T&T has to be careful that it does not dance to the tune of those in the petrochemical sector who are arguing that this country may be becoming uncompetitive because of the advent of shale gas in the United States. This is the view of energy consultant Tony Paul, who said the question that the petrochemical sector must answer is: What is the floor price they are paying for natural gas and how does that compare to the price of shale gas in the US? Both the presidents of PCS Nitrogen, Ian Welch, and Methanex, Charles Percy, have argued that T&T needs to re-examine the pricing regime for natural gas sold to the petrochemical sector.
Even the Governor of the Central Bank, Ewart Williams, has joined the call by the management of several petrochemical producers for a revision of the Government's natural gas pricing policy to ensure that T&T remains competitive as ammonia and methanol producer. Williams argued that a revision must be done because of the threat posed to T&T by the production of cheap shale gas in the US, which could very soon make the US a net exporter of gas. Williams said: "Shale gas, given the level of technology right now, could be produced at rates that are significantly lower than natural gas in the international economy and much more so than the cost of gas in T&T. Clearly, there is a case for us to revisit the pricing arrangement and a case for taking steps to improve the efficiency in our gas production."
He added, "There is an issue in terms of the structure of our gas industry and the price at which gas is delivered to our petrochemical sector, this against the spectre of declining gas reserves. You're right that much of our revenue depends on the price of natural gas, but the hard fact of the matter is that we need to make sure that we are not now priced out of the market because of something like shale gas and, it is clear that what is happening is that if is anything, prices will continue to decline because of shale gas. Gas prices are likely to decline further as more supply of shale gas comes on board."
PCS Nitrogen's Welch said the threat was real and already PCS is reopening a plant it had closed in the US and was looking at other opportunities.
Speaking with the Business Guardian, Welch said: "My fear is that T&T could become a swing producer which produces when prices are high. Yes, it is true that prices are high at the moment, but this is a cyclical business and those prices will eventually come down. It is then that the price of natural gas will be a major issue, so it is a problem that has to be addressed." Paul said that T&T's pricing regime is very competitive. He said for shale gas to be economically produced, it costs in the vicinity of US$4 per mmcf and that is a lot higher than what the producers pay as a floor price of natural gas in T&T. "This is just another attempt to get concessions from the government and they know that traditionally, the Government is weak on its research and so the use that to their advantage. Shale gas is in a bubble just now, but soon that bubble will burst," said Paul.
Energy Minister Kevin Ramnarine told BG that is if there is to be any repricing, it will have to be on new projects. "The price that we sell gas to the estate is fixed by contract and there is an escalator in there. Regarding the existing plants that is fixed by contract, if we have to consider that at all, it will have to be for new plants coming into the country," the minister said. In an interview with BG following the presentation of the Ryder Scott report, Ramnarine said: "Shale gas has swamped the US and the price of gas in the US is a lot lower than what it was three or four years ago. That has, of course, meant that the US is now competing with us for projects and I have heard of projects that were carded to come to Trinidad that have been relocated to the United States, so that is a concern for us. But having said that, we continue to attract investments into the country."
He said the Government will have to consider the impact of low-cost gas in the US on our ability to attract investments "and may be we need to think differently to attract those investments to T&T." Shale gas refers to natural gas that is trapped within shale formations. Shales are fine-grained sedimentary rocks that can be rich sources of petroleum and natural gas. According to the EIA Annual Energy Outlook 2011, the United States possesses 2,552 trillion cubic feet (tcf) of potential natural gas resources. Natural gas from shale resources, considered uneconomical just a few years ago, accounts for 827 tcf of this resource estimate, more than double the estimate published last year.
ENERGY REPORTER