I am in agreement with the proposal of Pedro Haas

May 26, 2017 Letters

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Dear Editor,
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  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.
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  instead of 100,000 bpd refinery why not a 30, 000 barrels per day unit.  A few years ago another group had proposed a 20,000bpd unit.
Mr Haas is correct in his analysis as to the overall cost for the construction of a 200,000 bpd. I believe his numbers suggested  $5B USD. This takes into consideration the cost required for the battery limits and off-sites development requisites, storage tanks farms for upstream and downstream product.
This assumption is for a stick built system where everything is done on site and the EPC is a high end Engineering and construction company such as Bechtel, Flour Daniels, Stone & Webster an 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 demiurge is a high priced exercise.  A modular refinery of 100,000 bpd could be $2.5-$3B USD 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 $ 1 B USD.
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 proportionality 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 sulfur content is high it has to be treated further. Guyana’s crude Sulphur content has been identified at .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 $2 B USD, clearly justify Mr. Haas conclusion.   The amortized  loan of this magnitude  cannot be serviced by the profit margins provided by a 30,000 bpd refinery if the construction cost is tabled at $2 B USD. 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 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 resource.
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 $1.9 B USD, 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 selling their allocation and perhaps the EXXON MOBIL 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 EXXON 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.
Rajendra Bisessar
BSc, LLB

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