Economic View

On calibrating risks, regulations and roles in the hydrocarbons value chain

How valuable is the state-owned National Gas Company’s (NGC) involvement in the oil market?

JOEL PEMBERTON: NGC has a long history of involvement in the natural gas sector and has played a facilitative role through much of its initial development. Its role as an aggregator for the non-liquefied natural gas (LNG) market was a core task of its initial mandate, as it ensured that extracted petroleum reached Point Lisas, our country’s largest industrial complex and second-largest port. This connection has been instrumental in the development of the petrochemicals sector in recent decades. The state has maintained the importance of its role in the hydrocarbons value chain, and NGC is considered a valuable asset for its expertise in gas balancing and the commercial intricacies of natural gas contracting. However, given the fundamental shifts affecting the global industry, the current challenge for the government and private firms is to fairly remunerate NGC and all other market participants in proportion to the risks that their respective operations entail, especially in consideration of rising upstream costs and softening prices in downstream commodity markets.

How would a structural transformation in gas use divert some production efforts from LNG to more profitable downstream operations?

PEMBERTON: Poten & Partners’ 2018 report concluded that petrochemical operations deliver higher
value in-country, which is a primary reason for DeNovo’s focus on supplying gas for the downstream market. We are aware that the government is seeking to get a better handle on the benefits attained throughout the value chain, and any new framework should remain flexible to account for the dynamic nature of the entire process of natural gas production and utilisation. Additionally, any recommended changes should not structurally favour or penalise any of the sector’s players. Such parity is essential to assuring the overall competitiveness of the local energy industry. Lastly, the approach should emphasise the sanctity of private contracts entered into by local or international investors alike. This has been one of the central legal pillars that has encouraged significant foreign investment in Trinidad and Tobago’s energy industry over the past century.

What effect has the new tax on gas royalties had on the hydrocarbons market?

PEMBERTON: The imposition of any new tax will always have adverse ramifications for business. The motivations are understandable, as public spending priorities present a significant challenge, and the state is trying to balance the country’s short-term fiscal needs with long-term health and the sustainable growth of the hydrocarbons industry. Any changes in the tax structure should be addressed while recognising the global nature of the industry and the need to remain competitive, and should be considered in consultation with all stakeholders.

Looking forward, what is the long-term policy outlook for T&T’s upstream sector?

PEMBERTON: Businesses thrive in clear and stable policy environments, and this common good can best be achieved through collaboration with the industry’s stakeholders. The recommendations outlined in the Gas Master Plan reflect a robust long-term vision that now needs to be clearly articulated by government policy. This will allow upstream players to make more detailed planning and investment decisions, especially considering that all of the industry’s capital investments come from international sources. To be effective, policy must find a balance in distributing gains between the accrual of sector revenues to the government, which acts on behalf of the people of Trinidad and Tobago, and the returns to the businesses that develop, produce and provide opportunities for the local population and the global export market alike.