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Building a US$5 billion oil refinery in Guyana unprofitable — expert

Pedro Haas

The cost of building a brand new 100,000 barrel per day oil refinery in Guyana can cost up to US$5 billion with a negative rate of return on investment at between US$2 billion and US$3 billion, a consultant said Wednesday.

Director of Advisory Services at the United States-based Hartree Partners, Pedro Haas’ findings and assumptions were based on Guyana’s daily demand of between 13,000 and 14,000 barrels per day. Haas was hired by the Guyana government through the New Producers Group of the British-based international think-tank, Chatham House.

Pedro Haas delivering the results of a desktop feasibility of building an oil refinery in Guyana.

He said building a refinery with a capacity of 200,000 barrels per day – a “massive investment”- would far exceed Guyana’s demand.

Instead, he explored with the audience a 100,000 barrel per day capacity. “You can’t bring it down lower than that because of the cost of the off-site,” he said.  He said construction could take at least 60 months.

Adding the cost of the off-site location and its facilities such as electricity generation, hydrogen supply, water and docking would double the total cost to the US $5 billion figure.

He calculated that the cost of constructing a new refinery would be at US$25,000 per barrel.

Responding to a question by Geologist Evanradhay Persaud about the feasibility of establishing mini refineries, the consultant said that, too, would be expensive. “I don’t know that you would build a new refinery with all the ancillary facilities that you need will be a profitable event,” Haas said at the public consultation organised by the Ministry of Natural Resources and held at the Marian Academy auditorium, Carifesta Avenue, Georgetown.

The international oil expert, who has worked in the private sector and government, also took into consideration the cost of oil at US$46.50 per barrel. “This is a number that is going to vary on a day to day basis,” he said. Also considered are the facts that the United States has been exporting a lot of cheaper shale oil and liquified natural gas and international price projections.

He suggested a number of alternatives to the construction of a refinery in Guyana. They include selling all of Guyana’s crude and in turn importing supplies, swapping crude for oil products, or reaching an agreement with a refinery  to have a “certain slate of products” returned at an agreed place.

Touching on the fact that oil refineries in St. Croix, Aruba and Curacao have been closed down during the past several years, Haas said “that tells you something” about the viability of building a brand new, state of the art facility.

The Hartree official, however, said if the private sector is willing to risk investing in the construction of a refinery, government should not object if a state subsidy would not be required.

ExxonMobil intends to extract 100,000 barrels per day from its Liza field offshore Guyana when production begins in 2020.

Trinidad and Tobago’s Prime Minister, Keith Rowley recently flew to Texas where he is said to have lobbied ExxonMobil to refine its oil from Guyana in his country.

Trinidad and Tobago’s state oil company, Petrotrin, has excess refining capacity and has been refining crude from several other countries.

  • TA

    Guyana has so much resources and all are tapped in the late stages when the developed world would have already tapped theirs and were thrust forward leaving countries like this. Bauxite was king, it propelled Europe while Guyana was raped. Timber had its glory days now Europe is banning this and that and we hold wood. The gold….psh thats another issue. I am 100% sure positive declarations are not made. The small miners alone surpassing the international miners in Guyana. Raped again of the gold. Sugar come and gone. Now oil. Guyana discovers its oil late when prices are well below value. This country will not see the benefits of this resource. The politicians will help themeselves in this one. I have lost faith. It pisses me when people like Trotman yapping on TV and talking shit about refineries and other nonsense when he dosent know simple commonsense feasibilities….

    • sep timo

      Some countries that have decided not to extract their oil at this time. This requires discipline and patience and foresight (basically the understanding that we put off getting a small amount of money now — when oil is plentiful — but wait until the global oil resource is much more scarce and prices would be more favorable). This is a tough choice, but its an option that is being used by some. It would also force us to look at how we could develop other resources (tourism, renewables, new crops to replace sugar etc) that would help to bring jobs and economic well being to Guyana in the short term.

  • Kassem_B

    ‘Trinidad and Tobago’s Prime Minister, Keith Rowley recently flew to Texas where he is said to have lobbied ExxonMobil to refine its oil from Guyana in his country.’
    Why would Mr Rowley do that if Refining the same crude will be a loss making exercise in Guyana?
    How many friends we have in Guyana?
    When is a friend not a friend?

    • Pat Robinson Commissiong

      Why would Mr Rowley do that if refining the same crude will be a loss making exercise in Guyana?
      Because a) “Trinidad……….has excess refining capacity …..(despite)…..refining for other countries”. In other words, despite the closure of refineries in Aruba, Curaçao and St Croix, there is nevertheless excess capacity in our region. We would therefore have to compete with Trinidad, which is already well established in the game. How? By underselling Trinidad? Is that likely to be profitable? Moreover we would first have to convince other countries to trust a newcomer rather than an established refiner.

      And because b) we use nowhere near 1000,000 barrels a day. Therefore if we refine our oil, we would still have to sell most of that oil on the international market – where oil prices are nowhere near the highs that prevailed when Trinidad built its refinery. And there does not seem to be any likelihood that the price will rise significantly any time soon. As the consultant pointed out, the USA is now pumping oil and gas from shale beds – at a far lower price that the prevailing price of oil in the glory days of the last century. Now OPEC tries to get oil producing countries to reduce production in order to keep up the price per barrel. Not very successfully so far. Meanwhile other countries will probably start producing shale oil, despite concerns about its effects on the environment.
      My major concern is with a) the bargain we strike to refine our oil elsewhere, and b) our politicians, bureaucrats and future oil experts, all groups which, given our current culture, contain individuals who are more than willing to rape this country for their personal benefit.

    • Arthur Young

      The Trinidad refinery is producing under capacity. It needs more crude to make its operations profitable. Just like a sugar factory is not receiving enough cane to process to make it profitable.

  • powerplayer

    Total Hogwash. We actually paid an expert $X to tell us its not feasible based on our consumption.

    What about basing it on our oil production. Does one have to be a Petroleum graduate to figure this expert did not have our interest at heart. I would not be presumptuos to say he was not working for us.

    Question, Why did Saudi Arabia invest in refineries after being told for decades it was not feasible as they were being paid 50cents a barrel for their crude. Look at a map of the world. Would you believe Saudi was sending its crude to Texas based on the experts.

    Last I checked the Kingdom had one of the largest Refineries in the region at Rastanura after being raped of their crude for decades

    People please do your homework. imagine us planting and selling paddy not rice as we believe the investment in a mill would not pay This is the simplest I can put it for the brainiacts we have.

    Why did TT build a refinery if they were producing less than us. Now we are going to be insulted by them asking our Massa to refine with them. What disrespect

    The Saudies built a Petroleum University after getting tired of going to school in Texas and Oklahoma Could we at least start with a faculty of Petroleum at UG Like yesterday

    Do some basic reading on the byproducts of a refinery. Think of our manufacturing base taking off We can run the refinery from the energy we would be wasting from the wells as we would not have use for it.

    The benefits are endless as new uses for byproducts are being discovered as time goes on.

  • Arthur Young

    The guru has spoken. Refineries in St. Croix, Aruba and Curacao have been closed for several years. Does the government want history to repeat itself? (after spending US$5B?).

  • YaMuddaSoandSo

    What about the power consumption hungry country with the massive population next door that just next door? I don’t think Guyana has to depend on its own domestic production to be profitable. Most of the oil could be exported. And I do not see why Guyana could not compete with Trinidad. Competition is good in any market. I also wouldn’t hire a Brit or an American as they do not have good models for their own production. Best to have consultation with the Norway government who have a very successful natural resources wealth management program.