New plans offer more opportunities for domestic processing in Trinidad and Tobago

Gas production and processing has grown in importance in recent years and is now undisputedly at the centre of Trinidad and Tobago’s economy, accounting for almost 90% of the energy sector. Key upstream gas producers include BP T&T (BPTT), BG Group and EOG Resources Trinidad.

The state-owned National Gas Company (NGC) operates in the midstream sector as the sole buyer and seller of gas. It buys from the upstream and distributes to the downstream. The proportion that is not exported as liquefied natural gas (LNG) is sold to the local petrochemicals sector, power generators and other consumers. Most gas production (57%) is exported in the form of LNG, with the rest used in the local petrochemicals industry (28%), electricity generation (8%) and other sectors (7%).

Key Midstream Players

Although primarily a midstream operator, NGC seeks to integrate its operations at various points throughout the value chain. It has a share in upstream production blocks and a 90% stake in Phoenix Park Gas Processors Limited (PPGPL), which produces propane, butane and other natural gas liquids (NGLs). In 2013 NGC bought a 39% stake in PPGPL from the US company ConocoPhillips, taking its controlling stake in the company up to 90%. However, the government intends to float half of the Conoco Phillips stake (19.5%) through an initial public offering in 2015.

PPGPL is one of the largest natural gas processing facilities in the Western Hemisphere and is the primary supplier of NGLs across the Caribbean region. Typically, its output and cargo sizes match the needs of small markets such as Barbados, which might need a shipment of 20,000 barrels of NGLs, not the 200,000-barrel shipments that a supplier like Venezuela might want to offer. PPGPL supplies roughly 45% of the Caribbean market for propane and butane, while it markets most of its natural gasoline to Colombia. As in a number of other gas producers, the firm is monitoring the shale revolution in the US. Dominic Rampersad, acting president at PPGPL, told OBG, “The main exogenous challenge to the mid- and downstream industry comes from the ongoing shale revolution and the potential depressive effect on prices, especially for ethane and propane.”

Maintaining Profits

NGC’s profitability largely depends on the margins between the prices at which it buys natural gas and the prices at which it, or its downstream partners, sell gas or gas products. These are normally indexed to a variety of indicators such as US Henry Hub, international LNG, methanol and ammonia prices. Anand Ragbir, the CFO of NGC, told OBG that the company has had to manage bouts of market volatility. In the early 2000s, methanol prices slumped to around $100 per tonne, compared to $350 per tonne in early 2015. The fall in hydrocarbons prices in 2014 and early 2015 has also posed challenges. While NGC sought to maintain its profitability, Ragbir told OBG, “We need to make some adjustments to the balance of risks and rewards. In the current situation the upstream is asking us to pay higher prices and the downstream is asking us to charge them lower prices.”

Atlantic Dominates

Atlantic, formerly known as Atlantic LNG, plays a central role as the local company that liquefies natural gas and sells it to international markets. Since commencing commercial operations with Train 1 in 1999, Atlantic has quintupled its capacity with $1.2bn worth of investment and now has four liquefaction trains at Point Fortin, with a combined capacity of nearly 15m tonnes per annum (tpa). The firm is a consortium with partners including BG Group, BP, Shell, NGC and the China Investment Corporation, each holding stakes in the four trains. While the government has considered potential investment in a fifth and a sixth train, reduced US import demand and weak hydrocarbons prices seem to have put those plans on hold for now.

The bulk of T&T’s LNG sales initially went to the US, but the domestic US shale gas boom has been steadily reducing US LNG import needs. In fact, the US is expected to become a net LNG exporter within the next decade. But Atlantic and government officials remain confident of the country’s ability to diversify sales to other markets, including South America. The expansion of the Panama Canal in 2016 is also seen as opening up further opportunities for trade with Asian LNG markets, where prices tend to be at a premium above US Henry Hub. It is expected, for example, that LNG tankers sailing between Trinidad and Japan via the expanded Panama Canal will be able to reduce travel time by around 30%.

In 2013 T&T exported 32.37m cu metres of LNG, according to the government’s 2015 “Trinidad and Tobago Energy Map”. Of this total 43.6% was shipped to Latin America, mainly Argentina, Brazil and Chile; 15.1% went to Europe; 13.7% went to the US and Mexico; 9.5% went to Asia, mainly China, Japan, South Korea, Taiwan and Singapore; 8.2% went to Puerto Rico; and 6.1% went to the Dominican Republic.

Domestic Gas

Apart from direct overseas LNG sales, the government has an interest in promoting the development of domestic gas processing and industrial use, particularly in areas where T&T can add value in the production chain.

