US$5B local refinery will be unprofitable – expert

Building an oil refinery in Guyana will be a risky undertaking with extremely thin profit margins, Director of Advisory Services at the United States-based Hartree Partners, Pedro Haas has said.
Haas was presenting a feasibility study conducted on the possibility of Guyana building an oil refinery, during a public consultation held at Marian Academy’s auditorium, Georgetown on Wednesday.

He said the cost to build a refinery that would produce 100,000 barrels of oil per day was US$5 billion, with a construction period of 50 to 60 months at the very least.
This cost not only caters for the off-site location and other facilities, but takes into account the cost for energy, hydrogen supply, water and docking, which adds to the total cost of the project.
“While many places in the world build refineries that produce around 200,000 barrels per day; the 200,000 barrels a day refinery is way above the 13-14,000 barrels per day that Guyana requires and it’s a massive investment,” he told the audience on Wednesday.
The company looked at economic models used in other oil-producing countries and compared them with the scale and complexity of Guyana’s potential oil market to come up with the recommendations. Expert opinions from oil and engineering companies were also taken on board.
However, even with a smaller oil refinery, Haas said there was a high possibility of Guyana getting a negative rate of return on investment of between US$2 billion and US$3 billion. “That’s a very significant number, because the total investment is US$5 billion; that means you are destroying half the value of your investment,” he added.
Against this backdrop, Haas argued that if Guyana decided to build its own refinery, it would have to compete with refineries operated in the Atlantic basin and some in the United States.
“Some of them are fully depreciated and they are operated at a very low cost. So, you have to compete against a depreciated refinery with a new facility and you have to compete with an even more efficient set of refineries,” he explained.
The consultant pointed to the closure of several oil refineries in countries like St Croix, Aruba and Curaçao, which he said tells you that the investments were not feasible. He also used Brazil as an example of a country where building oil refineries has not been a profitable undertaking.
While he said Government should not object to private investors taking the risks, he noted that the finances were negative, as the investor would most likely never be paid back.
In responding to a question from the audience, Haas argued that establishing an oil refinery in Guyana would not guard against price shocks in the oil market, explaining that oil prices were controlled by international factors beyond Guyana’s control.
In presenting some alternatives to building an oil refinery in Guyana, Haas said the country could look at selling its crude and in turn importing supplies. He also suggested swapping crude for oil products, or reaching an agreement with a refinery to have certain products returned at an agreed price.

Decision
Natural Resources Minister Raphael Trotman, who was present at the consultation, said that Government has not made any decision on whether it would construct a refinery or not, explaining that this could not be a unilateral decision.
“Information is not always packaged in a manner in which we would wish to have it and it is not always palatable to the taste we would wish. But we thought in this instance, in the interest of transparency we decided to share what we have received,” Trotman said, referring to the presentation made by Hartree.
Trotman said most of the decisions would be made by “political imperatives”. However, he said he hoped that the economic importance would not be lost when a final decision was made.
The Minister said consultations would continue in various other parts of Guyana and in the Diaspora before a final decision was made as to whether Guyana should build its own oil refinery.