‘8 energy firms lost $10b in last 4 years’http://www.trinidadexpress.com/news/8-energy-firms-lost-10b-in-last-4-years-285731461.htmlBy By Asha Javeed
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 TT$10 billion) because of irregular natural gas supply.
In turn, the National Gas Company (NGC) lost US$653.3 million (about $4.1 billion) in revenues, the Government lost US$217.4 million (about TT$1.3 billion) in corporation tax and US$1.4 million (TT$8.82 million) for the Green Fund.On August 25, the Point Lisas Energy Association (PLEA) of CEOs which comprises Ian Welch, managing director of PCS Nitrogen and chairman of PLEA, Jerome Dookie— the chief executive of Caribbean Nitrogen Company, Dennis Patrick—the chief executive of Methanol Holdings Ltd, Roberto Mantellini- president of Point Lisas Nitrogen Ltd, Robert Bellisle- managing director and chief executive of Arcelor Mittal Point Lisas Ltd, Charles Percy-the chief executive and managing director of Methanex Trinidad Ltd, Jay Henderson— managing director of Nu-Iron Trinidad and Tobago and Richard de La Bastide— president of Yara Ltd, penned a three-page letter about the gas supply curtailments to Energy Minister Kevin Ramnarine.
The chief executives said despite their plea in 2011 that the matter be addressed, they were “severely affected by frequent curtailment in the supply of natural gas to our various plants”.
PLEA noted that they had tried to collaborate with other stakeholders in an effort to come up with solutions to the problem.
“PLEA even facilitated and paid for consultants to work with the Group you agreed to form to look at the shortfall issue. Sadly, to date, little progress has been made. Indeed, despite these efforts, and notwithstanding numerous assurances to the contrary, the gas curtailments continue unabated and have been worse than forecast and appear to have no end in sight.
“As a result of this situation, our respective companies, and by extension, the Government and the people of Trinidad and Tobago, continue to lose significant revenue daily,” the letter stated.
“This does not include the other indirect losses and expenses such as the damage caused to our equipment by constantly having to cycle the plants to respond to broad fluctuations in supply, and the impact that this has had on the equipment’s ability to continue to produce safely at design capacity. Nor does it capture the full trickle-down effect on and the opportunity cost to the nation. Additional indirect effects include the increased risk of accidents and environmental mishaps and the development of a reputation as an unreliable supplier of petrochemical products.
“Honourable Minister, the image that is being painted of Trinidad and Tobago is a place where the gas is either running out or the supply has been overcommitted. The longer this image is allowed to persist, the less attractive the country will be as a venue for foreign direct investment. Numerous investors have passed up the opportunity of investing in Trinidad and chosen to invest in other countries where the supply of gas is more readily available and consistent. We fear that unless the situation is soon brought under control and the confidence in the availability of gas to be supplied to our plants is restored, we may soon witness the permanent closure and migration of plants from Trinidad and the collapse of the Point Lisas model,” the letter observed.
They said the situation required “immediate and definitive handling” and called for critical measures, which they identified as:
1. Concrete action items within a timeline to restore a reliable, stable contract gas supply to PLEA in the shortest time
2. Appropriate planning and communication of items in 1 above
3. Short, medium and long-term outlook of gas supply so the proper planning can be affected. (It is understood that this can only be made possible with accurate forecasts of well-depletion rates superimposed by new production capacity)
4. An understanding of the new gas-consuming projects that have been announced and progressing. What is the plan for the supply of gas to these projects given that the gas shortages being experienced by existing consumers have not been addressed?
5. Reinstate the Reserve Gas/Gas Behind-Pipe to mitigate unplanned upstream outages that will significantly reduce curtailments in Point Lisas.”
PLEA said while they appreciated Ramnarine’s efforts, “given the severity of the problem and the very dire consequences with which we-and the country as a whole-are faced, we consider it our duty to escalate the matter and strongly recommend that immediate action be taken to reverse this worsening and prolonged situation”.
