The Inter-American Development Bank today announced the approval of a $1.5 million grant to finance studies on the integration of fossil fuels markets in Latin America and the Caribbean and the technical and economic feasibility of building a new oil refinery in Central America, potentially one of the largest investment projects in the isthmus.
The project responds to a request from Belize, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Mexico, Nicaragua and Panama, whose governments agreed last December to cooperate on a range of actions to ensure adequate energy supplies for the region.
The IDB grant from a technical cooperation fund for regional infrastructure integration will be used to hire a consulting firm to conduct the studies as well as to commission complementary studies. Participating countries and the U.N. Economic Commission on Latin America and the Caribbean (ECLAC), which will execute the project with the IDB, will add $500,000 in counterpart resources and in-kind contributions.
The main studies will be carried out in two phases. The first one comprises an analysis of the process to harmonize and integrate the region’s hydrocarbon markets and an evaluation of the feasibility of building a high-conversion oil refinery in Central America. The second phase would entail more detailed studies of a project backed by the participating countries and recommendations for its implementation.
The studies will gauge the need to expand refining capacity in Central America, taking into account factors such as the existing infrastructure, future demand estimates, and the use of Maya crude or mixtures of that Mexican petroleum and other crude oils from Belize, Colombia, Ecuador, Guatemala, Peru and Venezuela.
At least three possible sites for building a refinery will be identified, considering geographical, environmental and logistical factors, available infrastructure, accessibility and security concerns. Preliminary environmental and social impact assessments of the project will be done for the three locations with the greatest potential.
The studies will consider possible basic configurations for the refinery and estimate its operating costs and required investments to carry out the project in those locations. Alternatives for the refinery’s business model will also be evaluated.
The preliminary results of these studies, which should be ready for a May regional summit in the Dominican Republic, will assist governments in reaching an agreement on the best ways to integrate their hydrocarbon fuels markets and expand refining capacity in Central America.
If the countries decide to go ahead with the project a second phase of more detailed studies will be carried out, documents on legal, regulatory and institutional issues will be drafted and bases for public tenders will be prepared.
This project is part of a wide-ranging effort to support energy integration and development in Central America. With support from the IDB, ECLAC and several bilateral donors, the countries in this region are cooperating on areas such as energy efficiency, rural electrification, alternative fuels such as ethanol and biodiesel, power generation using renewable resources such as wind and geothermal energy, and bringing natural gas to the region.
The countries are also involved in other energy integration projects under Plan Puebla Panama, such as SIEPAC, which involves the construction of a power transmission line linking six Central American countries and the creation of a regional market for wholesale electricity transactions.
SIEPAC, which will extend from Panama to Guatemala and have a link to the Mexican grid, could eventually be connected to the Colombian electricity transmission network.