Page 6 - GLNG Week 03

GLNG COMMENTARY GLNG
Gas troubles in Trinidad and Tobago
The Caribbean country’s gas sector is under pressure, both at home and in the export market
PERFORMANCE
WHAT:
As local LNG producers contend with competition from the US, domestic downstream operators are at odds with state- owned NGC over prices.
WHY:
These developments post problems for an industry that generates at least 15-20% of government revenues.
WHAT NEXT:
A former energy minister has urged the current administration to look for new policy solutions.
IN May 2019, Trinidad and Tobago’s National Gas Co. (NGC) published an article on its web- site that included speculation about the coun- try’s future in the face of shifts in the global natural gas industry. The author of the article – Hayden Furlonge, NGC’s assistant manager of LNG and investment analysis – concluded that the Caribbean state had a bright future, despite game-changers such as the decline in US demand for LNG imports in the face of increased unconventional gas production.
The drying-up of the US market for LNG imports has the potential to be a problem for NGC over the long term. On the one hand, LNG accounts directly for about 15-20% of govern- ment revenues in Trinidad and Tobago, so the reduction in shipments to the US could cause the economy to take a hit.
On the other hand, the US can now produce so much low-cost gas that its own LNG produc- ers are in a position to compete effectively with Trinidad and Tobago in other markets, such as Europe and Asia. They are also in a better posi- tion to meet demand from downstream buyers that use gas as feedstock, such as petrochemical plants and manufacturers of fertiliser.
Furlonge acknowledged these developments, but he remained optimistic. “A redrawing of the world natural gas map is currently underway, and Trinidad and Tobago’s place in it is assured,” he wrote. “After all, we helped draw the last one.”
This sunny outlook seems overstated, not least since the NGC representative noted in the same article that other markets might experience sim- ilar disruption in the long term. China, for exam- ple, may see domestic unconventional gas output rise over the next few decades, he said. If so, it too will probably need to import less LNG, as util- ities, downstream buyers and other consumers will be able to access locally produced gas.
Close to home
As noted above, these shifts have the potential to undercut Trinidad and Tobago’s gas industry over the long term. In the meantime, the sector is also facing acute short-term problems closer to home.
NGC is not just involved in the LNG export trade; it also serves the domestic market in Trin- idad and Tobago. That is, it sells gas to consumers such as methanol and ammonia producers. But its relations with local clients have been deterio- rating lately because of pricing disputes.
More specifically, NGC has demanded that downstream clients pay a higher price for domestically produced gas. The state-owned company has justified this stance by saying it must set prices at levels that allow it to make a
profit. But some of its customers fear that the rate hikes will end up putting them out of business.
Problems at Point Lisas
These concerns are not unreasonable, given that the Titan Methanol plant in the Point Lisas Industrial Estate may have to close its doors soon if it cannot come to an agreement with NGC on the price of future gas supplies.
Methanex, the operator of the facility, has been in talks with the state-run company for about a year without striking a deal. It is now running out of options – and running out of money, since it spent more than $250mn last year on an upgrade project. According to the Trinidad and Tobago Guardian, the company has made arrangements to shutter Titan Meth- anol if the parties do not forge a compromise before the end of January.
The plant’s closure would be a blow to the economy of Trinidad and Tobago, and not just because it would lead to the loss of more than 100 high-paying jobs, as well as tens of millions of US dollars per year in government revenues. It would also be the second such closure of a local manufacturing facility within the last two months. The Yara ammonia plant, which is also part of the Point Lisas complex, shut its doors in December after failing to come to terms with NGC on gas prices.
Economic consequences
The closure of Titan Methanol could also lead to further deterioration at Point Lisas.
As former energy minister Kevin Ranmarine
wrote in an article published by the country’s The drying-up of
Daily Express newspaper last week, no less than
four plants have gone idle at the complex within
the last four years. Yara’s closure was preceded by
the shutdown of the Mittal steel mill and of two
plants owned by Methanol Holdings Trinidad
Ltd (MHTL), he noted. He pointed out that one
of MHTL’s two methanol plants had come back be a problem for online, while the other, known as MHTL1, has
remained idle.
According to Ranmarine, the complex is
unlikely to make a recovery any time soon. Global prices for methanol and ammonia have dropped significantly over the last few years, largely because the US shale gas boom has driven up feedstock supplies. As a result, facilities such as Titan Methanol were already under pressure before they fell into pricing disputes with NGC.
Under these circumstances, the former minister argued, Trinidad and Tobago ought to start looking for policy solutions. In doing so, he said, the gov- ernment should try to address the problems of the Point Lisas complex, as well as the LNG sector.™
the US market for LNG imports has the potential to
NGC over the long term.
P6
w w w. N E W S B A S E . c o m Week 03 23•January•2020