The Energy Chamber fully supports the privatization of the Pointe-a-Pierre refinery to put the asset to productive use. Significant capital investment is needed to bring the assets of the refinery back into productive and profitable use. This investment will need to be very carefully deployed and managed and there is significant risk involved. For this reason, the Energy Chamber is clear that no further Trinidad & Tobago tax-payers funds should go into this investment and that the capital must come from the private-sector. Given the size of the needed investment, the capital will likely be from an international investor, though local private-sector involvement would also be welcome.
The global refining business has been very challenged over 2020, with efforts to contain the global pandemic leading to sharp declines in demand for transport fuels such as gasoline, diesel and especially jet fuel. The key metric for refineries is the refining margin; namely the difference between the price that a refinery can buy crude oil and the selling price of its products. Refining margins have been depressed during the pandemic, meaning that refiners have had to be extremely efficient in the operations and their capital expenditure just to stay in business.
This short-term challenge created by COVID-19 comes on-top of the longer-term challenge of climate change and the sustained efforts to decarbonize the global economy. Many countries have announced plans to phase-out internal combustion engine vehicles over the coming decade, leading most analysts to conclude that demand for traditional transport fuels will decline. While this transition will take many years, a long-term decline in demand will obviously lead to depressed prices probably forever.
Notwithstanding these long-term trends, opportunities for refineries do still exist. The marine and aviation transport sectors are both difficult to decarbonize and there will likely be demand for fossil fuels in those sectors for many years.
Trinidad’s strategic location and the sheltered Gulf of Paria make this an excellent location for marine bunkering operations. This is especially the case if the bunkering operations could also cater for lower carbon fuels, such as LNG, ammonia and methanol, which are all available in the country and seen as important fuels to lower the carbon intensity of marine transport. The availability of clean diesel from the Niquan Gas to Liquids plant, due to begin production imminently, could also be a significant factor in making diesel available that meets higher international marine transport standards.
We are sure that the strategic opportunities in these areas will have already featured in any private-sector company’s assessment of the feasibility of the investment into Point a Pierre. Running a refinery or even just a fuel bunkering operation will require extremely efficient operations and excellent knowledge of the markets. In a low margin business, high levels of efficiency are key to profitability.
The role of the Government is to create the environment in which the much needed private-sector capital and know-how can be attracted, not to invest in the facilities directly. The Energy Chamber hopes that the Government, Patriotic Energies and Technologies Ltd and their international partners will be able to successfully conclude negotiations expeditiously and move ahead with restarting the refinery. If they are unable to come to an agreement, then the process must move on quickly and other potential private investors should be invited to see if they can find a way to use the assets profitably.