The recent announcement by Yara Trinidad to close one of its three ammonia plants by year’s end is concerning. This is 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.
T&T is recognised for the Point Lisas Model. Instead of simply selling our oil and natural gas, like many other countries, our policymakers took a different path.
Since the 1970s with the conceptualisation of the Point Lisas Industrial Estate, we 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.
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 natural gas, and in order to keep up energy production, we now have to drill in more risky deep waters.
While our 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, production has been below what is needed, for the industrial plants to run at full capacity.
To help solve this problem, the Kamla Persad-Bissessar administration implemented a host of fiscal incentives.
Upon the assumption of the Keith Rowley administration in 2015, the country’s financial situation had changed, and the current Government thought it necessary to increase the tax burden on our energy producers. They however addressed the issue of expiring natural gas purchase agreements between the Natural Gas Company and our energy producers such as bpTT, Shell, EOG and BHP.
To maintain the level of investment from these players, the government negotiated higher gas purchase prices to make investments in T&T attractive vis-à-vis other global locations.
NGC has since had to cut their profit margins and also raised natural gas prices to our ammonia and methanol plants. Combined with natural gas shortfalls, which have caused the industrial plants to run below capacity, and lower commodity prices of ammonia and methanol, we are now seeing that our model is under threat. Increasingly, these multinational companies are making decisions to close what they see as non-financially viable plants.
I want to propose to our energy policymakers that NGC needs a new business model. I think one day in the medium term, NGC may have to relinquish their role as an aggregator or keep their role, but cut their margins to near zero, to ensure the global competitiveness of the Point Lisas Industrial Estate.
Our policymakers need to consider not only the bottom line of NGC, which charges a toll to use their pipelines, but the added employment and tax benefits from the industrial plants, who rely on globally competitive natural gas prices.
While this may seem unorthodox, I would like to see NGC supplement its income by increasing its investments in both the upstream gas fields and the downstream industrial plants. Further, I would like to see NGC grow into a regional player in the short term with the acquisition of production fields in Guyana.
With the NGC we have the opportunity to create a global company that can earn more foreign exchange for the nation and repatriate the profits back home. We also have the ability to create employment opportunities for our nationals around the world, who are well trained and increasingly find it difficult to get jobs, in our current economic environment.
As we enter the silly season of local government elections, I ask the public to hold our policy makers and politicians accountable.