Bethel: Govt will deal with oil drilling matter as it comes
NASSAU, BAHAMAS — The Bahamas’ attempt to diversify its economy through offshore oil drilling could “put numerous existing economic sectors at risk”, according to an economic review of the coastal economy.
The Bahamas Reef Environmental Education Foundation (BREEF) engaged Sea Change Economics, which also explored in the August report how much oil drilling would be needed to match the value generated by the current economy.
Underscoring the risk of an oil spill to sectors such as commercial and recreational fishing, tourism activities, travel services, food production, film, television and research, the report said these sectors generate in aggregate around $7.7 billion each year and support over 122,000 people.
It said there was no existing estimate of the amount of oil resources that could exist offshore within Bahamian waters.
Opponents to oil drilling in The Bahamas intend to make an application for judicial review of environmental approvals and have called on BPC to hold plans to drill for oil in The Bahamas.
Attorney General Carl Bethel suggested yesterday the government will deal with legal proceedings concerning oil exploration in The Bahamas if and when the legal action is taken.
When contacted on the contentious matter, Bethel, who was reluctant to comment, said: “I will not get into a matter before the courts.”
He continued: “The Bible says sufficient unto the day is the evil thereof.
“Deal with every evil, day to day.”
According to the economic report, even with the highest royalty rate and highest price, The Bahamas would need to produce more than 403 million barrels of oil annually — over half of the offshore crude oil output of the United States — in order to reach a “break-even” level of revenue that is equal to the value of the current economic sectors at risk from offshore oil drilling.
“Put another way, The Bahamas would need to produce more than 82 times the total barrels of oil spilled in the Deepwater Horizon oil spill event, each year,” the report reads.
“This would mean The Bahamas would need to produce an average of 1,105,631 barrels per day, slightly more than the United Kingdom’s total output (939,760 barrels per day), placing The Bahamas onto the list of top 20 oil producers globally.”
The UK’s oil production put it at the bottom of the top 20 list in 2019.
The US topped that list, producing just over 15 million barrels of oil per day in 2019, followed by Saudi Arabia which produced 12 million barrels per day that year.
The report said using an estimate of 12,500 barrels of oil per day as a single oil well’s maximum capacity, and using the highest royalty rate and price, The Bahamas would need more than 88 wells operating at 100 percent capacity every day of the year to meet the “break-even” level of oil production.
The review assumes that if there were an oil spill, 100 percent of the coastal economy of The Bahamas would be lost.
It also calculated the risk value for scenarios where 50 percent and 10 percent of the coastal economy of the country were lost due to an oil spill.
The royalty rate used ranges from 12.5 percent to 25 percent.
On the basis that 10 percent of the coastal economy would be lost in the event of an oil spill, BPC was awarded five licenses in April 2007 for a 12-year term, though the currency of the license has to be renewed every three years in accordance with the law.
A two-year extension was granted to the first three-year period in March 2008 after BPC was requested to hold operations.
The specific terms of the license remain confidential, however, in the event of extraction of oil, existing law determines that the company is to pay royalties at the rate detailed in the act, but increased to between 15 percent and 25 percent based on the level of production.
Parliament established the Sovereign Wealth Fund Act in 2016 to save and invest surplus funds derived from oil, gas, mineral and other natural resources to provide a heritage for future generations of The Bahamas; to enhance sustainable long-term capital growth; to support strategic development objectives; and to support and increase savings for future Bahamians.
The report indicates it is unclear if such funds include the license fees of BPC or only actual revenue from resource extraction such as oil.
BPC owns five exploration licenses and pays a reported $250,000 per license per year — $1.25 million per year for its five licenses.
As it relates to royalties, the Petroleum Act, 2016, notes that the amount is to be calculated and set out in writing based on the selling value of the petroleum as “determined by the mutual agreement between the minister and the licensee or lessee”.
“There are many promises and expectations surrounding the question of how the economy of The Bahamas could be changed if the country becomes an oil-producing nation,” read the report.
“However, with oil prices at historic lows, a global energy transition underway and an increasingly crowded world market dominated by controlling interests, there is a great amount of uncertainty about whether The Bahamas can realistically expect to benefit from entering the field.”
When Ghana began oil drilling in mid-December 2010, it doubled its GBP from $32.2 billion to $66.98 billion in the 10-year period.
However, the fall in oil prices since 2015 reduced the country’s oil revenue by half, despite expanding exploration to two additional offshore oil fields in 2016 and 2017.
GDP in Angola — a best-case scenario — rose from $.615 billion to over $94 billion — a 1,438 percent increase since commercial oil production in 1999.
Oil exploration represents half of the economy’s value.
Despite the gains, around 40 percent of Angolans live below the poverty line.