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ISSUES....
Inside, confidential and off the record

 

PDVSA CITGO in Aruba


Aruba's beach with the refinery the background


Citgo reaches deal to lease and restart idled Aruba refinery


ORANJESTAD
Reuters/May 13, 2016

By Sailu Urribarri

The Citgo Petroleum refining unit of Venezuela's state oil company Petroleos de Venezuela SA has reached a deal to lease and restart an idled 235,000-barrel-per-day refinery in Aruba, the government of the Caribbean island said on Friday. The agreement involves a 25-year lease that would allow Citgo to operate the refinery after investing in an overhaul that Aruba said could cost at least $1 billion.


The question is why invest $1 billion in rebuilding this refinery ? It does not sound right ....

Why build an oil refinery in the Caribbean?

By Arjun Dave

MIAMI, USA -- The Caribbean region relies for most of its electricity and fuel needs on crude oil and derived products. The region has imported refined products for most of the last century. With the availability of cheaper refineries in Asia, the region can become a hub for the storage and export of crude oil refined products.

The Caribbean region, with a population of more than 40 million, is spread over 30 islands and has been dependent on refined crude from its neighbours in the Americas. 

For more than a century the region has in the past imported crude from Venezuela, Mexico and the US. 

Most of the refineries in the region are at least 30 years old and were designed to refine sweet crude imported from the US. However, with deep-drilling, more and more crude available from Venezuela and Mexico is sour and heavy, which the old refineries are not capable of processing. 

The region can install newer refineries and become a export hub for refined crude products to the growing economies of Mexico and South America.

With the improvements in technology in the last two decades and better pollution control equipment and cheaper plants from India, China and Korea, the cost of a refinery has come down in the recent years. 

Why build a refinery in Caribbean?

Caribbean regional imports of crude oil have increased from 871,000 barrels a day in 1986 to 1.2 million barrels a day in 2009, and at the same time production has declined from 187,000 barrels a day to 167,000 barrels a day. 

In the last ten years, as the crude oil price has sky rocketed from $10 a barrel to $100 barrel and peaked at $150 a barrel in 2007, governments in the region have been looking to develop alternative sources of energy and increasing the refining capacity in the region with little success. Most of the electricity plants in the region are run on crude oil and coal fuel. 

Also, the recent explosion of commerce between China and the US has increased the flow of container ships passing through Panama Canal from 2,000 fifteen years ago to 6,000 in 2010. The flow of larger container ships is only expected to increase from 2014 after the Panama Canal expansion is completed. 

Crude oil production

Caribbean nations located south of Florida and north of Venezuela have been net energy importers for the last several decades. Though populations have been fairly stable, the steady increase in energy consumption has kept the imports levels rising for years. 

In the region, Trinidad and Tobago and Cuba are the only two nations exporting crude oil. The US Virgin Islands is an important refining destination and The Bahamas has the largest crude oil and refined products storage facility. 

Trinidad and Tobago is the largest oil producer in the Caribbean, with a total production of 147,000 barrels, of which 47,000 barrels are natural gas liquids. Trinidad exports almost of all its natural gas to the US but the exports have declined nearly 30% after the discovery of shale gas locations in Pennsylvania, New York and North Dakota, where the US is said to have discovered 100 years of natural gas supply based on the current usage. 

The Caribbean nations could benefit from the natural gas discoveries the US, as prices have plummeted from as high as $13 per mBtu to $4.50 mBtu. There are very few power generation facilities in the Caribbean that are run on natural gas. 

Rank

Country

Production (1,000 bpd)

1

Trinidad and Tobago

147.00

2

Cuba

50.66

3

Guatemala

13.05

4

Belize

 4.25

5

Barbados

 0.74

Source: Indexmundi.com

Crude oil imports 

Many Caribbean countries rely on imported crude from Mexico and Venezuela under the San Jose Pact. The favourable terms are extended to Barbados, the Dominican Republic, Haiti and Jamaica. Venezuela further offered favourable prices and credit terms as long as 30 years to all four nations in 2005.

The Caribbean region imports approximately 150,000 barrels a day of motor gasoline, 35,000 barrel a day of jet fuel and 200,000 barrels a day of distillate fuel. The region also imports 4,000 tons of coal for its power plants and 45 billion of cubic feet of natural gas. The imports of coal and natural gas surged four times in the last ten years. 

Rank

Country

Imports (1,000 bpd)

1

US Virgin Islands

425.00

2

Netherlands Antilles

237.00

3

Aruba

227.00

4

Trinidad and Tobago

95.00

5

Cuba

46.00

6

Puerto Rico

40.00

7

Dominican Republic

26.00

8

Jamaica

23.80

9

Martinique

17.00

10

Nicaragua

17.00

11

El Salvador

16.00


Oil refining 

The Caribbean region has a combined refining capacity of 1.7 million barrels a day but operates at between 70% and 80% of its installed capacity. 

The smaller refineries are processing crude for local demand of the islands and larger facilities in the US Virgin Islands, Aruba and Curacao are largely sending their refined products to the US. 

