The appointment of Minister of Energy and Energy Affairs Carolyn Seepersad-Bachan as alternate President of the Gas Exporting Countries Forum (GECF) provides new opportunities with regard understanding and modeling the behaviour of regional and global gas markets. The GECF is a gathering of the world's leading gas producers aimed at representing and promoting their mutual interests. The group accounts for about 70 per cent of existing natural gas reserves.
Energy underpins our daily lives in every aspect, which is why securing cheap, clean, reliable and sustainable sources of energy has long been a major concern for governments. Thus over the years there has been huge investment in time and money in trying to model energy needs and prices. The Global Gas Market Model is one such example. As a member of the GECF, T&T will have full access to this model as well as the technical expertise of the secretariat team.
Global Gas Market Model
The World Gas Market Model is means of simplifying the complexities of identifying markets and opportunities. The model is a tool for examining the effects of economic and political influences on the global natural gas market within a framework grounded in geological data and economic theory. The key drivers of model includes: level of economic development; the price of natural gas; the price of competing fuels; and population growth. The model seeks an equilibrium in which the sources of supply, the demand sinks and the transportation links connecting them are balanced so that all spatial and temporal arbitrage opportunities are eliminated.
General Gas Pricing Structure
Gas pricing regimes may be classified in four main categories, namely: open market, indexation, netback and cost plus. In an open market regime, market forces of supply and demand determine the price of gas. Under an indexation regime, the price of gas is determined by summing of a base price and an indexation formula derived from a weighted basket of alternate fuel prices. With netback pricing regime, the wellhead value of gas is the residual amount after subtracting from the market value the cost of liquefaction, transportation, storage and regasification. The market value is determined by indexation or market forces. Finally, cost plus regime pricing, as the name suggests, determines the cost of the gas at the wellhead, then adds transportation costs, distribution cost, markup and taxation to arrive at the consumer price.
The Local Gas Market
The National Gas Company (NGC) is the central player in T&T's gas market. Its core business activity is the purchase, transport and sale of natural gas to the local downstream natural gas-based industries (excluding the LNG industry) as illustrated in Figure 1. Gas is produced by the upstream players and is then transmitted through NGC's transmission system. In 2010, LNG accounted for 58 per cent of total gas produced. The price for gas sold to and through Atlantic for producing LNG is determined by a Net back pricing regime based on market prices in the US and Europe (Spain). Hence government revenue (through taxation) is influenced not only by the market price of gas in these areas but also by the share of volume going to each market.
For the remaining 42 per cent of total gas produced in T&T, NGC enjoys a unique monopsony (one buyer) position from the producers and a monopoly (one seller) position to its downstream customers as shown in Figure 1. The pricing of gas for the petrochemical sector which accounts for about 30 per cent of total gas produced is a variation of the indexation regime (product related pricing).
In this variant, NGC shares the market price risks with the petrochemical customer by allowing the gas feedstock price to fluctuate with commodity prices. A base price is set using standard plant operating economics and a formula then triggers increases or decreases in the price of gas to correspond with movement in the price of gas-based commodities i.e. ammonia and methanol. The Government sets the price of natural gas for the power generation and small domestic consumer sectors in keeping with its wider economic and social objectives.
Nation Energy Policy Consultations
A new round of National Energy Policy Consultations is currently in train. The sessions held on last week Tuesday and Wednesday addressed fundamental questions about natural gas extraction, conservation and monetisation as well as gas utilisation and local content. Questions discussed at the consultation covered issues such as: How much gas should we extract? Should government monetise now or later? What is the appropriate utilization mix for gas? Should government seek investment in gas outside of T&T?
Should the Government's role as a facilitator be reviewed? When should data be declassified? Should the Government be involved in gas value added projects? Should the Government be involved in shipping and marketing of LNG? Should there be specific requirements by government for any energy efficiency and carbon emissions reduction activities/initiatives for the gas based industries? How does government local content policy promote development? T&T's membership to the Gas Export Countries Forum allows it access to world gas market modeling tools. Such tools can assist by creating various (what if?) scenarios to give insight into some of the questions asked. In particular, it can be used to identify opportunity windows in selected niches.
The availability of this tool to the Government does not, however, fit well with the current policy cycle. Under these circumstances one of the elements in the proposed policy will need to be a level of flexibility, so that specific policy actions can be shifted as new information becomes available. At this year's Energy Conference, which will be held on February 7 and 8, and in keeping with theme "Energy and Investment," the chamber will have experts present models on attracting energy sector investment.
www.ttenergyconference.org or call 6-ENERGY.