finding of a "significant" amount of oil in off-shore wells puts the former Dutch colony on the heels of neighboring Guyana

The intuition has proved to be correct and the prospections carried out under Suriname's territorial waters, together with the successful hydrocarbon reserves being exploited in Guyana's maritime limits, have found abundant oil. The finding could be a decisive boost for the development of what is, after Guyana, the second poorest country in South America, but it could also be an opportunity, as is the case with its neighbor, to accentuate the economic and political corruption that has been hindering the progress of the population.

▲ Suriname's presidential palace in the country's capital, Paramaribo [Ian Mackenzie].

article / Álvaro de Lecea

So far this year, drilling in two 'off-shore' oil fields in Suriname has result positive, confirming the existence of "significant" oil in block 58, operated by the French company Total, in partnership with the American company Apache. Everything indicates that the same success could be obtained in block 52, operated by the also American ExxonMobil and the Malaysian Petronas, which were pioneers in prospecting in Surinamese waters with operations since 2016.

Both blocks are adjacent to the fields being exploited under the waters of neighboring Guyana, where for the moment it is estimated that there are some 3.2 billion barrels of extractable oil. In the case of Suriname, the prospections carried out in the first viable field, Maka Central-1, discovered in January 2020, speak of 300 million barrels, but the estimates from Sapakara West-1, discovered in April, and subsequent programmed prospections have yet to be added. It is considered that some 15 billion barrels of oil reserves may exist in the Guyana-Suriname basin.

Until this new oil era in the Guianas (the former English and Dutch Guianas; the French Guianas remains an overseas dependency of France), Suriname was considered to have reserves of 99 million barrels, which at the current rate of exploitation left two decades to deplete. In 2016, the country produced just 16,400 barrels per day.

political, economic and social status

With just under 600,000 inhabitants, Suriname is the least populated country in South America. Its Economics depends largely on the export of metals and minerals, especially bauxite. The fall in commodity prices since 2014 particularly affected the country's accounts. In 2015, there was a GDP contraction of 3.4% and 5.6% in 2016. Although the evolution then became positive again, the IMF forecasts for this 2020, in the wake of the global crisis due to Covid-19, a 4.9% drop in GDP.

Since gaining independence in 1975 from the Netherlands, its weak democracy has suffered three coups d'état. Two of them were led by the same person: Desi Bouterse, the country's president until this July. Bouterse staged a coup in 1980 and remained at the helm of power indirectly until 1988. During those years, he kept Suriname under a dictatorship. In 1990 he staged another coup d'état, although this time he resigned the presidency. He was accused of the 1982 murder of 15 political opponents, in a long judicial process that finally ended in December 2019 with a twenty-year prison sentence and is now appealed by Bouterse. He has also been convicted of drug trafficking in the Netherlands, for which the resulting international arrest warrant prevents him from leaving Suriname. His son Dino has also been convicted of drug and arms trafficking and is imprisoned in the United States. Bouterse's Suriname has come to be presented as the paradigm of the mafia state.

In 2010 Desi Bouterse won the elections as candidate of the National Democratic Party (NDP); in 2015 he was re-elected for another five years. In the elections last May 25, despite some controversial measures to limit the options for civil service examination, he lost to Chan Santokhi, leader of the Progressive Reform Party (VHP). He tried to delay the counting and validation of votes, citing the health emergency caused by the coronavirus, but finally at the end of June the new National Assembly was constituted and it should appoint the new president of the country during July.

Total's operations in Suriname and Guyana waters [Total].

Relationship with Venezuela

Suriname intends to take advantage of this prospect of an oil bonanza to strengthen Staatsolie, the state-owned oil company. In January, before the Covid-19 crisis became widespread, it announced the purpose of expanding its presence in the bond market in 2020 and also, conditions permitting, to list its shares in London or New York. This would serve to raise up to $2 billion to finance the national oil company's exploration campaign in the coming years.

On the other hand, Venezuela's territorial claims against Guyana, which affect the Essequibo -the western half of the former British colony- and which are being studied by the International Court of Justice, include part of the maritime space in which Guyana is extracting oil, but do not affect Suriname, whose delimitations are outside the scope of this old dispute.

Venezuela and Suriname have maintained special relations during Chavismo and while Desi Bouterse has been in power. Occasionally, a certain connection has been pointed out between drug trafficking under the protection of Chavista authorities and that attributed to Bouterse. The offer made by his son to Hezbollah to have training camps in Suriname, a matter for which he was arrested in 2015 in Panama at the request of the United States and tried in New York, can be understood in light of the relationship maintained by Chavism and Hezbollah, to whose operatives Caracas has provided passports to facilitate their movements. Suriname has supported Venezuela in regional forums at times of international pressure against the regime of Nicolás Maduro. In addition, the country has been increasingly strengthening its relations with Russia and China, from which in December 2019 it obtained the commitment of a new credit .

