I am definitely not an expert but I have researched and received assistance from knowledgeable persons.
The recent discovery of first oil has certainly generated a substantial amount of debate in Guyana, first on an onshore oil facility, and lately on the establishment of an oil refinery.
The Government of Guyana (GoG) through Minister Trotman deemed it necessary to address some of the pressing questions by letting a third party consultant Mr Pedro Haas from Hartree Partners do a feasibility study on a viable option as to whether the Government of Guyana should or should not establish a state-owned refinery. Or at least this is what seemed to have been communicated to the public.
It was decided to make the presentation public. Mr Haas during his presentation, arrived at a conclusion that such a venture would be a heavy burden to bear on the state and the people of Guyana and that the revenues from the production of oil could be vested in other areas such as tourism ,infrastructure etc.
This has now become a much debated conclusion. Several letters have since graced the daily press with suggestions of instead of 100,000 barrels per day (bpd) refinery why not a 30,000 bpd unit. A few years ago another group had proposed a 20,000 bpd unit. It seems a great deal of misinformation is being peddled on what an oil refinery is, the degree of complexity, and the overall capital cost involved in building a complex unit.
Mr Haas is correct in his analysis as to the overall cost for the construction of a 200,000 bpd facility. I believe his numbers suggested US$5B. This takes into consideration the cost required for the battery limits and off-site development requisites (port, jetty, dredging to accommodate vessels with tonnage capacity), storage tank farms for the upstream and downstream product.
This assumption is for a stick built system, where everything is done on site and the Engineering, Procurement and Construction (EPC) is a high end engineering and construction company such as Bechtel, Flour Daniels, Stone & Webster and Foster Wheeler.
The proposal to use a modular system would certainly bring the cost down from $50,000 a barrel; however, the off-sites, battery and the tank farms will still be needed to store upstream and downstream products. This will still be costly. Provision has to be made to ship at least once every 2 weeks and not each day as shipping costs and demurrage is a high-priced exercise.
A modular refinery of 100,000 bpd could be US$2.5-$3B depending on your EPC contractor, method of fabrication, added variable cost for construction management and project management.
Note the Suriname 15,000 bpd refinery is a complex refinery, with a reformer, hydro-cracker, vacuum distillation, hydrogen plant, power plant and sulfurization unit, just to name some of the downstream processing involved. This refinery cost US$1B.
Here is what happens when the refinery does not have a high degree of complexity: on a 30,000 bpd system there would be approximately 42% (12,600 bpd) of residual Bottoms from the Atmospheric Distillation Unit (ADU) this is classified as waste which needs to be further treated or it becomes an environmental nightmare. The slate cuts from the ADU would be in proportion to what the assay of the crude is, so from the ADU the cuts would be butane/propane, naptha (straight run gasoline, which cannot run the cars and has to be processed through a reformer, CRU), kerosene/jet fuel that needs to be processed further through a Merox unit.
The only readily usable product then will be diesel and that is also dependent on a low sulphur content of the original crude being processed. If the sulphur content is high it has to be treated further. Guyana’s crude sulphur content has been identified at 0.5% which is considered low.
The suggestion put forth by a recent letter in the press to build a refinery of 30,000 bpd for US$2B, clearly justifies Mr Haas’s conclusion. The amortized loan of this magnitutude cannot be serviced by the profit margins provided by a 30,000 bpd refinery if the construction cost is tabled at US$2B.
A political decision to embark on this type of industry would be untimely, unwise and costly in the long run; a political decision was made on the Skeldon Sugar Factory, is there room for a repeat?
I am way left of centre and would usually support government’s investments in the productive sector, but here the stakes are just too high given the nature of our politics. I agree that a refinery needs to be built in Guyana for many reasons. The peripheral industries can employ thousands. The by-products can catapult Guyana into a new era of development, in agriculture, infrastructure and human resources.
Again I agree with Mr Haas: let the private sector do it. The GoG needs to take note that Trinidad and Tobago (Petro-Trin) has within the last few years lost US$1.9B; is Guyana able to absorb such losses?
The private sector is a viable option. Understanding the mechanics of the industry, the fabrication process, the site development, the demands on operation and maintenance requirements can make it a doable but for a size up (100,000bpd) refinery. Needless to say it will need the support of the Government of Guyana. The GoG may need to assist the refinery developer by sellimg their allocation and perhaps the ExxonMobil consortium’s allocation of crude through the consortium’s commodities trading division, on a preferential basis to Guyana’s own refinery, to be sold/purchased at the current market prices with appropriate discounts, etc.
I know one company’s proposal for a refinery offered the government a 5% equity if it were to sell its allocation to it. I am sure once the price is competitive ExxonMobil would not want to do Guyana the injustice of selling its crude to foreign refineries.
In closing I recall the response to my question to Mr Haas as to transferring income through non-transparent deals with subsidiaries, and he admitted that this could be a problem and that the Ministry has to equip itself with the relevant skill type. Well, remember we are dealing with a company that is bigger than so many Third World economies put together.
It’s why I support a refinery for Guyana built by the private sector with government obtaining some equity, and because of the spin-off industries that would be so beneficial and that would push the industrialization of Guyana.
The government and the wider Guyanese private sector would be able to share in this endeavour as they could invest in some of these spin-off industries and the government could capitalize on the manufacturing of fertilizer and asphalt to the benefit the agricultural sector and infrastructural works.