Franklin Khan

Franklin Khan

IT comes down to price—what one is willing to pay and what one is willing to accept—in negotiations.

And for the past few years, it’s the price point in negotiations between downstream companies based in Point Lisas and the National Gas Company of Trinidad and Tobago (NGC) that has caused some stalemates, some plants being put to idle or closed.

T&T’s natural gas story, after all, was that it was a nuisance by-pro­duct of oil that it was able to successfully monetise, which gave birth to the Point Lisas Industrial Estate.

Gas, which was once flared, was cheap.

But in the last decade, plants faced curtailments as the NGC strug­gled to meet demand with ­limited supply.

Prior to 2010, energy major bpTT had maintained “cushion gas”, which T&T would utilise if there were disruptions in supply.

However, that disappeared in 2010 when BP’s production dipped significantly.

The production dip was attribu­ted to a change in the Government’s fiscal policy which stymied bpTT’s investment in T&T.

From 2010 to 2014, eight energy companies based in the Point Lisas Industrial Estate suffered combined losses of US$1,639,694,699.20 (or roughly $10 billion) because of irre­gular natural gas supply.

Energy Minister Franklin Khan, during his defence on his tenure in the no-confidence motion brought against him by the Opposition Uni­ted National Congress (UNC) last month, said that in 2015, there were outstanding contract negotiations between NGC, upstream suppliers and downstream gas contracts.

“The latter resulted in major claims on the NGC, amounting to US$756 million. Under this administration, we have reduced those claims to a mere US$363 million,” he had said.

With the supply issue fairly ­stabilised, it boiled down to price.

And gas is no longer cheap.

Plants in the estate started shuttering—ArcelorMittal (2016), MHTL’s M1 (2017), Yara (December 2019), Methanex’s Titan (March 2020) and Nutrien 3 (May 2020).

Last week, the country’s largest producer of methanol, the Switzerland-headquartered Proman group, announced it was idling its M4 and M5000 methanol plants on the Point Lisas Industrial Estate, effective immediately.

In a message to staff, Proman’s local chief executive, Claus Cronberger, said the decision to idle two of its five methanol plants was based on Proman’s inability “to secure an economically viable short-term gas supply contract for the month of April”.

MHTL has continued to operate two methanol plants, M2 and M3, using a supply from its subsidiary DeNovo.

By the end of this month, ­another contract with the NGC comes to an end—this time with Tringen

(• See table at top right).

An industry source pointed out that NGC’s daily contracted quantity with its customers will not consider the volumes that would have gone to M4 and M5000.

“This means NGC is now contractually obligated to supply around 1,276 million cubic feet of natural gas per day. This means NGC is selling around 30 per cent less natural gas than it did six years ago,” the source explained.

The Sunday Express understands that apart from the Tringen and Proman contracts, contracts won’t end until 2023.

Plant closures were expected

Since 2020, industry stalwarts had predicted more plant closures in Point Lisas.

Chairman of Atlantic LNG Ian Welch had told the Express Business, in an interview in June 2020, that there was an urgent need for adjustment.

“It needs commercial adjustment along the value chain, inclu­ding some innovation and risk for the sustainability of the industry. The main issue is competitiveness as a result of lower feedstock pri­ces in other jurisdictions where our products are sold. Trinidad has become the swing producer for some products,” Welch had said.

At that time, questioned on whether he expected there to be more plant closures, he answered, “Yes, I would expect more closures as the present model is not sustainable in today’s marketplace.”

Former permanent secretary in the Ministry of Energy Andrew Jupiter had said, “Covid has negatively affected the situation—lower prices for ammonia and methanol, a decrease in world demand for petrochemicals and lower natural gas prices. It is expected that more plants can temporarily be closed down and/or optimisation of plants.”

Jupiter had pointed out that the last petrochemical plant built in Point Lisas was the ammonia urea melamine plant (AUM) built by MHTL 2009.

“No new petrochemical plant at Point Lisas for 11 years. Clearly, this model is no longer attractive,” he had said.

Former chairman of the NGC, industry veteran Frank Look Kin had told the Sunday Express, “Well, the NGC has always accep­ted that when the price is low, some plants may have to drop off. The plants that were least efficient.

