YARA Trinidad the recent announcement to close one of their three ammonia plants by year end is a matter of great concern.
This will be the fifth major industrial plant to close its doors in recent times.
It is important for the public to understand why this is happening and why the Point Lisas Model, which is so important to all of us, is under threat, says commentator Adam Raffoul.
Trinidad and Tobago is internationally recognised for the Point Lisas Model. Instead of just selling oil and gas, like many other countries, our policymakers took a different path.
Since the 1970’s, with the conceptualisation of the Point Lisas industrial estate, we have decided to use our energy resources as an input to make value added products for export.
This has made us one of the largest exporters of methanol and ammonia in the world.
It has created job opportunities for thousands of our citizens and made our country relatively prosperous, as the tax take of value-added downstream industries is more than simply selling oil or LNG.
With this basic understanding, it is important to understand why this model is now under threat.
First and foremost, we are a mature energy producer. In other words, we have found the easy oil and gas and in order to keep up energy production, we now have to drill in more risky deep water.
While our natural gas production changes every month due to production declines in older fields, and production increases in new fields, for a significant part of the last decade, natural gas production has been below what is needed for the industrial plants to run at full capacity.
The magic figure is in and around 4.2 billion cubic feet, to ensure that each plant can satisfy its natural gas inputs to maximise production and in turn maximise profits.
On the assumption of the Dr Keith Rowley administration in 2015, the country’s financial situation changed and the current government thought it necessary to increase the tax burden on our energy producers.
They addressed the issue of expiring natural gas purchase agreements between NGC and energy producers such as bpTT, Royal Dutch Shell, EOG and BHP.
To maintain the level of investment from these players, who now have to drill in deepwater, which is more costly, the government negotiated higher gas purchase prices to make investment in Trinidad and Tobago more attractive vis-a-vis other global locations.
Currently, NGC serves as the aggregator, buying gas from the upstream energy producers and selling gas to the downstream Point Lisas industrial plants.
NGC has since had to cut its profit margin and also raise natural gas prices to the methanol and ammonia plants.
Combined with natural gas shortfalls, which have caused the industrial plants to run below capacity and lower commodity price of methanol and ammonia, we are now seeing that our model is under threat. Increasingly, these multi-national companies, are making decisions to close what they see as non-financially viable plants.
Mr Raffoul says he wants to propose to the energy policymakers that NGC needs a new business model. He says that one day in the medium term, NGC may have to relinquish its role as an aggregator or keep their role but cut margins to near zero, to ensure the global competitiveness of the Point Lisas industrial estate.
He wants to see NGC supplement its income by increasing its investments in both the upstream gas fields and the downstream industrial plants.
Furthermore, he wants to see NGC grow into a regional player in the short term with the acquisition of production fields in Guyana. In the medium term, he wants to see NGC not only expanding into technical and consultancy services with new producers (in new countries) such as Ghana and Mozambique but also with the acquisition of natural gas fields there.
With regard to the government’s holdings in Methanol Holdings International the Oman-based methanol company, he wants to see the government retain ownership, with a new energised NGC playing a management and advisor role.
David Renwick was awarded the Hummingbird Medal (Gold) in 2008 for the development of energy journalism in Trinidad and Tobago.