Developing Resource Wealth Makes Countries Prosperous: The Examples are Numerous

         In reading about the history of Venezuelan oil development, one can easily discern that oil development transformed the country from an agrarian economy to an industrial economy, resulting in prosperity. Of course, in that story, decades of corruption and mismanagement by Chavez and Maduro have led to the steady deterioration of the Venezuelan oil industry. Oil wealth is very important to several countries in the region. Big wells are being found offshore Brazil in the pre-salt play, and Lula is supporting drilling despite his support for decarbonization. ExxonMobil, Chevron, and TotalEnergies are drilling offshore Guyana and Suriname. Both of these countries have low populations and are likely to benefit enormously from these high-volume oil discoveries. The oil and gas industry in Argentina has expanded due to the Neuquén Basin Vaca Muerta play, staving off big production declines in other basins and eliminating the need for imports. It is primed to grow as an economic engine for the country. Meanwhile, Colombia’s leftist leader has pledged to stop developing fossil fuels. Columbia’s production has been declining. A recent find there has the potential to triple the country’s production, but it is unclear how much it will be developed. Bolivia’s socialist leaders of the past, especially Morales, shunned the country’s lithium resources, and development was stymied. That could change with the new leadership. The current Chilean left-leaning leader has denied some copper mine permits in the world’s most copper-rich country. Ecuador has been suffering from droughts and other issues, causing low hydroelectric output, as has Brazil. This, along with oil & gas production declines in Venezuela, Colombia, Peru, and older fields in Argentina, means that there is a need for energy in these countries as well as a need for continued or new export income. The U.S. imports oil from Colombia and Brazil, and used to import a lot of oil from Venezuela. It is much cheaper for the U.S. to import heavy oil for U.S. refineries from the Western Hemisphere compared to the Middle East due to less transportation. Near-term oil production growth in the Western Hemisphere will come mostly from South America, followed by Canada. Guyana, Suriname, Brazil, and Argentina will be important exporters in the future. These examples of the importance of hydrocarbon and mineral wealth are just from a small region of the globe.

     There are many more examples in other parts of the world. The sovereign wealth funds of Norway, Saudi Arabia, and other Gulf countries were developed and are sustained with oil wealth. Oil & gas export wealth has been funding the Russian war against Ukraine and giving countries like India and China lucrative opportunities to buy cheaply. Putin had it made before his invasion when he was selling oil & gas to Europe and much of the world. In their ill-conceived invasion, they have lost and continue to lose many lives, and also business opportunities. Extremely poor countries like South Sudan depend on oil production revenues to pay for essential government services. Oil and gas wealth in the U.S. keeps oil and gas cheaper here for domestic consumption. Net importers of oil and LNG are usually subjected to much higher market prices. The U.S. is lucky to have access to millions of barrels per day of low-priced Canadian crude that can be delivered via pipeline and refined in the U.S. Mexico is lucky to have abundant pipeline access to inexpensive U.S. natural gas to feed its power and industrial needs. Thus, it can also pay to be positioned adjacent to a resource-rich country.

     In fact, energy and mineral wealth are key drivers for prosperity. Prosperity leads to increased environmental concern, both as the environmental impacts of energy developments are considered, but also as residents become able to afford the “luxury” of environmental concern, which is higher on psychologist Abraham Maslow’s hierarchy of needs.

     Developing countries should be encouraged to develop their resource endowments with investment from multinational corporations and financing from entities that do that. There should be little or no differentiation among those entities about potential carbon emissions, as the main issue is economic development, not emissions reduction. Those international funding entities are also competing with China, which needs resources, and nefarious countries like Russia, which would be happy to pilfer those resources in ways that are not up to international standards.

     Some countries are endowed with hydropower resources in the form of rivers with significant elevation drops that can provide power if dams are built. Canada and the Scandinavian countries are examples. Some countries have invested and built their way to success. An example is France’s nuclear energy endowment. Some countries, like Venezuela and Bolivia, have squandered their vast resource endowments due to corruption, mismanagement, and scorn of the very industry experts who could have best developed them.

     Being resource-rich is not quite enough. Those resources must be developed with modern advanced methods and done so responsibly in order to derive the most benefit. The bottom line is that if the process is managed reasonably and smartly, resource wealth = prosperity.