Local oil refinery not feasible – study says

May 18, 2017 News

The excitement of Guyana establishing a local oil refinery took a turn off the deep end last evening, as the feasibility study shows that it may not be the right choice for the country.

Pedro Hass, the Director of Advisory Services of Hartree Partners LP, of Mexico during his presentation last evening.

This came much to the disappointment of several sections – mostly members of the private sector who raised questions about the components that were taken into consideration in arriving at the conclusion.
The study was conducted and presented last evening by Consultant Pedro Hass, the Director of Advisory Services of Hartree Partners of Mexico, and was hosted at the Marian Academy, Carifesta Avenue Georgetown.
Hass via a power-point presentation in the school’s auditorium explained that the study was done taking the scale, construction cost, timeline and other variables into consideration. The team also looked at nearby refineries.
He noted that Guyana currently consumes between 13,000 and 14,000 barrels of oil per day which is way below the 200,000 barrels of oil a standard size refinery can process.
Hypothetically, should a 100,000-barrel per day refinery be constructed just to cater for Guyana’s consumption, it will cost somewhere in the vicinity of US$5B with a negative rate of return on investment at between US$2B and US$3B.
This means that the output of the refinery will not compensate for the monies that will be spent to construct and operate the facility nor will the capital return.
The consultant also juxtaposed a new oil refinery and an existing one operating in other parts of the world.
“You may say how it can be that there are profitable companies out there that are refining for good money while a refinery investment like this doesn’t make any money and loses money by the cartload. Well, the answer to that, here (Guyana) you are investing in a new refinery and the investment has to be made at full replacement cost.”

A section of the gathering last evening at the Marian Academy.

The consultant told the gathering that refineries that are being operated elsewhere are refineries that are fully depreciated and “have been around for a long time and are operated at very low cost.”

ALTERNATIVES
Hass said that his team looked at several other possibilities instead of an oil refinery. He admitted that they may be more.
One of the alternatives he said is for Guyanese to become “very skilled” at international trade and crude products; selling the crude at appropriate price and buying at an economic price.
Other alternatives include the swapping of crude oil for products and entering into a processing deal with other refineries.
Hass expounded on the latter, saying: “So you give them your crude, they run it in their refinery and they return products to you.”
This arrangement he said is not unique but rather, “very common.”

NOT CARVED IN STONE
Minister of Natural Resources Raphael Trotman, who was present during the almost three-hour event, said that Government has not yet made a decision.
“This isn’t a decision that Government can make on its own. As we received the information (study), we thought it best to share that information. We thought that in the interest of transparency that we share what we have received.” The Minister said.
The series of consultations are on the cards for the way forward.

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