Regional credit ratings firm Caricris has downgraded the state-owned Natural Gas Company’s regional and national credit ratings, as well as assigned these new ratings a negative outlook.
In a release on Monday, Caricris said it lowered the regional ratings on NGC’s US$400 million debt issue to CariAA (foreign and local currency) and ttAA on the TT national rating scale, from CariAA+ and ttAA+, respectively.
Despite the downgrade, Caricris said the ratings indicated that the company’s creditworthiness regarding this debt obligation was adjudged in relation to other obligations in the Caribbean to be high.
“The downgrade is driven by the higher cost of gas from upstream suppliers and historically low international commodity1 prices, which have resulted in compressed profitability margins, adversely impacted financial performance, and constrained debt service metrics. Moreover, NGC’s pronounced vulnerability to fluctuations in both local and international market conditions have also contributed to its lowered ratings,” the agency said.
The negative outlook was predicated on the uncertainties in the global economic environment together with the changing business model, characterised by rising natural gas supply costs and substantially reduced international energy commodity prices.
“These are likely to have adverse impacts on NGC’s financial performance and debt protection metrics going forward,” Caricris said.
NGC’s creditworthiness continues to reflect the company’s strategic importance to the domestic energy sector and the Government, Caricris said, as well as the stabilisation in gas supply with continued exploration and development activity. It said NGC had low gearing (low ratio of debt versus equity) and good debt protection metrics, though reduced from previous years.
“These rating strengths are tempered by the company’s significantly reduced earnings and profitability due to falling energy commodity prices and its high vulnerability to a changing energy landscape, characterised by compressed margins on account of falling energy prices and higher upstream prices,” Caricris said.
NGC reported its first ever loss late last year: a $316 million half-year loss, down 296 per cent, or $477.3 million, compared to the same period before.
In an interview with Newsday last November, NGC president Mark Loquan said the company was going through “the perfect storm” of low ammonia prices, low methanol, low natural gas liquids (NGL) prices, low liquefied natural gas (LNG) prices – even some volume issues because not all plants are able to run.
The company is the sole supplier of natural gas to the downstream petrochemical industry and has been facing mounting pressure to offer more competitive prices to its customers.
The challenge, however, is that downstream prices are determined by upstream (supplier) costs, which have been increasing. The NGC’s margins in terms of a difference between the two are “very lean.”
Gas supply is also falling, with the average monthly production, according to the Central Bank, dropping from 3.5 billion standard cubic feet in January 2020 to 2.8 billion standard cubic feet in September 2020, the latest available data.
The company has negotiated newer upstream gas supply contracts over the last year, with terms that apparently more equitable for both producers and the NGC, meaning potentially better prices for the downstream.
Last year the company signed gas sales agreements with BHP Billiton for the Ruby field, set to start production this year, and Touchstone, which made a major find in Ortoire last year, estimated at 381 billion standard cubic feet. New developments and production in the pipeline would ideally mean more and a more stable supply of gas to downstream producers.
Since the start of the last decade, there has been a curtailment in gas supply, with several plants at the Point Lisas Industrial Estate operating below capacity; last year at least eight plants announced temporary shutdowns – and just Thursday, Methanex announced an indefinite closure of its Titan ammonia plant. The company said in a release that among the reasons for its decision was the inability to secure a long-term gas contract.
NGC said in a statement on Thursday as supplier of natural gas to the downstream sector, it “has been assiduously negotiating contract terms with both upstream suppliers and downstream consumers that would maximise the returns for all parties under present circumstances. The protraction of these negotiations is indicative of the considerable effort being made to arrive at mutually agreeable terms for all contract stakeholders, during a time of extraordinary challenge.”