‘Refineries under stress’

Cheap shale oil, gas in US affecting Petrotrin margin

By Joel Julien

THE multi-million-dollar cost overruns incurred during the establishment of the Gas Optimisation Project (GOP) have created a situation where State oil company Petrotrin needs a margin of around US$9 on each barrel of oil refined just to break even.
Achieving this margin has been difficult, however, because the United States market has been flooded with shale gas and shale oil, Petrotrin president Khalid Hassanali told the Parliament’s Public Accounts (Enterprises) Committee (PA(E)C) yesterday.
Hassanali and Petrotrin chairman Lindsay Gillette yesterday led a group to the Parliament’s J Hamilton Maurice Room for PA(E)C to examine the company’s audited financial statements.
The PA(E)C was chaired by newly appointed Opposition Senator Camille Robinson-Regis.
Hassanali said the GOP was originally budgeted to cost US$600 million.
However, due to overruns Hassanali said the estimated cost of the project had more than doubled and was now US$1.4 billion.
Hassanali said the discovery of shale oil and gas in the United States had a devastating effect on refine­ries in this hemisphere, including the closure of two—one in St Croix and the other in Aruba.
Because of the cheap oil and gas, Hassanali said Petrotrin has only been able to average a margin of US$6.66 per barrel for fiscal year 2012 to 2013.
Hassanali described that figure as “the mark of the devil”.
“The entire refining market in the world has changed completely right now,” he said.
The United States market is flooded with cheap gas and cheap oil, shale oil and shale gas, he said.
Hassanali said this situation had caused refineries to be “under stress”.
“Refineries in this hemisphere are under stress and a good example of that is, as you would recall, there were two refineries in the Caribbean that have been shut down completely,” he said.
“Those refineries were merchant refineries, meaning that they relied 100 per cent on imported crude. Our refinery at Petrotrin, 40 per cent of the import is local equity crude. In other words we have a buffer in terms of having our own crude where we make a better margin. However, given what has happened with the GOP cost overruns and so on, we need a margin of around $9 per barrel to break even,” he said.
Hassanali said the margin for November has been “$1 and something cents”.
This situation has demanded a change in the refinery’s economics. “The entire refinery economics have changed, and we have gone through an exercise within recent times given the fact that maybe over the next five years refinery margins will be under pressure,” Hassanali said.
“We have had to do a lot of economic analysis over the last weeks to come to an optimal purpose. In other words, we are no longer looking to fill out the refinery,” he said.
Hassanali said the refinery capacity at Petrotrin is now 168,000 barrels a day. He described the local market as Petrotrin’s “premium market”, but which amounted to only 20,000 barrels a day.
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