An article, “Pt Lisas must change to survive”’ published in the Express Business on June 24th, 2020, tendered the views of Prof K S Julien, Andrew Jupiter and Ian Welch, who in general saw that it was time for Pt Lisas to evolve.
Jupiter told us the Pt Lisas model was based on the availability of cheap gas, a deep water harbour, availability of land and infrastructure, tax holidays, facilitation of government ministries. Hence the model was developed incrementally building on success with less than one per cent of the gas reserves.
However, Jupiter opined that the ingredients that allowed Pt Lisas to be successful have dissipated. Pt Lisas faces the challenges of decreased volume of gas from the upstream producers, increased price of gas from the producers, no buffer gas, reduced prices of ammonia and methanol in the international market, lower gas prices and its increased gas production in the US, replacement of our petrochemical production by new plants in Louisiana and Texas in the US. Hence NGC is unable to purchase and sell natural gas at a price to continue to sustain the Pt Lisas model.
Welch agrees that the Pt Lisas model is in urgent need of adjustment and suggests; commercial adjustment along the value chain, including innovation and risk taking, and the main issue is competitiveness as a result of lower feedstock prices in the jurisdictions where our products are sold. Indeed, according to Jupiter, no new petrochemical plants were built at Pt Lisas for 11 years. Clearly the model is no longer attractive.
Prof Julien sees the problem as; how do we add value to what we have? Also, a major issue government is facing is; are we going to have adequate gas to attract more plants (even as some on site are being closed)? Julien believes the solution is for the Government to find investors who would be interested and who would add value here to methanol and ammonia.
Welch would like to see a model developed which can operate in the context of a finite and depleting resource, one that is conducive to further investment, inclusive of green initiatives. Jupiter calls for more upstream development, encouragement of downstream players to be involved in the upstream and the upstream players in the downstream. Further, he sees that emphasis should be placed on reducing carbon dioxide emissions, using carbon capture, storage and utilisation, energy efficiency of plants, sourcing of cheaper gas externally and the production of hydrogen.
What these commentators have ignored is that Pt Lisas was initially an investment solely by our government into the utilisation of gas that was being flared with hope that the local private sector would go downstream. This investment did not perform well financially and with the collapse of the market and our economy in recession these plants were sold under IMF conditionalities mainly to foreigners between March 1993 and December 2004, to help in the repayment of government debt. We then reverted to the plantation style economy at Pt Lisas wherein the country looked to the rents earned from the industry to help fund on-shore imports.
It is interesting to note that with this hindsight these commentators are now calling for innovation, added value production and R&D, which could address the sustainability of the industry, given the finite gas resource, change in competitiveness and product prices. It would be enlightening to hear their views on our current activity in LNG.
It is worth noting that when we invested in Pt Lisas the population of the country was unskilled in the associated technologies of the plants that were turnkey built.
This was particularly so at ISCOTT. We were taught how to operate and maintain the plants, we even outsourced their marketing. By 1987 there was an accumulated loss of $4billion with ISCOTT being responsible for the lion’s share of this. In 1986 the prices were 25 per cent of the price projected in the feasibility study that justified the methanol plant. Ammonia prices were close to 50% of their 1984 prices.
Surely one can expect that such a green-field industry could lose money initially. However, the T&T Government did not have the financial buffer that could support such losses, though on the sale of the plants the prices had already begun to turn up and the new owners quickly recouped their investments.
Hindsight is indeed 20-20 vision, but there were some commentators at the time who saw that the Pt Lisas investment lacked certain support structures, that would endanger its viability.
For example, Prof Percy Bruce of The UWI, recognising our lack of technological capability called for the creation of a petroleum institute to correct this and which would eventually create the knowledge, innovations and the competitive downstream, added value products that are now being called for. So much so that I was part of Prof Bruce’s research group that did a foresighting exercise into the choice of requisite added value petrochemical technologies for Pt Lisas; even those many years ago! Still, today the Government and the local private sector do not seem to appreciate the roles knowledge and innovation play in economic development.
Prof Pantin of The UWI was also a critic of the model. Listen to him:
‘… all new firms can be expected to incur losses in the first few years of operation. It is possible to conceive a scenario in which the firms generate substantial profits in coming years. I then proposed an investigation into added value production (now being considered by our commentators) to raise the possibility of profitability.” Pantin’s concern was whether the Pt Lisas investments had achieved the objective set out for them in the 1981 Natural Gas White Paper, which was to substitute for the correctly anticipated decline in oil earnings by the mid-1980’s. Instead, rather than the anticipated surplus there was a $4 billion accumulated loss by 1987.
T&T developed its oil resource using the plantation, foreign investment model in which the foreign investor provided the finance, the technology and marketing and we received the rents. This is what should have been done initially in the case of Pt Lisas, given our cheap and abundant gas resource, lack of indigenous technology skills and no financial buffer; in fact become units on the global gas industry chain. However, as Richard Baldwin recommends in his book “The Great Convergence” we should have then built our related R&D centres to create the knowledge and innovations that would have allowed us to spin out local added value companies. Indeed as Prof Calestous Juma tells us, economic development is not about the hardware of the plants but the knowledge and the innovations that produce and sustain competitive companies.