Published On: Wed, Nov 15th, 2017

Oil, oil and oil again

Jacob Gelt DekkerOil production and consumption have grown from 60 million barrels per day in 1980, to about 100 million, today. Over the last five years, we have seen a steady growth of about 1-2 % per year. The price per barrel has also recovered from a low of US $ 30, in January 2016, to well over US $ 60 per barrel, today.

That spells good news for oil-dependent economies, like Venezuela, Brazil and Nigeria. While Venezuela declared default on US $ 50 billion of state bonds, just a few days ago, there could be a silver lining behind Maduro’s dark clouds. On US $ 60, Venezuela will be able to service its debt after some rescheduling.  How much the economic sanction imposed by US President Trump is biting, is not clear yet.

In any case, with volume and price growth in the market, the prospects for Curacao and RdK are also improving somewhat.  Guangdong Zhenrong Energy Co, a potential Chinese investor, is an oil trader, not a refinery-end product manufacturer. The Chinese are interested in oil trading, or speculation and therefore seek storage facilities, like the ones in Bula Bay.  They could improve their margins by production of so-called, synthetic crude, a mixing product of heavy Venezuelan crude with lighter oils. The frequently mentioned new ‘refinery’ in Bula Bay, is nothing more than a simple mixing plant; it is not a US $ 6 billion refinery plant.

RdK is able to refine at least about 250,000 barrels per day, with an average net revenue of US $ 6 per barrel, or about US $ 1,5 million per day. At full capacity, the refinery could produce an annual profit for its shareholders of about US $ 4-500 million. The shareholders are the people of Curacao and such income cannot be matched with anything else.

Environmental action groups wish to close down the refinery but have never come up with an alternative income for the island.  Most of their claims concerning alternatives are based on bravado. Typically, is the Green Town-claim of the availability of US $ 6 billion for reinvestment and the creation of 15,000 jobs. None of the needed investment money is or was ever available, no companies are about to set up business on the island, and no 15,000 highly skilled workers are currently existing. Green Town is a utopia, a nice one, but nevertheless a pie in the sky for dreamers. Since 2010, seven governments turned down the GT alternative.

The decision for the local government to make is, either to find a party ready to lease and exploit the plant for the next period or do the exploitation as a state-owned enterprise. After a full 100 years of oil refinery, one can expect sufficient know-how and experience on the island to run a successful business as a government-owned company.

The obvious partner for lease is Pdvsa of course, but with the financial default, it may be hard to get a solid financial commitment. Alternatively, the Curacao government could finally make use of the Curacao Stock Exchange and solicit capital for renovation and exploitation in a Pdvsa-Curacao joint venture. The market is there and so are the profit.

By Jacob Gelt Dekker
Opinion columnist for Curaçao Chronicle


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