Second study of feasibility of oil refinery needed

– city chamber head

A second study into the feasibility of the construction of an oil refinery in Guyana should be done when more operators are working in the industry, President of the Georgetown Chamber of Commerce and Industry (GCCI) Deodat Indar says.

“What I will say concerning the refinery is that a second look must be done. I believe that in the beginning years of any country’s development, a refinery might not be the best thing or the first thing you look at. But at the back end, in terms of all the downstream things you can get from a refinery, is what gives a country the true economic benefit. Things like rubber, all those oils and a whole lot of things,” he said, responding to a question at a press conference yesterday on whether the feasibility of a refinery should be considered again. Even though the country does not have the capacity to consume all the oil that will be produced, the country’s neighbours and partners can play a major role, he added. 

“I believe that a second study should be done at a time where other partners are checking in and not just Exxon [Mobil]. You have Tullow coming, you have Chevron… You also have Total coming, Repsol. By the time those companies are drilling, you have a whole industry [and] you only have one operator right now. When the rest of them come on board and they are successful in their find, let’s have that analysis, recommission back the study,” Indar emphasised.

Last year Minister of Natural Resources Raphael Trotman had ruled out this country investing in an oil refinery. “We have done some studies on the feasibility of an oil refinery. We have opened that study for public debate and discussions…  Government has concluded that it, as a government, cannot spend US$5 billion dollars in an oil refinery,” he had said.

The US$5 billion sum he referred to was the figure that Director of Advisory Services at Hartree, Pedro Haas, had told government it would cost to build a refinery here. Haas was hired by the David Granger-led APNU+AFC government to carry out a feasibility study for an oil refinery in Guyana. From his analysis, the cost to construct such a facility would be some US$5 billion, with at least half the invested amount lost upon commissioning.

When the study was done, initial calculations were done based on a 250,000 barrels per day refinery but was then scaled down to 100,000 barrels per day. However, since then, several more oil reservoirs have been discovered and projected production has skyrocketed to 750,000 barrels per day by 2025.

Vice-President of the GCCI, Nicholas Boyer also made an input and explained that the answer should not be static but dynamic based on what is happening in the industry. He pointed out that while Trinidad and Tobago is currently having issues with their refinery, they have made a deal with Venezuela and are able to still refine natural gas for export.

However, the deal he referred to has to do with natural gas and not oil refining. Trinidad is shuttering its Petrotrin oil refinery after racking up multi-billion dollars losses over the years.  Officials there have said that terminating its refining and marketing operations and retrenching 1,700 permanent and casual employees was the only way to save the company after 100 years of operations in the industry.

“So when you look at the business case for a refinery, you might be able to do exports around the region for the downstream products. The question cannot be thought of as static, it has to be a continually asked question so that the day it may be feasible, we can go ahead and make the investment whether the government facilitates a private investor or the government does it themselves,” Boyer explained.

He also noted that if they can put in local content legislation and have a Memorandum of Understanding with Trinidad where Guyana has the opportunity to supply Petrotrin oil at a very reasonable cost, this would be very advantageous to Guyana.

“I don’t see why we should say no. However, they would have to fix their issues internally,” he said, while stating that Guyana can use its leverage – becoming an oil producing country in the near future – to get the best deal.

Indar also noted that the study should have been done later since they would have had a better idea of what the industry is going to be.

“What is happening with that (Material Variance Analysis) is that they took the cash flow from the Liza 1 field but now you have Liza 2, Payara… all those in the developmental line which will carry up your production to 750,000 barrels per day by 2025. So your cash flow and your associated costs will be different if you would’ve waited to initiate the study after you’ve seen the other exploration,” he explained. Indar requested that the government make the analysis public so they can review it.

The GCCI president was also questioned on whether Guyana should play a role in saving Petrotrin, and he responded that it is up to the governments.

According to him, the downfall of the state-owned refinery would spell doom for the entire Caribbean community since Trinidad is able to manufacture goods at a lower cost because of the low oil prices. If their manufacturing costs are increased, then countries such as Guyana that import their materials to use, and to add to other products through the value-added chain will feel the impact, which would be transferred to the common man, he said.

He argued that if the refinery is to be salvaged, it would be in the best interest of the Caribbean Community.  “I would leave that in their [Government] hands but from a personal and business perspective, it will have an impact on all of us and therefore  I believe if any efforts are made to keep it afloat it will be best for the region and not [just] best for Trinidad,” he said.  

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