Why Buid A Refinery In The Caribbean for Crude Oil?

10:20 AM Miami – The Caribbean region relies for most of its electricity and fuel needs on crude oil and derived prodcuts. The region has imported refined products for most of the last century. With the availabilities of cheaper refineries from Asia, the region can become a hub for the storage and exports of crude oil refined products.

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

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

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

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

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

Why buid a refinery in Caribbean?

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

In the last 10 years as the crude oil price has sky rocketed from $10 a barrel to $100 barrel and peaked at $150 a barrels 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 U.S. 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 natios located south of Florida and north of Venzuela have been net energy importers for last several decades. Though popluation has 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, U.S. 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 U.S. but the exports have declined nearly 30% after the discovery of shale gas locations in Pennsylvania, New York and North Dakota.

The U.S. 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 U.S. as the 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 (Thousand Barrels per Day)
  • Trinidad and Tobago 147.00
  • Cuba 50.66
  • Guatemala 13.05
  • Belize 4.25
  • Barbados 0.74

Crude oil imports

Many Caribbean countries rely on imported crude from Mexico and Venezuela under the San Jose Pact. The favorable terms are extended to Barbados, the Dominican Republic, Haiti and Jamaica. Venezuela further offered favorable prices and credit terms as far 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 duel. 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 (Thousand Barrels per Day)
  1. Virgin Islands, U.S. 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 demands of the island and larger facilities at U.S. Virgin Islands, Aruba and Curacao are largely sending their refined products to the U.S.

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

The second largest refinery is with a capacity of 320,000 barrels a day in Curacao, the Netherlands Antilles that is owned by 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 barels a day.

U.S. 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 U.S. 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 years and 40 years ago.

Cuba and Oil

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 U.S. 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 off shore 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 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 required special technique to process heavy and sour crude.

Oil storage

The Bahamas has become the largest oil and refined crude products center in the Caribbean. The island has also attracted a proposal from the U.S. based AES to set up a terminal for Liquid Natural Gas and an undersea pipeline to deliver natural gas to Florida.

The following is a list of major oil storage center in Caribbean as prepared by the U.S. 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 importers of the refined crude products in the Americas. Mexico currently imports 450,000 barrels of refined crude from the U.S.

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

In 2011 in the first half, 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 with the imports from the U.S. 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 central state of Hidalgo with installed capacity of 300,000 barrel a day.

Aruba refinery operated by Chevron was closed after it had several environmental lapses and the decline in energy demand in the U.S. The available excess refining capacity in the U.S. is transitory and will be dedicated to the local demand as the oil price reach 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 centers and are operated in nations that do not tie one down with a lot of regulations.

  • 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 30,000 bps (PetroJam)

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