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More gas should be sent downstream

Thursday, May 24, 2018

Should T&T ensure that downstream petrochemical companies receive their full quota of natural gas before any is sent to Atlantic LNG? According to the findings of the latest EITI report there may be a case for the petrochemical sector to be favoured over LNG.

The 2016 EITI report reveals that while LNG accounted for 54 per cent of total gas usage, the market value of LNG out of T&T was US$1.43 billion. Compare this to petrochemicals inclusive of methanol, ammonia, melamine and urea which utilised 36 per cent of the country’s gas and its value was significantly higher than LNG at US$2.2 billion.

In the report, market value was calculated rather than the return to government since there was insufficient transparency in contractual arrangements.

“The market value of production gives an idea of how much T&T’s commodities are worth to buyers. The market value of production is calculated by multiplying the volume of production by the benchmark price for the specific commodity (eg crude oil, natural gas, ammonia, etc.).

“Importantly, these values do not reflect the actual revenue or income that an extractive company retains from the sale of these commodities because companies give the government a percentage of these receipts (as agreed to in production sharing contracts.” the report states.

These findings are in keeping with the results of the Poten and Partners natural gas master plan which revealed that the country received its highest return per molecule of gas by the sale of ammonia, followed by methanol. This seems to bolster the argument from downstream companies that natural gas allocation be sent to their plants where the country stands to get the best return for its resources.

According to the EITI report, over the past five years, the market value of T&T’s LNG production decreased significantly by approximately 68 per cent from US$3.83 billion in 2013 to US$1.22 billion for January to August 2017.

The decline is due in part to falling production as a result of the natural gas curtailment that also hurt Atlantic LNG but is also partly due to falling LNG prices at the US Henry Hub. This has meant lower returns to the country and has placed additional pressure on petrochemical companies as they compete with the US companies that are getting their feedstock for lower prices.

The report also noted that the market value of ammonia is calculated by multiplying monthly ammonia production by the corresponding monthly Caribbean ammonia market price per metric tonne quoted in US dollars. These monthly values are added for each month of the year to obtain the total annual market value of ammonia production.

“Because of higher prices and production in 2014, the annual market value of ammonia increased marginally by five per cent from US$2.3 billion in 2013 to US$2.5 billion in 2014.

“However, after 2014 the market value fell consistently until 2017. This consistent decrease reflected the collapse of ammonia prices over the period, which was mainly due to the decline in natural gas prices.

Natural gas or crude oil are used as feedstock to manufacture ammonia. As the cost of the feedstock decreased, the cost of manufacturing a metric tonne of ammonia also decreased,” the report stated.

Only last week chief executive officer of Caribbean Nitrogen Company and N2000, Jerome Dookie revealed that his company is operating way below its name plate capacity because of the continued shortage of natural gas.

Like Finance Minister Colm Imbert, he is optimistic that the issue will be resolved but in the meantime his company, like many others on the Point Lisas Industrial Estate, is experiencing challenges due to the shortage.

Dookie said over the last 15 years CNC has contributed more than $17 billion to the local economy.

“We are talking about actual checks written and money transferred and so on that has gone into the local economy, and that is of course just the direct payments and we are not talking about the multiplier effect,” he said.

Based on how the value chain worked, he explained, upstream producers like bpTT and Shell invest money to explore, discover and produce the gas. Those companies, along with the services companies working for them, generate economic activity that way. The gas is transported by the NGC which earns a profit from their activities, then it makes its way to the CNC plant which employs people, pay taxes and generates billions of dollars in economic activity.

Dookie said he is hopeful that there will be a return to full supply in the medium term and praised Proman for investing upstream to increase gas supply.

He said: “I spoke about the pioneering role that Proman has played in the country’s petrochemical sector, so building now on the downstream thrust with methanol and ammonia, Proman Group has now gone upstream in recognition of the gas shortage situation and has taken the bold step by investing heavily in DeNovo.”


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