Why are we building a refinery?

Aug 20, 2023 Features / Columnists, Peeping Tom

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Kaieteur News – Jagdeo remains a bundle of contradictions. At his most recent press conference he said that Guyana can only handle one refinery at this time. By that he probably meant that given the present level of oil production, the country would not be able to have sufficient crude for processing by more than one small refinery.

In July, President Ali announced that oil production was averaging 400,000 barrels of oil per day. This would suggest an insufficient volume of crude for more than one smaller refinery each capable of processing 30,000 barrels of oil per day. Guyana only obtains profit oil of 12.5 % of total production. It markets its share of profit oil internationally.  It has signed contracts for the sale of this oil. Based on the present levels of production, there is not sufficient oil available to operate more than one small refinery.

But you don’t plan to build refineries based on existing levels of production. That would amount to cake shop management. A refinery takes years to build and therefore plans have to be based on future production.

By 2027, Guyana is projected to produce more than 1 million barrels of oil per day. By then, which is only 3 and one half years away, Guyana should be in a position to have a second small refinery since there will be enough profit oil to run a second refinery at a capacity of 30,000 barrels per day.

It is not therefore a question as to whether Guyana has enough crude presently to invest in plans for a second refinery. It is more a question as to whether we are planning for when oil production peaks in a few years.

But do not tell that to Jagdeo. He does not realize that he has to start planning today for the next four years since even a small refinery cannot be built in one year. His reasoning is therefore flawed.

Refineries are not going to be built exclusively by the government. Or at least one hopes that Jagdeo has no plans to use government funds to build a refinery. The building of a refinery, even a small refinery, is costly. One study has estimated that building 100,000 barrels per day refinery would cost US$5B. An estimate to build a refinery for processing 30,000 barrels per days has been given as around US$2B.

No need exists for the government to use precious resources to build refineries. The investment has to originate from the private sector.   Why therefore is Jagdeo trying to speak about there being no need presently for a second refinery? If the private investors want a second refinery, that is their decision and their risk. Or is the government trying to shield its proposed one refinery from competition? This would be anti-competitive. Is there a plan to have a refinery built with syndicated investors just like what was done with the loan for the Marriot Hotel? Are such plans being hatched?

Jagdeo is the sole custodian of the country’s National Depletion Policy. It is all in his head. He says that given Net Zero, Guyana has to exploit its oil resources and as fast as it can.  No wonder, Guyana is approving field development plans at rapid pace.

But if Jagdeo feels that Guyana only has a narrow window to exploit its oil resources given the global trend towards renewables, and if implicitly this means that oil’s shelf life is limited, why then is his government moving towards building a refinery?

The construction of a refinery is a long term investment. Therefore, if Guyana is exploiting its oil resources at break-neck pace, what sense does it make for anyone to build a refinery in Guyana?

Jagdeo’s explanation is energy security. A refinery he contends will allow greater energy security. But this is yet another contradiction because the government says it is transitioning away from fossil fuels towards natural gas and then towards renewables. The government is even suggesting incentives for electric cars.

Government’s transition away from renewables has led it to make huge investments in the gas-to-energy plant and to resurrect the controversial Amaila Falls Hydroelectric Facility. Given these investments, does it make any sense, other than to Jagdeo, for the government to be inviting expressions of interest for a proposed refinery?

The media and civil society should seek clarification as to the financing for the proposed refinery for which the government has invited expressions of interest. Certainly, it would be contradictory for the government to be putting resources into the proposed refinery project given its own approach towards oil extraction and renewables. But you dare not tell that to the Vice President!

(The views expressed in this article are those of the author and do not necessarily reflect the opinions and beliefs of this newspaper and its affiliates.)

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• Guyana, insufficient, National Depletion Policy, Peeping Tom, President

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