Economist Dr Clive Thomas says that the case for an oil refinery here has not been made.
In his Guyana and the Wider World column in yesterday’s Sunday Stabroek, Dr Thomas, who has focused extensively on the oil and gas industry, said the basis for the consideration here for a refinery has not improved since 2017 when he had first addressed the matter in detail following the publication of a report by the Pedro Haas consultancy.
Last October, the government sought bids for a 30,000 barrels a day modular refinery which would not involve the State.
“Upfront I assert that the case for an oil refinery in Guyana has not significantly improved, both domestically and internationally, since I first addressed this topic back in 2017. While modular refinery technology has yielded productivity gains in capability and complexity and incomes and demand for refined products have grown in Guyana, the scale of proposed operation at 30,000 is less than one-third of that in the Haas study-100,000 bbl/d”, he said.
Internationally, Dr Thomas said that many prevailing economic trends work against the construction of new oil refineries at this time.
“Perhaps the most pressing secular and structural trend is the global climate transition underway from carbon emitting fuels. Recall the vast majority of nations, indeed the United Nations itself, is spearheading the switch to renewables. A small emerging oil producer cannot resist these pressures. Even a powerful USA is being pressured to shut down refining capacity in 2022 even as a shortage of such capacity is evident.
Global macro-economic trends reinforce the secular economic trend indicated above. Covid-19 and post pandemic effects on supply chains, government spending, price, and interest rates policy responses, have been complicated by geo-political tensions, the war in Ukraine along with Big power trade, technology and investment stresses. All these work against capital intensive investment in a carbon-emitting extractive sector”, he argued in his column.
He noted that the Authorities have at the highest levels propounded the view that national security concerns are playing a key role in their approach to a local oil refinery. This, he said, has been sparked by skyrocketing crude prices amid geopolitical turmoil and the Russia/ Ukraine war. He said that Vice President Bharrat Jagdeo is cited in the media on the national security considerations as claiming it is “to ensure Guyana does not run out of fuel”.
“These are important but far too expensive as an insurance against this risk. With a likelihood of producing 1.5-1.7 million barrels of oil per day by the 2030s Guyana should aim to leverage its crude output for bilateral sidebar bilateral mechanisms offering refined products for what is globally a tiny market demand”, Dr Thomas posited.
He pointed out that the fortunes of crude oil refinery construction in the Caribbean whether for exportation as a deep-water port or for domestic import substitution, make for disappointing reading.
“Refineries have closed as loss-making promising to re-open at dates long passed. For Guyanese the geographic proximity of Trinidad and Tobago, reinforced by travel, migration, trade and cultural links make for shared experiences. Emerging oil and gas in Guyana must seek to learn from its neighbour’s mistakes. While we celebrated development in the opening of Petrotrin, we must also learn the lesson of its losses, bankruptcy and closure in 2018”, Dr Thomas warned.
Another regional refinery that has ended up in major strife and a source of pollution is Limetree Bay Refinery in St Croix in the US Virgin Islands. It was shut by the US Environmental Protec-tion Agency in May 2021 over concerns about emissions. It had been open for only a short
period after being closed in 2012. It remains the subject of major litigation and has filed for bankruptcy. One of its original owners was Hess Corporation which is now a major partner of ExxonMobil in the lucrative Stabroek Block.
On October 15 last year, the Ministry of Natural Resources invited proposals for the design, finance and construction of a 30,000 barrel per-day oil refinery to be built in the vicinity of Crab Island, in Berbice, in which it will have no ownership or investment interest.
The Request for Proposals (RFP) stated that the proposed project is in response to numerous expressions of interest that the government has received. As a result, the government is inviting interested parties to submit proposals for the design, finance and construction of the refinery.
The refinery will be located on lands provided by the government at the mouth of the Berbice River in the vicinity of ‘Crab Island’.
The government said that it will be providing the successful party with “adequate land at the mouth of the Berbice River for the venture (estimated to be 30 acres); generous fiscal incentives for the project including a 10-year tax holiday; supply of feedstock (oil) from the GoG share of profit oil at market prices; and access to the domestic market for sale of refined products (if desired).”
The RFP made it clear that the project is to be wholly financed and owned by the private sector, adding that government will not have any ownership or investment interest.
On May 17, 2017, Pedro Haas, Director of Advisory Services at Hartree Partners who was tasked with carrying out a feasibility study for an oil refinery in Guyana, said the cost to construct such a facility would be some US$5 billion, and would see at least half the invested amount lost upon commissioning.
Presenting the findings of the study, Haas explained that building an oil refinery would be a very risky investment which would require a vast amount of capital.
Haas explained that when calculating the cost to build refineries, the industry’s jargon represents it as a cash amount per barrel of oil. “For many years, refinery cost to build was about US$10,000 to a barrel and then it changed and rose to about US$20,000 and about today it could be up to US$25,000”, he observed.
As such, he pointed out that when calculating the cost for the refinery here, the latter figure was used. Initially the company started out their calculations based on a 250,000 barrel per day refinery, but had to scale it down to a 100,000 barrel per day refinery. Additionally, because the company was only exposed to data from 2013, it had to factor in an inflation adjustment for the present, along with adjustments for the location since there would be a need for new infrastructural facilities and other ancillary facilities to support and run alongside a refinery.