The largest refinery in the Caribbean is the Hovensa facility in the US Virgin Islands, with crude distillation capacity of 500,000 barrels a day. Hovensa is a joint venture of PdVSA and Amerada Hess.

The second largest refinery, with a capacity of 320,000 barrels a day, is in Curacao, which is owned by the Curacao government and leased by PDVSA for less than $20 million a year. 

Jamaica has crude oil refining capacity of 50,000 barrels a day but only manages to process 30,000 barrels a day. 

The US has been the largest destination for many of these refined products but the exports have declined substantially in the last three years. The exports in 2009 declined to 390,000 barrels to the US from 425,000 barrels a day in 2007. 

According to media reports, a proposed $2 billion refinery near St Elizabeth, Jamaica, has entered advanced planning stages. Project sponsor Petroleum Corporation of Jamaica (PCJ) has stated that the facility will have an initial crude refining capacity of 250,000 barrels a day.

PCJ has also reached an agreement with PdVSA for a $300 million revamp of its Kingston refinery that would increase distillation capacity by 15,000 barrels per day, add a coke-fired co-generation plant, and improve the quality of refined products produced there.

Most refineries in the region were built between 30 and 40 years ago. 

Cuba 

Cuba has gained lot of attention in the last five years as the prospect of oil discovery in the North Cuban Basin has improved on better technology. The US Geological Survey estimates undiscovered oil reserves in the basin of 4.6 billion barrels, nearly 1,000 years of current Cuban oil production. 

Cuba Petrol also known as Cupet estimates offshore oil reserves of 20 billion barrels; however, so far no new oil wells have been drilled in the last five years. Spain-based Repsol and seven other companies are expected to drill for oil at the end of 2012. According to the Cuban government, China is preparing an offshore platform that will be ready in October and seven companies from Venezuela, Spain and Italy, Cuba and China are expected to drill test wells. 

Cuba's oil production has increased to 48,000 barrels in 2009 and 2010 from 13,000 barrels in 1988. Cuba consumes 152,000 barrels of oil, which is provided by Venezuela under a special agreement. 

Most of the Cuban oil is produced in the northern Matanzas province but requires special techniques to process heavy and sour crude. 

Oil storage

The Bahamas has become the largest oil and refined crude products centre in the Caribbean. The country has also attracted a proposal from the US based AES to set up a terminal for liquefied natural gas (LNG) and an undersea pipeline to deliver natural gas to Florida. 

The following is a list of major oil storage centers in Caribbean as prepared by the US Energy Administration. 

Location analysis

Caribbean nations have been dependent on crude oil for most of their electricity plants and relied on the subsidized oil from Mexico and Venezuela. The days of cheap oil and refined products may be ending in the near future as Venezuela continues to suffer from high inflation and a declining refining capacity. 

Mexico also has been suffering from the rising demand for refined products and no new addition of refinery in the last five decades. Mexico has become the largest importer of the refined crude products in the Americas. Mexico currently imports 450,000 barrels of refined crude from the US. 

The recent excess crude oil refining capacity induced by the recession in the US has been a great boon for Mexico but the demand for petrol is expected to rise in the US despite the recent jump in retail prices. 

In the first half of 2011, the government controlled Pemex in Mexico produced 375,000 barrels a day of petrol or gasoline and sold 795,000 barrels. The difference was made up with imports from the US. Pemex is expected to increase production capacity by 50,000 by the end of the year and is looking to build a new refinery in the central state of Hidalgo, with installed capacity of 300,000 barrel a day. 

The refinery in Aruba operated by Chevron was closed after it had several environmental lapses and the decline in energy demand in the US. The available excess refining capacity in the US is transitory and will be dedicated to the local demand as the oil price reaches a new equilibrium. 

There are several possibilities of setting up a refinery in the Caribbean region that focus on the local demand and also serve the cargo container ship needs. Mexico and Venezuela are two large customers that can also be served from this refinery.

Though primary providers of crude in the region are Mexico and Venezuela, both lack knowhow and resources to build a refinery. The installed refinery has to process heavy and sour crude that is available from both of these nations. 

Cuba, Haiti and Jamaica offer two good choices of setting up a refinery. 

Refinery operating is a complex and at times risky operation. It is always better to locate these operations that are on the coast, away from most population centres and are operated in nations that do not impose a lot of regulations. 

Regional refineries

Aruba
Valero 275,000 bpd CLOSED

Cuba
Nico Lopez Refinery (Cupet) 122,000 bpd 
Hermanos Diaz Refinery 102,500 bpd
Cienfuegos Refinery 76,000 bpd

Netherlands Antilles
Refineria Isla (PDVSA) 320,000 bpd

Dominican Republic
Haina Refinery (REFIDOMSA) 33,000 bpd (start-up 1973)

Trinidad and Tobago
Pointe-à-Pierre Refinery (Petrotrin) 165,000 bpd

US Virgin Islands
St Croix Refinery (PDVSA/Amerada Hess) 494,000 bpd

Jamaica
PetroJam 30,000 bpd

Arjun Dave / Islandjournal.net / Last Update: 7:07 AM ET July 23 2011



ISSUES.... 05/ 16 / 2016 - Send Us Your Issues

ISSUES.... Inside, confidential and off the record

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