A number of companies are active in this important sector. Yara Trinidad operates three ammonia plants, two of which are owned by Tringen, a joint venture between Yara and the government dating back to 1974. The facility has a total production capacity of 1.3m tpa. Ammonia is often used in fertiliser production. Methanol Holdings (Trinidad) Limited (MHTL) uses natural gas as its main feedstock to produce methanol. It has five plants producing 4m tpa, as well as an ammonia plant, which is part of its AUM complex. Methanol’s main uses are as a feedstock for the production of other chemicals used in the manufacture of plastics, plywood, paints, explosives and textiles, among other things. It is used as a fuel and in fuel blends. Additionally, at its AUM complex, MHTL produces urea ammonium nitrate (a fertiliser) and melamine (used in resins, laminates and adhesives). Canadian-owned Methanex produces methanol at two plants in T&T. It has a 63.1% stake in the 1.7m-tpa Atlas plant and a 100% stake in the 900,000-tpa Titan plant, both located at Point Lisas.

Mitsubishi DME Plans

Under an agreement signed with the Ministry of Energy and Energy Affairs (MEEA) in 2013, Japan’s Mitsubishi has been leading a consortium along with partners Massy Holdings and NGC to build a $987m methanol-to-dimethyl ether (DME) petrochemicals plant at Union Estate Industrial Park in La Brea. DME is used as a propellant in aerosols, but is of interest as an alternative fuel blend for diesel and petrol, and as a substitute for propane used in liquefied petroleum gas.

Gas & Power for Steel

As far as industrial use of gas is concerned, the authorities have been promoting T&T as an attractive location for energy-intensive industries, whether that means using gas directly or using electricity generated by gas-burning power stations. One example of this is the ArcelorMittal iron and steel complex in Point Lisas. It is the largest steel mill in the Caribbean and the largest non-oil industrial complex in Trinidad. It imports iron ore principally from Canada and Brazil, using natural gas (at a 1.3m-tpa DRI Midrex and a 1.4m-tpa DRI Midrex Megamod plant) and electricity (primarily in two 120-tonne electric arc furnaces with 1m tpa of liquid steel capacity) to produce high-quality, direct-reduced iron, steel billets and medium- to high-quality steel rods. Other than the indigenous gas and local workers, virtually all its inputs and outputs arrive and leave the plant by sea, using a wholly owned marine terminal that operates 24 hours.

Robert Bellisle, the president and CEO of ArcelorMittal, noted that the company was first established as a state-owned enterprise by the Trinbagonian government as a way of developing downstream natural gas usage. The company was then leased and finally bought outright by ArcelorMittal. “The key reason we are here is because of the supply of competitive natural gas feedstock,” Bellisle told OBG.

As with other island industries, he said, the local plant can make an attractive profit supplying steel to Caribbean and Central American markets that need small-to-medium-sized shipments, rather than the massive orders a Chinese steel producer might want to supply. “We work closely with the government. T&T is a natural gas economy, so above all we need competitive natural gas prices relative to other Caribbean economies and Central America. Local infrastructure is pretty good compared to other countries in the region,” Bellisle added. “We need to keep our costs competitive. We work closely with the government on improving the skillset of local labour.”

More generally, low gas and energy costs are an important comparative advantage for T&T’s wider manufacturing sector. Officials at the T&T Manufacturers’ Association said low energy costs are a key factor helping a range of local companies maintain a competitive edge in the Caribbean. They also suggest that low energy prices might be the basis for further diversification of the local economy, reducing raw gas exports in favour of more domestic gas processing in areas such as melamine and urea. Ragbir told OBG, “We can talk about diversification into agriculture, tourism and so-on, but the reality is that energy is our core competence, and the heart and soul of the country. We have diversified within the energy sector, and we are looking at what I would call diversification beyond the downstream, towards methanol, DME and plastics.”

Gas Curtailments

One problem that has affected the whole processing industry from the upstream through to the downstream is what are known as gas curtailments, short falls of production relative to demand. Gas supply peaked in 2010, partly because a number of international companies found the fiscal terms offered on production-sharing contracts to be unattractive, resulting in a reduction of exploration and production activity. While the government moved to remedy this in 2013, and upstream supplies are expected to improve, there is a time lag of some years before this will happen. The supply issue was also affected by maintenance work on some plants and by brief electricity shortages in late 2014.

At MHTL, for example, managers noted there have been intermittent shortfalls in gas supplies over the past four years, which have been challenging to manage and led to sub-optimal operating levels. Other downstream processors have made similar comments. Richard de La Bastide, president of Yara Trinidad, told OBG, “Unfortunately, in recent years we have experienced gas supply curtailments of 10-15% on average with peaks of 30%, which have had a negative effect on Trinidad’s competitiveness. The situation would have been worse had it not been for the close cooperation between all industry stakeholders to coordinate and align planned outages to rationalise gas usage.” Kevin Ramnarine, head of the MEEA, has warned that energy curtailments of some kind are likely to last until 2017, when BPTT’s Juniper project is expected to be finished and come on-line.