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Friday 13 December 2019
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Commentary

Point Lisas model under threat

ADAM RAFFOUL

Guest column

The recent announcement by Yara Trinidad that it would be closing one of its three ammonia plants by year end is a cause for great national concern. This is the fifth major industrial plant to shut down in recent time. 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.

Since the 1970s, with the conceptualization of the Point Lisas Industrial Estate, we decided to use our energy resources as an input, to make value added products for export. This made us one of the largest exporters of methanol and ammonia in the world.

It is important to delve into 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 but in order to keep up energy production, we now have to drill in more risky deep waters.

While our natural 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, natural gas production has been below what is needed for our industrial plants to run at full capacity.

The magic figure is in and around 4.2 billion cubic feet per day, to ensure that each plant can satisfy its natural gas inputs to maximize production, and in turn maximize profits. To help solve this problem, the Kamla Persad-Bissessar administration implemented a host of fiscal incentives to our energy producers in a bid to attract investment, and in turn increase production.

This led to a host of investment decisions, inclusive of bpTT’s Juniper and Angelin projects, which we are now reaping the benefits. When the Rowley administration took office in 2015, TT's financial situation had changed and the 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, as they now have to increasingly drill in deep waters, which is more costly, government negotiated higher gas purchase prices to make investments in TT attractive vis-à-vis other global locations. Currently, NGC serves as the aggregator, buying gas from upstream energy producers and selling to the downstream Point Lisas industrial plants.

NGC has had to cut profit margins and raise natural gas prices to our ammonia and methanol plants. Combined with natural gas shortfalls, which caused the industrial plants to run below capacity, and lower commodity prices of ammonia and methanol, we are now seeing our model coming under threat.

Increasingly, these multinational companies are making business decisions to close, what they see, as non-financially viable plants. With the above said, I want to propose to our energy policy-makers that NGC needs a new business model. One day in the medium term, NGC may have to relinquish its role as an aggregator or keep it but cut margins to near zero, to ensure global competitiveness of the Point Lisas Industrial Estate.

I would like to see NGC supplement their income by increasing 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.

In the medium term, I would like to see NGC not only expanding into technical and consultancy services with new producers such as Ghana and Mozambique, but also with the acquisition of natural gas fields there. On government’s holdings in Methanol Holdings International Limited, the Oman-based methanol company, I would like to see government maintain ownership, with a new energized NGC, playing a management or advisory role.

As we enter the silly season of local government elections, I ask the public to hold our policy makers and politicians accountable. There is no Team Red or Team Yellow when it comes to job losses and our economic lifeblood, the Point Lisas Industrial Estate. There is only Team Trinidad and Tobago.

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