“Please be assured of the ongoing cooperation of our companies towards sustainable solutions and improvement in the economy of Trinidad and Tobago,” the letter ended with the signatures of all eight chief executives.
That letter had followed a letter penned by PLEA on October 3, 2011 which had also called on Ramnarine to address the gas situation because of mounting losses by the plants.
That letter observed: “In implementing these curtailments, the NGC also continues to claim the protection of force majeure clauses in our contracts. There is dissimilarity between the contracts in this regard. While the clauses provide the NGC with a shield in genuine cases of events beyond its control (subject to the limitations set out in the contracts), the expectations are that the NGC must take every reasonable step to limit the force majeure event and its consequences. Furthermore, contractually, the NGC is obligated to meet with us to discuss the consequences of the force majeure event, and the intended remedial actions to be implemented. This simply has not occurred. Indeed, the NGC routinely gets notification of shut-downs from its suppliers, and then passes these over to us forcing us to reduce production rates.”
PLEA had made some recommendations then to Ramnarine. They were:
1. Gas users contracting directly with gas producers- If as gas users, we are, as a matter of policy, free to contract directly with producers, the local gas supply market will become a more transparent and competitive one which will be conducive to the settlement of more attractive terms and, address all the issues of supply that impact or have the potential to impact our productivity.
2. Re-ordering of priority for gas supply— the current status of gas supply priority, gives the LNG producers the highest priority of supply after electricity generation in instances of gas curtailment. We believe that it is time to re-order the gas supply priority so that except for electricity generation, all gas users share curtailments pro rata. In current markets, not only are we losing out but government revenue suffer as well, when it should be benefitting from high commodity prices.
3. Provision of a buffer gas supply- the NGC’s gas suppliers have the available capacity and infrastructure to provide the NGC with an adequate quantity of stand-by or buffer gas which can be used in circumstances where the regular supply is curtailed for unforeseen disruptions. This would of course necessitate a negotiation of terms between the NGC and its able suppliers.
4. Trading among gas users- Given the volatility of the petrochemical markets in which we operate, we propose, in the instances of gas supply restrictions, that we be allowed to enter into commercial arrangements among ourselves, which would allow us the flexibility to determine the rate at which we should each operate, while at the same time complying with the NGC’s request to reduce overall production rates. This would ensure that if market conditions are good for one of us, then the opportunity arises for negotiation, which would allow a user to benefit as much as possible in the prevailing market.
5. Re-pressing of old Petrotrin wells- As a means of providing additional gas storage, we suggest that the old Petrotrin wells can be reconditioned and re-pressured to be used for underground storage which we can tap into as needed.
6. More equitable sharing of the burden. Given the premier position enjoyed by the NGC in our gas sector, we believe it is important for us to have a more equitable sharing of the burden, as well as the benefit. Specifically, in each of our gas contracts, we agree to a take or pay clause. We believe that consideration must be given to the development of a deliver or pay formula whereby if the NGC fails to deliver to its customers, it will accept a reasonable portion of the financial fall-out. This type of policy will create an incentive- based culture, which promotes efficiency and accountability from which our country will ultimately benefit.
Contacted yesterday to comment on the letter, Ramnarine maintained the stance he’d taken in an interview with the Sunday Express two weeks ago, that the problem won’t be set right until 2017.
“There is a gap between what could be supplied and what is the total demand. And that gap is probably five to ten per cent,” he had said.
“I am going to be honest with you, that situation will not go away for the next two and a half years. Where we will get relief is in the year 2017 when the Juniper (a bpTT gas field) comes on.”
Last week BG’s Starfish field came into production.
“That’s good news. It helps. It’s a bit late. It had a slippage in schedule because of rough seas but it is going to come on in stages. They will bring in the first well next week, by January they will bring in the second well and by March they will bring on the third well. It will add 220 million standard cubic feet of gas (mmcf/d). That is not going to alleviate the problem, it’s going to help but it won’t make it go away. We are in this supply-demand situation for the next two and a half years,” he had said.