Suriname’s Stalled Oil Boom Adds To Economic Headwinds

By Matthew Smith - Mar 31, 2023

• Suriname is facing an economic and political crisis due to corruption, poor policies, and ballooning public debt.
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• The COVID-19 pandemic worsened the situation by causing a significant decline in the country's GDP and triggering sovereign debt default.
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• The resulting austerity measures, soaring inflation, and rising living costs have caused civil unrest and protests in the country.

The former Dutch colony of Suriname is struggling to recover from the economic devastation of the pandemic. Civil dissent is intensifying with riots sparked by rising food and fuel prices rocking the capital Paramaribo. The emerging economic and political crisis is rooted in the corruption, poor policy and ballooning public debt that occurred during the 10-year rule of Santokhi’s predecessor Dési Bouterse. The headwinds buffeting Suriname are compounded by the fallout from the 2020 COVID-19 pandemic, which hit the impoverished former Dutch colony especially hard. Disappointing news concerning Suriname’s nascent oil boom further complicates the situation, with the government in Paramaribo viewing the country’s considerable oil potential as a silver bullet for resolving its many economic woes.

It was the 2020 COVID-19 pandemic that was the catalyst that sparked Suriname’s current crisis. For a decade, trouble had been brewing as the civilian administration of former military strongman President Bouterse adopted deficient public policies, allowed corruption to flourish and mismanaged the economy. As result, his final years in office were tarnished by frequent corruption scandals, soaring public debt and shrinking exports. During 2020, as the pandemic swept across the world, sharply impacting Latin America and the Caribbean, Suriname’s gross domestic product plunged by 16%, the worst decline in South America after Venezuela. This exposed the extreme fragility of the former Dutch colony’s economy and the fiscal headwinds buffeting Paramaribo.

Since the start of the pandemic, the economic fallout was so severe that Suriname defaulted three times on its sovereign debt. To shore up weak finances and bolster government coffers, President Santokhi negotiated a $688 million loan deal with the International Monetary Fund, which was approved on the condition that Paramaribo implements a range of economic reforms, including austerity measures. Those changes included eliminating subsidies for electricity, natural gas and fuels magnifying domestic inflation and triggering a massive spike in the cost of living. After soaring into double digits during 2020, inflation has spiraled ever higher, hitting a peak of over 60% during 2021 and then declining to under 40% toward the end of 2022, surging to 58% for February 2023. Rising inflation is being fueled by the collapse in the value of the Suriname dollar, which by 27 March 2023 was worth $0.028 U.S. cents compared to nearly double that amount a year earlier. The catastrophic collapse of Suriname’s currency occurred after Santokhi floated the dollar during 2021 to meet the rigorous conditions imposed by the IMF.

The austerity measures and soaring inflation are responsible for the cost of living spiraling ever higher at a time when many people are experiencing extreme hardships because of the dire state of Suriname’s economy. Those events sparked the late-February 2023 demonstrations where protesters stormed Suriname’s parliament. While security forces eventually reasserted control and President Santokhi entered into national dialogue engaging a range of civil society organizations, including unions, business groups and political parties, further protests are appearing. Last week a handful of protesters gathered in Paramaribo, accusing President Santokhi of attempting to postpone the 2025 general election through his electoral reforms aimed at introducing a fairer voting system and demanding that he resign.

With social unrest and economic hardship plaguing Suriname, along with the local currency plunging to historic lows, it is easy to understand Paramaribo’s push to exploit the vast petroleum potential thought to exist in the tiny nation’s territorial waters. Suriname’s government is hungrily eyeing the massive economic boom underway in neighboring Guyana, with which it shares the Guyana-Suriname Basin, where GDP soared by a massive 58% last year on the back of that country’s colossal oil boom. After a slew of five commercial petroleum discoveries by 50% partners Apache and TotalEnergies in Block 58 offshore Suriname, Paramaribo became optimistic that the country will experience an oil boom on the scale of that underway in Guyana.

Apache and Total Energies, which is the operator, made five commercial discoveries in Block 58 with successful flow testing conducted at the Sapakara South 1 and 2 wells. Those events saw industry analysts assert that Block 58 contains the same petroleum fairway as the nearby Stabroek Block in offshore Guyana and U.S. investment bank Morgan Stanley estimated that it contains 6.5 billion barrels of oil resources. In September 2022, Apache announced the first oil discovery in Block 53 offshore Suriname with the Baja-1 wildcat well, while Malaysia’s national oil company Petronas 2020 discovered oil in Block 52. Those additional discoveries buoyed Paramaribo’s hopes that Suriname’s territorial waters possessed similar oil potential to Guyana’s.

In recent months, the outlook for Suriname’s burgeoning oil boom has dimmed considerably with news that Apache and TotalEnergies had delayed the final investment decision, known as an FID, for Block 58, which was expected during 2022. A combination of poor drilling results, including a series of dry wells, conflicting seismic data, the stricter fiscal terms of Paramaribo’s production sharing agreements and Suriname’s chaotic economic outlook all contributed to this decision. When it is considered that it could take up to $10 billion to develop Block 58 and bring the asset to production, TotalEnergies' caution is understandable. The FID is complicated by Suriname’s national oil company Staatsolie holding the option to acquire a 20% stake in Block 58, lacking sufficient capital, particularly with Paramaribo in the midst of an economic crisis, to exercise that right.

There is every indication that the FID for Block 58 will not be made until later this year nor not even until 2024, delaying the successful exploitation of Suriname’s offshore oil resources. For these reasons, it is now anticipated that Paramaribo will not see first oil until at least 2027, compared to 2025 as initially planned, and potentially even later, thus deferring the urgently required economic benefit anticipated by President Santokhi. Rising economic and political instability in the impoverished South American nation is also putting the success of the long-anticipated Demerara Bid Round at risk where six deepwater blocks are on offer with bids closing on 31 May 2023. Paramaribo was hoping the oil auction would generate considerable interest in offshore Suriname and attract further offshore oil investment. The risk of Suriname’s economic and civil upheaval deterring industry capital inflows is amplified by TotalEnergies' decision to delay the Block 58 FID, with industry participants waiting to see what the energy supermajor’s final decision will be.

By Matthew Smith for Oilprice.com