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Are we losing our natural gas edge?

Thursday, September 27, 2012
BG View
Kevin Ramnarine, Energy Minister


This column has devoted a great deal of time and space promoting the monetisation of Trinidad and Tobago’s natural gas resources because it occurred to me perhaps seven years ago that there was a definite link between the tax revenues generated by the petrochemical industries located at the Point Lisas Industrial Estate and at Point Fortin and the standard of living that this country is able to afford its citizens. Again and again, this space has returned to the theme of the contribution that T&T’s gas-based industries have made to the country’s economic development in commentaries in this magazine headlined “Imagine T&T without Point Lisas” (December 5, 2005), “Is our future in La Brea, Cedros?” (December 15, 2005), “Not making the connection,” (December 22, 2005) and “Spiting our rentier face,” (August 2, 2007). In what was described as The Industrialisation Debate, this column challenged the view outlined by the late Prof Dennis Pantin in a 1987 paper entitled “Whither Point Lisas—Lessons for the future” from the book The Independence Experience—1962 to 1987 edited by retired UWI professor, Selwyn Ryan.
In the paper, Pantin argued that the “prospects for Point Lisas were not very bright” and that it was “clear that the Point Lisas projects, individually or collectively, will not live up to their expected revenue goals. The real issue is whether the sector which was supposed to carry the rest of the economy can now be carried by the latter...In the words of the classic calypso by Brigo—We ‘properly tie’ even as we call on someone to ‘leh we go’.’.” In dismissing the Point Lisas experience as a failure, Pantin was particularly critical of the fact that state funds were used by the administration led by Eric Williams to build Point Lisas, claiming that one of the reasons for the large expenditure was to provide a source of jobs in the build-up to the 1981 general election. It’s safe to say that the course of history in the 25 years since Pantin made that contribution has proven that T&T’s natural gas, more so than the production and sale of oil, led directly to the improvement in the standard of living and the quality of life that citizens and residents of this country have enjoyed in the last 20 years. Governments in the period since 1992 have been able to collect “rents” from the companies that use the country’s natural gas—either to liquefy and export directly or in the production of methanol, ammonia, urea, urea ammonium nitrate, melamine and iron and steel—and distribute those rents to the population in the form of subsidies and transfers, which today account for about 52 per cent of the total expenditure outlined in budget presentations.
The impact of the natural gas revenues on T&T’s standard of living is profound—everything from “free” education from nursery to tertiary, “free” public healthcare and pharmaceuticals to the subsidised housing (with subsidised loans) and the billions in subsidies that have been lavished on the airbridge, the seabridge and in keeping the cost of gasoline and diesel stable and low for years. Despite having written on this subject for years, it seems to me that the population of the country has very little appreciation that the onshore wealth is directly related to the offshore wealth. It is part of the reason why Alcoa, the American aluminium company, was hounded out of Cedros in the same way that Alutrint, an aluminium company in which the State was going to have a majority stake, was hounded out of La Brea and the Carisal plant has been hounded out of Point Lisas. Given the tax revenues which the Government collects from LNG and from Point Lisas, there is no doubt in my mind that the ability of the Government to continue to be able to afford to provide “free” education and healthcare to the population is linked to the success of these enterprises—and the ability of the Government to continue attracting companies like Carisal that would generate tax revenues and provide hundreds of high-paying, direct and indirect jobs. The construction of the US$430 million plant will generate hundreds of construction jobs and when the plant is established, it will pay millions of dollars in new taxes into the Treasury as well as millions more in salaries to its permanent employees and natural gas, water, electricity and other raw material costs.  A major part of T&T’s ability to attract petrochemical industries in the 70s, 80s and 90s was as a result of the fact that the country had a secure source of low-cost natural gas. Now, given the expansion of shale gas in the US and the discovery of huge pools of natural gas around the world, it may be that T&T is in the process of losing the competitive advantage that led to the establishment of the methanol and ammonia industries here in the 70s. The extent to which T&T may be losing its competitive edge is clear from an article in the petrochemical newsletter, ICIS, which was published on Thursday last, which I take the liberty of quoting extensively so that local readers would be aware of the depth and nature of the threat to our livelihood:
