In concluding last Sunday’s column (May 21), I had indicated that, starting today, I would offer commentary on the topic: establishing a local refinery to process Guyana’s expected production of crude oil, post-2020. Several public calls have been made in support of such a policy initiative. Indeed, supporters of this view represent a local oil refinery as the ultimate expression of Guyana’s pursuit of the autonomous development of its extractive sector. In this regard I have previously observed this stance is based on the development axiom: Guyana should produce, all it can produce. For this reasoning, if no other, the topic warrants public consideration. The commentary I will provide serves also to wrap-up my discussion of the topic: local content requirements/policies (LCRs) in the petroleum sector.
It is perhaps appropriate therefore, that I recap for readers who may not have been following my earlier commentary on Guyana’s extractive sector, where the common thread of this commentary rests.
As far back as December 27, 2015, I had signalled my intention to devote these weekly columns to providing commentary on Guyana’s extractive sector. This was intended both as a tribute for the Jubilee year (2016), and to start early public discussion on the transformational potential of the country’s oil and gas ‘finds’, with the likely prospect of these coming on-stream at, or around, 2020. Initially, I had hoped to conclude this task by the end of 2016, but as of this week’s column, I am still on the penultimate topic of those, which I hope to discuss. For now, the final topic will be the revealed financial/fiscal/economic aspects of relations between the Guyana state and the foreign corporations, which will substantially control Guyana’s crude oil output.
Above all, I would wish to remind readers of my previously stated position on these matters, which was restated weeks ago (April 2): “In the limited space afforded in these weekly columns, I always seek to highlight … the need for creative responses to the country’s economic challenges; in order to advance its interests in situations where, if truth be told, the gravest danger lies in lack of conscious public critical awareness of precisely what those interests are; thereby allowing deceit, misdirection, ignorance, and their peddlers, to prevail over informed understanding and social awareness of the matters at stake.”
While Guyanese at large cannot be expected to become experts on the operation/process details of the petroleum industry, I nevertheless believe that an informed public needs to know as much about it as they presently know of the process features of Guyana’s other major industries: logging, gold and bauxite mining, rice and sugar production. Education in school is expected over the medium to long-term, to serve as the main foundation for this public knowledge. To remedy for present basic deficiencies, I commence my commentary with what may be termed as the nuts and bolts of oil refining.
For starters, the standard description of an oil refinery is: “an industrial plant that refines crude oil into petroleum products”. Such petroleum products are commonly obtained in Guyana through importation, and include diesel, gasoline and lubricants. A refinery that produces these products would embody the second stage of the petroleum production process, following the first, extraction of crude oil (hydrocarbons) from the wells found by ExxonMobil in the Stabroek block. The immediate operation/process of the refinery is to separate the different components of hydrocarbons that constitute crude oil.
For the purposes of this presentation crude oil is treated as a naturally occurring unrefined product. And, it has been referred to in this series before, as a non-renewable fossil fuel. It is typically found alongside natural gas, which lies above it as it is lighter. Crude oil is termed ‘crude’ because it is made up of many different hydrocarbon compounds. Sour crude does not meet industry requirements of low hydrogen sulphide and carbon dioxide. Its sulphur content is greater than 0.5 per cent. Sulphur however, is an impurity, which has to be removed. This removal raises per unit costs of refining.
On the other hand, sweet crude has low levels of hydrogen sulphide and carbon dioxide; that is, less than 0.5 per cent sulphur. Sweet crude is preferred by refineries as it reduces refining costs. Presently, this is the most actively traded energy product in the world.
Crude oil is processed before it is used. And the industry typically categorizes this processing into three major types. The first type is separation. Here the operation relies on using heat, vaporizing the oil in a distillation column and separation by molecular weight. The second type of operation is conversion. Here the process seeks to breakdown the too heavy hydrocarbon molecules remaining after the separation process in order to produce ‘lighter’ products like gas, gasoline and diesel.
Finally, there is treating. Here the operation may involve ‘removing or significantly reducing’ corrosive or polluting components, especially sulphur. It may also involve special treatments to make the product reach industry operating standards; for example, the octane rating for automotive products, liquefied petroleum gas (LPG), kerosene, heating oil, and bitumen or asphalt.
As we shall see some analysts add blending as a fourth type of process.
Industry manuals reveal a further set of information, which readers of this column would find useful, as it aids their better understanding of industry terms. Typically, the volume of oil is indicated in number of barrels. One barrel of crude oil is equal to 42 US gallons. After refining it yields 20 US gallons of gasoline; seven gallons of diesel; and 17 gallons of petroleum byproducts, such as propane, ammonia and plastic materials. The addition is not a mistake on my part. Manuals do indicate there is a net gain of two gallons (that is 44 gallons total yield, not the 42 gallons before refining).
Further, crude oil is graded as light/heavy and sweet/sour. As indicated, globally preferred oils are lighter and sweeter. This leads to this type of oil being relatively harder to access on world markets.
Next week I offer some further basic empirical data on oil refining, as I continue the introduction to my evaluation of the issues related to a local oil refinery. This is necessary, as there are no shortcuts that I know of, to becoming an informed citizen.