Energy analyst: NGC poised for success

ENERGY consultant Gregory McGuire says a reported loss of $1.3 billion by the National Gas Company (NGC) last year must not be taken out of context, because NGC is positioning itself for continued success in a dynamic industry.

In a statement on December 17, McGuire reflected on NGC's performance for the third quarter of the 2023/2024 financial year.

"Although the $1.3 billion loss reported for 2023 has garnered significant attention, it is important to consider the overall context, and the substantial progress achieved in the first three quarters of 2024."

McGuire attributed the loss to two factors – asset goodwill impairment and a decrease in commodity prices.

The former, he said, happens when the value of goodwill on the balance sheet exceeds its fair value, indicating that the acquired business is no longer expected to generate future cash flows as initially anticipated.

"This adjustment can arise from various factors, including changes in market conditions, increased competition, regulatory shifts or overall economic downturns."

He added that no company is immune from this, citing Amazon, Apple and Microsoft as examples.

On the latter, McGuire said, "When goodwill is impaired, the company must write down the excess value, leading to a non-cash charge on the income statement.

"This reduces the overall value of the company's assets and affects net income, often leading to reported losses, as observed in NGC's 2023 financial performance.

"NGC’s goodwill impairment, valued at $1.8 billion, is related to two investments: the acquisition of Conoco’s shares in PPGPL (Phoenix Park Gas Processors Ltd) and its investment in Caribbean Gas Chemicals Ltd."

He added both of these investments were made in 2012, when the UNC-led People's Partnership coalition was in government.

PPGPL, McGuire said, remains a company distinguished by its history of innovation, continuous process improvement and commitment to safe operations, while substantially contributing to the generation of foreign exchange.

"Its recent performance," he explained, "has been adversely affected by the fall in gas supply from which its products are extracted."

McGuire was confident the company's operations should return to near full capacity when the supply situation improves.

"On the other hand, CGCL was initially envisioned as a full-fledged petrochemical complex producing methanol and its downstream derivative dimethyl ether (DME), a clean substitute for diesel fuel in compression engines."

"Thus far, the DME vision has yet to be realised, and it seems unlikely to happen shortly."

The NGC Group's revenues, he said, were also affected by the energy and commodity price shock after the 2022 price spike induced by the Russia-Ukraine conflict.

"Ammonia and methanol prices dropped by 58 per cent and 16 per cent respectively, while netback prices from LNG and NGL sales also fell significantly.

"Gas sales to the petrochemical sector made up over 60 per cent of the company’s total sales in 2023."

NGC's gas-pricing formula, he said, generates significant surpluses during periods of high prices, but is vulnerable to market downturns.

However, "Historically, NGC has shown resilience and adaptability in its recovery efforts and strategic initiatives as markets adjust."

Against this background, McGuire said the rebound highlighted in the group's financial statements for the nine months ending September 2024 is not unexpected.

He added the statements "highlight NGC's strong cash position, which ensures continued investment and growth.

"(NGC) Group profit as of September 2024 was $500 million, an improvement of $1.8 billion from the loss of 2023."