By RASHAD ROLLE
Tribune Staff Reporter
AS the $5.5 billion Oban Energies project forges ahead, some business and oil industry insiders are unconvinced a viable market exists for an oil refinery in the Bahamas and want to see the feasibility study conducted for the project.
Concerns have so far centred on the project’s environmental impact and the people behind the company, not so much its economic viability.
The Tribune understands the Bahamas Oil Refining Company International Ltd, BORCO, explored the possibility of moving beyond its oil storage business into the oil refinery arena in the last several years but decided the market could not sustain it.
Developments like this are also being discussed in the region, with Sir Paul Collier, a prominent Oxford University professor of economics and public policy, telling reporters in Guyana in the last week an investment in an oil refinery would be an unwise investment for that country.
“The whole oil industry is going to tether out in 2040,” Sir Paul said, according to INews Guyana. “You might be left with a great lump of technology off your shores which has no use.”
The British professor, who was participating in a special high-level Cabinet caucus on the development of the oil and gas industry in Guyana, told reporters there the margin on returns for refining oil is “very small.”
The Oban Energies project should be completed by 2030, according to the heads of agreement signed with the government. Two hundred and fifty people are predicted to be directly employed upon completion. By year four, the project should encompass a 250,000 barrel per day oil refinery, a component estimated to cost up to $4 billion.
The findings of a feasibility study for the project have not been disclosed to the public.
One local industry insider, who spoke to The Tribune anonymously because he was not authorised to speak to the press, was dismissive this week over the environmental concerns that have persisted about the project, emphasising modern technology mitigates such problems. A greater worry, he said, is whether a market exists, especially its refinery component.
For an oil refinery to achieve sustained success in the Bahamas, Oban Energies must have already secured long-term contracts with credible customers, The Tribune was told.
“They must have seen something the rest of us haven’t seen,” the insider said. “I would ask them why they see this as a profitable project to take on when it doesn’t seem like that to other folks in the industry and I would be curious whether they have contracts with people in the business that require refined barrels of oil and which areas of the world they plan to target for their business.”
BORCO, which has over 26 million barrels of storage capacity, closed its oil refinery component years ago, though this was not done at the time out of concern for its economic viability.
On its website, Oban Energies offers a short assessment of the market potential for its project which seems to concentrate on the market for oil storage terminals.
It says: “Oban Energies will target the market demand for storage of petroleum/liquid product and distribution of petroleum products for refineries and major trading companies. The storage market is large––more than 500 million barrels in the US––and demand is growing as available storage capacity is declining. The market for storage of petroleum/liquid product and distribution products is large and growing, but is lacking sufficient capacity and state-of-the-art facilities with best-in-class location or management.”
The last refinery in the United States with capacity exceeding 100,000 barrels per day to be built was established in 1977. Smaller refineries have been created since, but the global trend has been for already established refineries to expand their capacity to address market demands as opposed to new refineries springing up.
Yesterday Leslie Miller, former trade and industry minister in the first Christie administration, insisted no clear need for an oil refinery exists in the region.
“That proposed plan in Grand Bahama is not going to happen because the economics of it makes no sense,” Mr Miller said. “There’s no need for an oil refinery to be placed in Grand Bahama. If there was a need for a refinery on the eastern seaboard of the US, a consortium of well-known companies would have gotten together to put that project in place. When you talking about $5.5 billion, you’re talking about a plant that can refine 170,000 to 250,000 barrels a day of crude oil. When you think about the magnitude of that, the reason a consortium would be involved is they would get crude (oil) coming from the Middle East, from Russia, etc. Some basic questions were never asked about this project. To have the intention of creating a petrochemical institution, the first question you ask is, who are the players that will supply this complex with crude?”
Mr Miller added: “There has to be a need for this complex to be placed in Grand Bahama. Buckeye who bought out BORCO from the Petroleos de Venezuela SA, if there was a need for this refinery to be placed on the eastern seaboard of the US, you don’t think a company of the calibre of Buckeye, with the financial wherewithal and connections that it has would have been involved?”
In 2012, the Hovensa oil refinery in the US Virgin Islands closed after years of weak demand and high operating costs. Losses at the refinery totaled $1.3 billion in the three years before its closure, Hovensa said. The storage terminal remained open until 2015 before it also closed. The project has since been taken over by Limetree Bay Terminals LLC, a subsidiary of ArcLight Capital Partners. The oil storage terminal is expected to reopen, but the future of the oil refinery there remains uncertain.