Modular oil refinery for Guyana should be explored – economist

-says Guyana could earn less than 10% going through middlemen

When one considers what Guyana will actually get from its oil agreement, it calls for serious discussions on constructing an oil refinery. This is the view of Economist Sasenarine Singh.

Singh was at the time speaking during a local content interactive discussion, hosted at the Georgetown Chamber of Commerce. The economist noted that in the years when Guyana’s net profit will be impacted by cost oil, a refinery could boost Guyana’s earnings and the economy as a whole.
“In the initial contract, 75 per cent is the cap for covering first oil. So the 25 per cent is cut in half, 12.5 per cent. But that 12.5 is not dollars. Its barrels of oil, 12.5 per cent of production is yours. What’s Guyana going to do with raw crude oil? We don’t have the competence in handling it,” Singh said.
“So we now have to sell back that crude oil to these operators. They [can] charge us demurrage, they’ll charge us for transportation, they’ll charge us marketing, they’ll charge us handling and all the other things that go with it. When they finish charging all these fees, Guyana will not get that 12.5 per cent profit oil. We’ll actually get less than 10 per cent.”
It has often been cited that the cost of building a refinery is too prohibitive. However, Singh noted that building the refinery should not be a cost shouldered by the Government, but rather through a public-private partnership.
“I know it’s an expensive venture. But I’m not saying use taxpayers’ money. I’m saying go out to people who’ve done this, go out to reliance industry in India, who’ve built many refineries and say, guys, we have a proposition for you. Here’s the land, we’re going to [invest] some money, but you come and do it. But with one caveat.”
“All the gasoline you produce, you selling to GuyOil. Because it’s not a big one. We’re talking about a 40,000 barrel per day modular refinery. Let GuyOil buy everything. If they have to sell it to Suriname, they can do what they have to do,” Singh explained.
The Government had previously hired a consultant, Pedro Haas, to carry out a feasibility study into constructing an oil refinery. The results of the study did not favour building a refinery, particularly one with a capacity to produce over 100,000 barrels per day.
In his study, Haas had looked at the cost of building an oil refinery with a capacity of producing more than 100,000 barrels of oil per day. The study had come up with a US$5 billion price tag in order to construct the refinery in Guyana.
The findings of a study had also recommended that the unit at the Finance Ministry should be equipped and its capacity boosted enough to understand the microeconomics of the petroleum industry. This is so that the unit can keep up to date with the daily calculations of market prices and feed into the global market.
The expert had also suggested that as an alternative to the establishment of an oil refinery, the Government could pursue maximising income from commercialising crude oil. This included the suggestion that the Government could swap crude oil for products on the global market or create joint ventures with offshore refineries, as well as acquire stock in refining companies.
However, the study was done at a time when ExxonMobil was the only operator in Guyana’s waters to find oil in commercial quantities. Members of the Private Sector have previously urged that construction of a refinery be re-explored when more operators find oil.