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Reduced gas supply led to methanol plant closures

Published: 
Thursday, March 16, 2017

Negotiations between state-owned National Gas Company (NGC) and the world’s second largest methanol producer, foreign-owned Methanol Holdings Trinidad Ltd (MHTL), broke down earlier this year because the two parties could not reach agreement on the volume of natural gas the NGC was prepared to provide to MHTL and not because of a large difference on the price of the gas, sources on both sides told the Business Guardian.

Sources close to the negotiations explained that the issue of price is “basically settled” but it was a matter of how much gas NGC was prepared to deliver to MHTL.

MHTL—which operates five methanol plants on the Point Lisas Industrial Estate—was forced to mothball two plants at the beginning of March, jeopardising the jobs of about 100 workers, because it was not receiving enough gas from the NGC to continue operating them.

In a response to questions from the Business Guardian, MHTL said the closure of the two plants would reduce its production by 25 per cent or 1.03 million tonnes per annum. At current methanol prices, one million tonnes of the commodity would generate revenues of about US$500 million.

Four of the five methanol plants that are owned by MHTL but operated by its sister company Industrial Plant Services Ltd (IPSL) are currently out of contract for the supply of natural gas.

The company has complained that even after exhaustive negotiations with the NGC to supply enough gas and after exploring possible alternative supply options, it had no choice but to shut down the two plants.

The negotiations have been ongoing for almost two years and, according to those close to MHTL, the company requires 215 million standard cubic feet per day (mmscf/d) to run its three plants that are now out of contract.

The Business Guardian was told that while those four plants require 215 mmscf/d of natural gas MHTL to operate at their nameplate capacity, for some months between 2015 and 2016, NGC delivered 172 mmscf/d of natural gas to the plants on a month-by-month contract, reflecting a 20 per cent gas curtailment.

Last year, NGC offered to deliver between 115 mmscf/d and 130 mmscf/d to MHTL, which would have allowed the four plants to operate if one was taken down for maintenance on a rolling basis.

MHTL sources told the Business Guardian that in November last year the NGC was only prepared to offer MHTL 45 mmscf/d. In offering MHTL only enough natural gas for one methanol plant, NGC—which is a 100 per cent state-owned company—cited the fact that it was obliged to give preference in the supply of natural gas to companies that had contracts with the NGC.

The Business Guardian emailed NGC representatives a list of questions seeking to elicit comments from the company on the MHTL claim that its gas supply had effectively been curtailed to 45 mmscf/d.

NGC declined to respond to the questions, citing the sensitivity of the negotiations between NGC and MHTL and the connection between those negotiations and others NGC is having at this time.

“If NGC is, in fact, discriminating against MHTL, there will likely be far-reaching consequences for T&T in relation to our obligations under a multitude of international investment treaties,” said former Attorney General John Jeremie in a comment on the situation between NGC and MHTL.

Jeremie made it clear that he does “not have a horse in this race,” but that he took an interest in international investment treaties when he was AG and he continues to take an interest in the area now that he is a senior lecturer and deputy Dean of Outreach at the UWI St Augustine Faculty of Law.

“We have repeatedly stated that if NGC simply agrees to treat us equitably and subject us to the same curtailments as everyone else, MHTL will take the risk on the gas supply improving and the 100 workers do not have to lose their jobs.

“MHTL has made this proposal to NGC repeatedly and they have refused,” a source close to the company said.

MHTL is seeking a long-term contract with NGC that provides some level of security in terms of gas supply, even within the constraints of the current gas curtailment that is affecting all of the petrochemical operators on the Point Lisas Industrial Estate.

One of the options MHTL’s owners—the Düsseldorf Germany-registered engineering, procurement and construction firm Proman—is pursuing is the development of its own source of natural gas, which would make them less dependent on the NGC.

Proman owns 80 per cent of DeNovo Energy, which has received a licence to drill for natural gas in Block 1A, which is expected to produce about 80 mmmscf of natural gas by the first quarter of next year, exclusively to provide MHTL with gas.

With a dedicated supply of natural gas from DeNovo, the four MHTL plants that are now out of contract will only need 135 million mmscf of natural gas from the NGC gas grid.

Sources close to the negotiations say the NGC is very concerned about the signal that any approval for a direct sale from the upstream to the downstream will send to other suppliers.

For years there has been dispute between people in the energy sector over the role of the NGC as aggregator and whether it is in the best interest of the country.

MHTL has argued that NGC has failed to provide it with contracted gas and, more than that, it is not prepared to contract volumes required. The company believes it should have a right to get the gas directly from an upstream supplier.

The NGC has insisted it can only contract gas that it has and, as aggregator, its role is to ensure all parties has as much gas as possible and leaving it to a totally free market situation will be deleterious to the very downstream sector and will hurt the country’s economy.

In the absence of the Gas Master Plan it’s difficult to see how this will be resolved.

Meanwhile, a well-placed government source said the current administration has not approved any plan by DeNovo Energy to supply Methanol Holdings Company Ltd with 80 million standard cubic feet of natural gas from first quarter next year. This is believed to be one of the major issue leading to a standoff between MHTL and the National Gas Company Ltd.

The Business Guardian has been reliably informed that the Government has told the German company Proman—the major shareholder in both DeNovo and MHTL—that under the production sharing contract for Block 1A it has to get approval from the Ministry of Energy and Energy Industries for any marketing plan for the natural gas.

Further, Proman has been told that the 90mmscf/d that it expects to produce from its Iguana, Zandolie and Anole fields, and a fourth prospect named Whiptail—which are all prospective developments in Block 1A—includes the minister’s share of gas which the minister wants to go into the national grid for distribution by the NGC.

The Business Guardian has further learnt that the government has suggested that rather than build a dedicated pipeline from the field in the Gulf of Paria to MHTL plant, that the company use the NGC’s existing infrastructure.

“We have said to them they should use the NGC pipeline because if they don’t under the cost recovery available in the PSC, taxpayers will be paying for this unnecessary additional infrastructure,” the high-level government source said.

Natural gas use by sector in 2016 (MMSCF/D) Ammonia 547 17.6% 546 14.2% Methanol 456 14.7% 543 14.08% Power Generation 271 8.7% 304 7.9% Refinery 75 2.4% 69 1.8% Iron and Steel 42 1.35% 106 2.75% Gas processing 24 0.77% 28 0.73% Ammonia derivatives 19 0.61% 21 0.54% Small consumers 8 0.26% 11 0.29% TOTAL 3104 3,854