March 09, 2017

The decision by Methanol Holdings Trinidad Ltd (MHTL) to close two of its methanol plants at the Point Lisas Industrial Estate has confirmed what many in the energy sector have known for some time—that the T&T natural gas sector is in trouble and, by extension, the country’s economy.

What is clear now from investigations is that things will not improve this year nor will it in 2018 and after 2019 there is real risk it could get worse.

 At issue is the fact that the country simply does not have the necessary natural gas required to meet the demand of LNG export, the petrochemical sector and electricity generation and, unless more gas is produced or can be imported from Venezuela, there will be hardship.

A study into the T&T gas economy by Rystad Energy—an energy sector consultancy commissioned by the Energy Chamber—showed that gas production in T&T has dropped from 4.2 billion cubic feet per day (bcf/d) in 2013, to 3.3 bcf/d in 2016.

Rystad estimates that the decline of already producing fields will be 14 per cent per annum over the period 2016-2030.

While there are some new gas supply projects due to come on stream over the next year—such as Juniper, Sercan and TROC—these will only serve to stabilise production in the 3.3 bcf/d range, rather than increase production to meet the installed demand of over 4 bcf/d.

Juniper, bpTT’s offshore platform, is due to be installed and operational by November this year, adding production capacity of approximately 590 million standard cubic feet a day (mmscfd), which will flow through the Mahogany B offshore hub.

Sercan is a natural gas field in the East Manzanilla Joint Venture Development Block, off Trinidad’s northeast coast, that is a joint venture between bpTT and EOG Resources. That field is expected to generate 275 mmscfd of gas when it goes into production later this year. EOG Resources is the operator for the development.

TROC, the Trinidad Onshore Compression project, is aimed at increasing production from low-pressure wells in bpTT’s existing acreage in the Columbus Basin in order to provide the Atlantic LNG complex of four liquefaction trains at Point Fortin with additional gas.

When it comes on stream next month, the TROC project has the potential to deliver approximately 200 million standard cubic feet of gas per day in 2017.

Put together, these three project should generate, in theory, over one billion mmscfd of “new” natural gas, which should take the country’s current natural gas production from 3.2 bcf/d to 4.2 bcf/d.

The fact that NGC and bpTT sources have insisted that the three developments will not increase T&T’s gas output is a function of the decline in production from some of the country’s existing, mature natural gas fields.

Rystad Energy found that should new gas delivery projects not be sanctioned for investment immediately, the country faces the prospect of further decreases in gas production after 2019.

That supposition places huge pressure on the government to provide bpTT with the official sanction for its Angelin project by end of this month.

The energy giant has repeatedly said that it needed sanction for Angelin by the fourth quarter of last year, in order to guarantee that the natural gas from that field could begin flowing by mid-2019, when Juniper’s output is expected to start declining.

The prospect of the gas curtailment problem worsening in two years also puts pressure on Port-of-Spain to fast track its negotiations with the Nicholas Maduro administration in Venezuela for the development of the Dragon field off Trinidad’s northwest coast.

Highly placed sources at the NGC confirmed to the Business Guardian that the reality is even with the addition of all the projects this year, the country will still have a shortfall of close to 700 million standard cubic feet per day. This means that while the decline will be arrested, the shortfall will continue.

Methanol Holdings on Monday officially announced that it will be mothballing two of its methanol plants in Trinidad as a result of the ongoing natural gas curtailment, confirming a Sunday Guardian exclusive.

The announcement came in the midst of protracted negotiations between the world’s second largest methanol producer and the National Gas Company T&T Ltd.

 In a response to questions from the Business Guardian, MHTL said the closure would reduce its production by 25 per cent or 1.03 million tonnes per annum.

Finding Solutions in future energy negotiations

To put this in context, that is roughly the total production of the world’s third largest methanol producer. The company has complained that even after exhaustive negotiations with the NGC to supply enough gas to operate its five methanol plants and exploring possible alternative supply options, it has no choice but to shut down the two plants.

 According to MHTL, the gas required to run the two plants at full rates is about 108,000 mmBtu/d. It has since offered voluntary separation packages to 100 workers.

Sources close to the negotiations told the Business Guardian that there are a number of issues plaguing the negotiations including the inability of the NGC and MHTL to settle on a price with the NGC demanding a price per mmbtu that is 50 per cent higher than MHTL is prepared to pay.

In addition, the NGC has said that MHTL has been operating without gas contracts for three of its plants with one expired since 2013 and two in 2015. The NGC has in the circumstances been offering gas to those plants without a contract only after it has supplied its other contracted customers, including MHTL’s main competitor Methanex.

MHTL has, however, left the door open to possibly restarting the plant but, according to the company, only if “a commercially viable agreement is reached with NGC.” But this is not the whole story.

The problems faced today can be thrown back in part on the catastrophic failure of the former PNM government and its then Minister of Energy Conrad Enill who, between 2007 and 2010, headed the ministry and who attempted to negotiate an increase in the government’s tax take from the energy sector.

This action, would have made T&T’s natural gas sector uncompetitive due to its tough fiscal terms and had a chilling impact on investment in T&T’s upstream gas sector.

The Patrick Manning-led administration’s attempt to extract more rent from the country’s depleting natural gas resources had a cascading effect with a failed bid round and virtually an end to exploration for almost five years. No investment in new exploration means no new gas.

For T&T, that has meant declining reserves and declining production, which has resulted in today’s gas curtailment woes.

In addition, the UNC came into power and spend four years pretending that the problem would go away and claiming it was a simple matter of bpTT doing maintenance work which was leading to the shortfall. In a report in the Business Guardian on March 8, 2012, former Energy Minister Kevin Ramnarine either misdiagnosed the problem or was just simply uninformed about the cause for the gas shortage and the extent of the problem when he put the blame for the reduced production squarely on the shoulders of bpTT who, he said, was the “main driver of the shortfall” owing to its ongoing maintenance work.

Ramnarine said bpTT’s maintenance work was driven by the fatal accident in the Gulf of Mexico, in which the Macondo blow out led to a global safety programme in which the BP Group is seeking to prevent any similar accident happening in its operating areas.

This line continued until the end of 2014 when, in a Business Guardian interview, bpTT’s regional President Norman Christie denied that BP was solely to blame for the declining gas production and the gas curtailments.

Further, little has been said of the spectacular failure of BG, now Shell, in its Starfish project and the reality that a big part of the problem has been Shell’s failure to produce the gas they once did.

According to figures from the Ministry of Energy BG’s natural gas production averaged 695mmscf/d. This is down from 1.2 billion in 2010. That is 500mmscf/d less at a time when overall production averaged 3.327 bcf/d or about 900mmscf/d short.

Sources at the NGC point out that they are taking a portfolio approach by working with all the players to try and find gas for 2019 and beyond and to also increase production.

The strategy includes gas from Venezuela, more gas from BPTT with the Angelin field, gas from BHP deep water, Starfish resuscitation in 2018 and more exploration. The strategy will require the country getting it right in its negotiations with the energy giants and, to a certain extent, getting lucky.

So, even if prices go higher in the next two to three years, the country is unlikely to reap the reward because of low production. Further, MHTL may have pulled the plug on two of its plants but the headache will continue, especially with the coming on stream of the Mitsubishi/Neal and Massy plant in 2019, which will add gas demand to a situation of a deficit.