady military support for Guyana, and can exploit possible future negative attitudes toward China.
2 - Increased Chinese presence elsewhere:
KSG assesses that the risk of Chinese economic and military domination over Guyana is unlikely given established US economic and military ties to the country. However, KSG also assesses this same assessment does not apply across the region - China is highly likely to continue its investment strategy across Latin America. Therefore, the risks which US businesses face in Guyana are highly likely to materialise across the region. Significant Chinese economic and military cooperation with countries in Latin America, like Venezuela, creates risks to US economic and security interests in the region. If China’s ties with Venezuela and Cuba grow, these countries may become more closely tied to the ‘anti-Western bloc’ which includes China, Russia, and Iran. Consequently, freedom of navigation for US military forces and global shipping could be challenged.
3 - Potential risks to the United States’ ability to maintain several theatres of interest:
KSG assesses that if China’s foothold and influence in Latin America matures into significant business ties, access to ports for basing and resupply, and security partnerships, it is likely to endanger the United States’ ability to maintain its focus in other regions of strategic importance.
Even before the Russian invasion of Ukraine, in 2021, Admiral Craig S. Faller of the US Southern Command, testified to the Senate Armed Services Committee that, “We are losing our potential advantage in this Hemisphere” and that China’s activities were “leveraging the future” of the region. This trend has persisted in the three years since that statement, and is likely to remain true in an international environment which is more hostile to US interests. As pressure grows on the US to divert its attention to Latin America, it may have to decrease its presence in Europe; the US is likely to remain committed to the Middle East and Indo-Pacific, and Europe is therefore the only region where US attention can be decreased.
4 - US-China and Western Oil Companies:
Finally, KSG assesses that Western oil companies in Guyana are unlikely to be at the forefront of US-China competition in the state; consequently, these companies are unlikely to be threatened by Chinese covert activity in the region. KSG assesses China’s energy interests are directed primarily at renewable and ‘green’ energy sources, like battery production and other similar activities. Therefore, the areas of greatest competition are likely to be in the other markets covered in this report: competing infrastructure investments, technology infrastructure, and mining.