With the political change of the last elections, in principle Maduro's Venezuela loses a close ally, while it may gain an oil competitor (at least as long as Venezuelan oil exploitation remains at a minimum).

Domestic demand will increase, in contrast to more advanced regions

In the coming decades, oil consumption in Latin America will continue to grow, in the face of a trend to leave that is already on the horizon in many advanced countries. Population growth and the increase in class average explain this increase in demand. This domestic demand will serve to strengthen the extractive industries of Latin American crude oil producers, but will make the refining deficit suffered by the region chronic.

article / Ignacio Urbasos

The oil industry is experiencing a change in export and consumption patterns in the Latin American region. The sector's classic orientation towards the United States has changed in a new context in which exports are much more diversified with a shift towards emerging Asian countries. Similarly, domestic demand is steadily increasing due to population and economic growth. However, refining capacity in the region will remain insufficient. This paper will offer an analysis focused on the long term to try to provide a better understanding of the region's energy future, mainly in terms of consumption, extraction and subsequent refining.

First, the demographic and economic expectations for Latin America must be taken into account: population growth will increase by 800 million people by 2050, and economic growth could be 2% per year for at least the next decade. A direct effect of this will be a 91% increase in electricity demand by 2040 and an increase in the issue of vehicles in the region from 94 million in 2016 to the 165 million expected by 2040.

As can be seen in the graph below, the greatest demand for oil in the region will be associated with transportation, which will tend towards greater efficiency in consumption, but the promised arrival of the electric car is still a long way off, with expectations of less than 4% by 2030 worldwide. Similarly, the increase in theaverage class by 126 million people by 2030 will have a direct impact on the increase in air transport, which is expected to grow by an average of 3.4% per year until 2034, agreement to the latest ICAO report , with a consequent increase in kerosene consumption.

It should be taken into account that in Latin America there are subsidies for both gasoline and diesel, which generate more affordable prices, clearly distorting demand upwards. These subsidies respond mainly to the logic that citizens should be beneficiaries of their country's possession of natural resources, and are concentrated in traditional oil-producing countries such as Ecuador, Venezuela, Mexico or Argentina. However, these countries import fuel to a large extent due to their limited refining capacity, generating a double trade and fiscal deficit, as ECLAC points out. The future of these subsidies is unknown, but any change would have a high political cost, since affecting the price of a basic good would have consequences on broad social sectors with great electoral impact.

For its part, the contribution of oil to electricity generation will remain constant at 500,000 barrels per day, its importance dropping from the current 46%, according to figures for Latin America from the International Renewable Energy Agency. The region will benefit enormously from the increased presence of renewable energies, a sector that it already leads due to its incomparable geographic conditions, highlighting the enormous importance of hydroelectric energy.

Over the coming decades, two major phenomena will occur in Latin America: universal access to energy and a new energy model with less oil and biofuel (wood and waste) in favor of gas and alternative energies. One of the great challenges facing the region is to develop a more integrated national and international electricity system that increases consumption efficiency and allows greater flexibility in production sources. However, there are already several regional projects in this direction: the Andean Electrical Interconnection System, which includes the countries of the Andean Community plus Chile, and the Electrical Interconnection System of Central American Countries (SIEPAC).

Refining deficit

This rise in consumption is not accompanied by an increase in refining capacity, which is already highly deficient, and generates a critical dependence on imports of gasoline and other derivatives from the US. A trend that is likely to be a constant in the short and medium term for the region and adds to the 14% decline in refining activity in the region since 2012 (World Oil Outlook 2017), which already adds up to a loss of one million barrels refined per day since that year. High installation and maintenance costs, at around 2% of annual installed cost, add to the region's chronic political uncertainty that is largely scaring off private investment.

An illustrative case is that of the Pacific refinery in Ecuador, which was presented as the largest refinery project in the country at the beginning of Rafael Correa's presidency in 2007. The project began with a 49% financial participation by PDVSA and 51% by Petroecuador, in addition to the award of the project to the construction company Odebrecht. Today, PDVSA has withdrawn its contribution and the Brazilian construction company is facing trials in the country for corruption, result in a lost decade and forcing Lenin Moreno to reformulate the project, including the name: now Manabí Refinery.

As we can see in the graph, Latin America's major oil producers have a deficit in refining capacity. It should be noted that in the region there is not only undercapacity, but also underactivity, which generates an even greater gap. The activity of these plants is currently around 70% of their total capacity. Those countries that do not have oil production, but do have a relevant refining industry, are Curaçao, which has one of the largest PDVSA centers, Chile and Peru.

In final, the Latin American oil sector faces the coming decades with enormous doubts about its refining capacity and far from achieving self-sufficiency. The lack of capacity to attract foreign investment from historically oil producing countries has generated a disappointing scenario that aggravates the already limited industry in the region. The social transformations inherent to a society that is growing demographically and economically require investment in infrastructure in order to meet the expectations of universal access to the electricity network and the consumption of the incipient class average.