“People might not want to accept it, but that’s reality. So the Yara plant shut down because that was the most inefficient plant in Trinidad.

“I know everybody looks at this in the short term, but this is a long-term industry. Yes, we are trying to find new formulas and try to see if we could get lower prices from the producers because those contracts will be ending in 2024. It would end in 2024. But we have to struggle to get through 2020-2022. I guess the country has to struggle now.”

Where is it going to end?

“It’s going to be difficult. It’s going to be very difficult because the upstream people have some vested interest because what they don’t sell to the methanol companies or the petrochemical company, they sell us LNG (liquefied natural gas), but LNG is also low. So we face a dilemma the other way around because there’s an oversupply of gas, in a sense to both the ammonia and methanol, and also LNG markets, globally. And, unfortunately, there’s no short-term answer.

“Because this takes, this takes time. And then Covid has caused demand for all kinds of things to fall. And, therefore, unless the demand gets back up for ammonia and methanol, and LNG, we are going to have to struggle, at least for 2020, 2021, if not 2022. The Government has retained a consul­tant to assess the industry and to make recommendations on a way forward,” Look Kin told the Sunday Express.

Train 1 and turnaround

Khan, in his Parliament contribution, had said the current challenges being experienced by the petroche­mical sector at Point Lisas was as a result of the gas value chain, which encompassed upstream purchase price agreements, midstream aggregator and transporter (which is the NGC), downstream cost of production, and commodity market prices.

“What has happened in Point Lisas is really a precipitous fall in methanol and ammonia prices. That is the genesis of the problem? It has nothing to do with the Government. In 2014, which you boast about, ammonia prices were US$500 per metric tonne. Do you know what was the price in 2020? US$200 per metric tonne. From $500 to $200. It has nothing to do with the Government, and the $500 had nothing to do with the UNC ­either. It has to do with international market conditions.

“In methanol, in 2014, the price was US$400 per metric tonne. In 2020, it was under US$200. There is an uptick and an upscaling of the price in the first quarter of 2021. Prices are now moving back up and we hope that trend will continue and bring some sanity to the ­system.

“On the shutting down of plants—plants have been shut down all over the world during the ­Covid period. During 2020, ammonia plants in China, Ukraine, France, Qatar and Brazil have been mothballed and idled. Methanol plants in Chile have been down. Urea plants have been shut down in India, Bolivia, China and Brazil. All these things are happening internationally. Trinidad is not immune.

“However, Trinidad has some advantages. Our petrochemical plants have already paid back its initial capital investment, and Trinidad and Tobago is still considered one of the lowest costs of production of ammonia compared to countries like Russia and Indonesia,” he had said.

When Khan delivered the Ryder Scott 2019 report results in February, he had said a turnaround for the sector would come in 2022, with the country expected to reach a surplus demand for gas by 2024.

To this end, he had said the Government’s decision to invest capital to keep Atlantic LNG’s Train 1 operational is “strategic”, given that by 2024, it expects to have gas from the Manatee field.

The Manatee field, once known as the Loran-Manatee field, is a deepwater, cross-border field ­between T&T and Venezuela.

Last year, Prime Minister Dr Keith Rowley said the field has gas reserves of 10.07 trillion cubic feet (tcf), of which 2.71 tcf belongs to T&T and 7.35 tcf belongs to ­Venezuela.

Based on a recovery factor of 69 per cent, Dr Rowley had said T&T can expect to produce up to 1.872 tcf and Venezuela, 5.076 tcf.

Khan had said if all Government production projects come through, the country would have surplus gas at that point.

To this end, it decided to keep Train 1 operational.

In December 2020, he told Parliament: “Atlantic Train 1 will not be shutting down in January 2021. Train 1 will continue to operate in 2021 and will be part of wi­der negotiations, which have been taking place among the Atlantic LNG shareholders to form one unitised facility encompassing all four Trains.”

He had said the NGC, acting on behalf of the Government, is taking the required actions to maintain the operability of Train 1, pending the finalisation of the negotiations of the structure for the unitised ­fa­cility.

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