“What sounds like a Robert Ludlum thriller —the Trinidad curtailments—have put a spotlight on the tiny Caribbean country’s continuing status as the largest source of US methanol imports. During any given month, Trinidad supplies 65-70 per cent of American imports, but that may not be for long. Production and exports from Trinidad’s eight methanol plants have declined slightly but steadily since 2010, partly because of the island’s shortfall of natural gas. Another reason is gas-related, but not in Trinidad. Methanol production in Trinidad has declined each year since the curtailments began—down by 3 per cent in 2010, by less than 1 per cent in 2011, and by 9 per cent in the first six months this year, according to data from the country’s Central Bank. Methanol exports have also declined, by 3 per cent each year in 2010 and 2011 and by 9 per cent in the first six months of 2012, the data show. Trinidad energy expert Kenneth Julien called the curtailments a crisis for the island’s energy and petrochemical sector in a newspaper interview earlier this year. The latest curtailment appeared in a press release from the government‘s Energy Ministry earlier this month, referring to “coordinated maintenance” that would be required of chemical producers so they would not suffer from the gas cutbacks. The statement said Methanex and three other chemical producers had scheduled maintenance to coincide with work being done for 34-50 day periods on BP’s Kapok and the British Gas (BG) Dolphin platforms extending to October 23. BP and BG are Trinidad and Tobago’s largest natural gas producers.
Anything more than a seasonal decline in the Caribbean country’s production sends an alert to producers on the US Gulf Coast, which is the hub of the North American petrochemical industry. The message apparently has been getting through, because a recurrent trend in North American methanol since the gas curtailments began in 2010 has been growing competition from North America, where the shale gas boom in the US and parts of southwestern Canada have made the region a magnet for methanol projects. For a quick roll call, Methanex restarted a plant in Canada at Medicine Hat, Alberta, in April 2011. OCI restarted a Texas plant in Beaumont in July this year. Those two plants alone have added 1.2m tonnes/year in new methanol capacity to the North American market, putting existing capacity at roughly 2m tonnes. That total is likely to double—and maybe triple—in the next three or four years if companies follow through with announced projects. Houston methanol consultant Jim Jordan said at his annual conference last week that North American plant capacity will total 4.85m tonnes/year by 2016 if just the announced projects are completed, the largest being LyondellBasell’s restart in Texas late next year, Methanex’s move of a unit to Louisiana in 2014, and Celanese’s construction of a new plant at its Clear Lake, Texas site in 2015. If those projects get built, the US would not need to import methanol from Trinidad and would need maybe just one more decently-sized plant to cover all of its methanol imports, which in 2011 totalled 5.47m tonnes. That plant may already be on the drawing board. Jordan showed a chart with half a dozen potential projects, some announced but lacking financial backing, and others unannounced.”
Following is the response by the Minister of Energy Kevin Ramnarine to a request by the Business Guardian for a comment by him on the story:
1) Curtailments in natural gas supply started in late 2010 or thereabouts and intensified in early 2011. This situation continues to the present day and is due to maintenance works being conducted by Upstream producers whose facilities are in most cases over 10 years old.
2) This situation is being managed and at present there is an unprecedented level of coordination between Upstream, Downstream, Atlantic, NGC and the Ministry of Energy.
3) This maintenance work is necessary to ensure the long-term sustainability of the natural gas industry and the long-term reliability of supply.
4) As regards bpTT (T&T’s largest natural gas producer), it is expected that their maintenance programme will come to an end in early 2014.
5) As regards “methanol independence” for the United States, the MEEA wishes to note that the United States is not the only market for methanol in the world. There is growing global demand for methanol which according to IHS is expected to grow by an average annual rate of 9.8 per cent from 2010 to 2015. This is driven mainly by China.
I want to hear from readers what they think of the ICIS article and the minister’s response. 


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