Guyana should decide on a small modular refinery

By Stabroek News On In Letters to the Editor |

Dear Editor,

The African Business Roundtable congratulates the Government of Guyana on its hiring of a consultant to evaluate whether Guyana should have a refinery or not, and whether it should be a private-public partnership or another financial structure.

Over the last several months there have been several so called experts whom have claimed that Guyana, based on the experience of Suriname, should not build a refinery.

The Guardian News of 6 November 2016 stated, “With a required 20 to 30 square kilometer of land somewhere along Guyana’s coastal belt to build a refinery, and a deep-water channel with a one kilo meter width to access it from the Atlantic Ocean, leading minds in the oil exploration industry have told the Guyana Guardian that it will cost somewhere around $900 billion (about US$4.4 billion) to build an efficient oil refinery here”. Demerara Waves carried an article in which the Country Manager of ExxonMobil’s local subsidiary ‒ Esso Exploration and Production Guyana Limited ‒ Jeff Simons said the projected production of about 100,000 barrels per day would not make building a refinery here profitable.  “Building a big refinery means you are going to be exporting a lot of product too and so getting to the economies of scale in this Hemisphere that will allow for an economic development of a refinery, you need more oil, you need a really big refinery to be competitive and right now that doesn’t look like an attractive [proposition]”.

But Guyana has to make a decision in its own interest. Foreigners should not tell us what decision to make because the issue is far beyond the economic analysis of building a “large” refinery.

As a Chemical Engineer, I know the fractional distillation process of a barrel of crude will provide 8 different streams of businesses or byproducts, namely: (1) liquefied petroleum gases; (2) chemicals; (3) petrol for vehicles; (4) jet fuel and paraffin for lighting and heating; (5) diesel fuels; (6)  lubricating oil, waxes and polishes: (7)  fuels for ships, factories oils and central heating; and (8)  bitumen for roads and roofing.

Guyana, because of slavery, indentureship and the historical exploitation of our national patrimony by foreign sovereign states and their companies never had an industrial age. So today, Guyana is at a 40-60% manufacturing competitive disadvantage to Trinidad which has cheap oil. A small modular refinery, in the range of 7,500 to 10,000 barrel per day can underwrite Guyana’s industrial development. Such a refinery would underpin our industrial policy and vision for sustainable growth. The multiplier effect would go far beyond Guyana’s ability to produce the 8 streams presented above, and will dramatically increase the technical and engineering skills of our nation; it would significantly improve our technical schools and the University of Guyana; it would decrease our manufacturing cost structure, and would create thousands of well-paying jobs; it would create other support industries and would benefit the nation while improving our national security and trade balance. Indeed with clean energy through hydro, solar and natural gas, Guyana would become a trade hub through a road to Brail and a deep water harbour/free enterprise zone.

Those who are advising against a small modular refinery are advising against Guyana’s national economic and security interests. Our coast is at risk from climate change and Guyana needs to diversify its economy. A refinery which underpins our industrial policy will be the difference between sustainability or not.

At another level, those who are saying no to a refinery are also saying no to local content. All the jobs created by the 8 industries mentioned above would go to the hot country in which the refinery was built.  Guyana has to define its local content vision differently from developed countries. Local content in Guyana should have 5 dimensions.  Like South Africa when it legislated local content in its post-apartheid Black Economic Empowerment (BEE) Charter, Guyana needs to ensure ownership is an element of local content.  Management should also be an element of local content so that critical skill and management techniques reside in Guyanese and not foreign expats. Skills development should also be a local content imperative so that knowledge transfer happens. Guyana will ultimately become a very larger producer of oil. The Central Intelligence Fact Book has for over a decade announced the Guyana-Suriname basin is the largest untapped foreign reserves in the world (50 billion barrels). Mandatory skills development should therefore be a necessary prerequisite for all foreign entities operating in Guyana’s sovereign space as part of local content requirement.

Procurement is also a critical element of local content. Currently hundreds of jobs, products and services are being obtained from Trinidad at the expense of Guyanese. This has to change over time but must be mandated now. And finally, investment must be part of local content. Our financial institutions need to address their AML/CFT gaps as well as be more inclusive so that Guyanese of all races benefit from pooled investment into an onshore oil and gas facility and a small refinery.

The ABR has looked at a 7,500 modular refinery and has sent it to the government last November with the hope of obtaining a MoU to move forward. In the executive summary are the following words:

“The efficiency of modern modular refinery technology enables Guyana to prepare for the extraction of oil reserves in a cost-effective, environmental[ly] sustainable and timely manner. Based on the provided project outcomes, the path towards a domestic petroleum processing industry can be accomplished within two years. Economic and Social Impacts are significant

and include

The African Business Roundtable anxiously awaits the government’s draft legislation on local content. We believe a small refinery is a stellar example of how local content works.

Guyana has to think of its own national interest and not be brow-beaten into helping other nations or multinationals to implement their own foreign and economic policies on our national patrimony.

Yours faithfully,

Eric Phillips

President

African Business Roundtable