Dear Editor,
I had read a presentation in the Stabroek News by Dr. Clive Thomas on mini refineries and their place in our economy, and a few months ago, Kaieteur News got a comment from a consultant who had done a feasibility study on whether we should refine or not in our own oil refinery in Guyana for our 1,000,000 barrels of oil per MONTH!! The study was done at a time when Guyana’s total oil production was only estimated at 120,000 barrels a day. The consultant concluded that even though we would have much more oil to refine after further discoveries, it still would not be economical to refine it here. In 2016, according to the Guyana Energy Agency (GEA) Annual Report, Guyana imported 5,547,048 barrels of petroleum products. So the first question has to be… has this consultant who is telling us to ship 12 million barrels of our crude to the US, and then after refining, bring back 5,547,048 barrels of petroleum products for our local consumption, factored in transport and other relevant costs?
Someone has to monitor the oil revenue that it does not go to one group in the country, and that we are using the oil money to make sure our agricultural operations and our business enterprises do not end up paying so much in wages, competing with other sectors and become uncompetitive and go out of business, leaving us with a 100% petroleum state, as has happened elsewhere with disastrous results. The oil revenue to Guyana should be equally shared to all enterprises in Guyana in the form of less taxes, subsidized electricity, subsidized oil and fuel prices, spending intelligently on improving our agricultural yields, enhancing roadways and drainage systems in the agricultural sectors, making their cost of production competitive on the global markets, a better national roadway system for our hinterland folks and miners, and a revived Agricultural and Industrial Development Bank with attractive lending rates. And of course, the Sovereign Fund, but the Norwegian example, even though an excellent one, was introduced several decades after their initial oil wealth was used to enhance their infrastructure.
But the consultant’s opinion intrigued me, and I decided to check it out. In researching whether it is advisable to refine our product here or not, and taking into consideration the comments of the engineer who did the feasibility study, I discovered that the consultant was not very wrong and may even be right, and it raises a very important concern. Editor, the cost to make petroleum products from crude oil varies by quite a bit according to the size of the refinery; for example at the huge refinery Exxon owns at Baytown, Texas, [capacity 584,000 barrels per day] the cost to refine is US$3–4/ Bbl. But at the small California refinery at Torrance [155,000 barrels per day] the cost is US$10–12 per Bbl. These are not insignificant numbers, nearly US$8.00 per barrel difference between a small refinery compared to a big one. Our 12,000,000 barrels per year = US $96 million per year in less cost between refining our 12 M Bbls of oil in a small refinery compared to a big one. So everything will depend on how efficient our refining here will be. And of course, how much it will cost to buy and build a refinery.
The benefits of a small refinery here, must not be overlooked and there are mini refineries for sale all over the world. But we have to be aware of the situation which surfaced at Trinidad’s Petrotrin a few years ago. For example, responding to questions from journalists, Mr. Espinet, Petrotrin’s Chairman, said there is no likelihood that the Trinidad refinery can be sold. “Would you buy something that you can’t make a profit from?” he is reported to have said. This is amazing, since the much larger plant in California mentioned above Torrance [155,000 barrels per day more than double PETROTRIN’s daily production] only employs a little under 600 people in total. EXXON’s Baytown, Texas refinery [584,000 barrels per day] employs less than 1000 people, but it shows clearly that when governments get involved in any industry, they create a total economic disaster. The Wikipedia comment on the matter is this: “Petrotrin with less than 100,000 barrels per day, became the embodiment of poor corporate governance, expressed in bad policy decisions, wastage, corruption and nepotism across governments”. And is a good lesson for us; when the oil enterprise in Trinidad was owned by private individuals two or three decades ago, it was far more efficient and profitable; so, should Guyana build its own refinery? Yes, but only if economically feasible! Should the government operate it? The answer is NO! And never forget Venezuela!
We have to find a management team of knowledgeable people to run our oil industry until we learn how. I am not in favour of the amateurs we have here running things here now. We still have many enterprises like GPL and GWI which are totally incompetent and must be privatized, and the Government of Guyana must only monitor and regulate them, through a proper regulatory agency. What we have now is woefully inadequate, I see people writing about the oil industry in the media and I know that these people have no experience whatsoever in running such an industry, they look at two YouTube videos, and are instant oil Gurus. So, in summary, if we will have 12 million barrels of oil as of today’s counting, what is the equation? Transport cost of bulk crude, I discovered appears to be around 1 US per 1000 miles, so if we take 12,000,000 barrels of crude to our pals at EXXON in Baytown, Texas 2500 miles away [estd.] as part of our agreement with them, US. 2.50 Per barrel transpi. +3.50 per Bbl refinery costs, and they refine it for us and send back our required 6 million Bbl here as petroleum products and sell the rest in the US for us, will it be more economical than us refining here? Definitely yes! And since this is our crude, we can pass these savings onto our citizens who have been the most oppressed by heavy taxes and duties in the Caribbean.
Sincerely,
Tony Vieira
