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Mottley to take key role in gas negotiations

Thursday, August 24, 2017

Former Finance Minister Wendell Mottley is to lead government’s team to negotiate a new natural gas contract with the owners of Atlantic LNG Train 1.

Atlantic’s gas contract comes to an end in 2018 and the government and Atlantic’s shareholders, BP, Shell, NGC, Summer Soca LNG Liquefaction SA (a subsidiary of the China Investment Corporation), are due to commence negotiation for a new contract.

Cabinet sources said the government’s team will include Mottley, technocrats from the Ministries of Energy and Finance, the office of the Attorney General, the National Gas Company (NGC), and consultants from Poten and Partners.

Poten and Partners is the company that produced the Natural Gas Master Plan in which it raised significant issues with respect to LNG and the way forward.

It said that post-expiry of the existing contracts, any future gas supply should be routed through NGC to provide an efficient route for government to maximise its take from the LNG value chain.

This is likely to be a major sticking point in the negotiations as Shell and BP—the two largest owners of Atlantic LNG Train 1—sell gas directly to Atlantic LNG thereby bypassing the NGC.

A change, as proposed by Poten and Partners, is likely to impact their bottom line although it is may result in more revenue for the NGC and, by extension, the Government.

Poten and Partners said: “Poten’s view is that post-expiry of the existing contracts any future gas supply should be routed through NGC to provide an efficient route for the Government to maximise its take from the LNG value chain.”

It rationalised this by saying such an expanded role would not compromise the ability of the sector to provide more attractive prices to upstream in order to support new developments as NGC would be able to provide LNG-linked pricing to upstream suppliers if this was deemed necessary to support new upstream developments.

It could also provide gas pricing to upstream linked to a basket of LNG, methanol and ammonia prices.

“Rather than maintaining the status quo of direct gas supply contracting between upstream and Atlantic, Poten’s view is that, on expiry of the existing LNG contracts, NGC’s wholesale role should be expanded to include Atlantic, ie for new gas supply to Atlantic. NGC would buy gas from upstream and sell it to or toll it through Atlantic,” the master plan read.

“NGC would also continue this wholesale role for supply to methanol and ammonia. Although this is very much an interventionist approach, Poten’s view is that this approach is likely to maximise government’s overall take from the sector in the future, due to the significant economic rent that is captured by NGC in the midstream and ultimately distributed back to government as a dividend.”

In the Natural Gas Master Plan, Poten and Partners told the government that NGC should:

• Continue to act as the monopoly buyer of gas from upstream, gas transporter and wholesale supplier of gas to the methanol and ammonia industries.

• Expand this role to include gas supply to LNG on expiry of the existing gas supply/LNG sales contracts.

• Be forced to divest its non-core assets, eg upstream production.

• Be forced to automatically dividend back surplus funds to government.

• Provide the necessary analysis and recommendations to government/ministry on future downstream gas allocations, with the government/ministry making any final decisions.

In terms of LNG marketing, Poten’s view is that continuing with the negotiated contracts model is unlikely to provide the best value for T&T.

It urged having a process to ensure “that the best price is realised for sales over the period that is covered by a tender. It is also gaining increasing traction in the LNG business as the number of market players, shipping / regasification availability, and overall liquidity increases. As such, Poten’s view is that this is the route that T&T should follow for future LNG sales to avoid the issues under the existing arrangements.”

It noted that such a tender process can be done via the NGC’s subsidiary TTLNG which has already accumulated substantial experience in short-term LNG sales via its Train 4 offtake.

“It should be relatively straightforward for NGC to utilise this expertise to oversee any future tendering process for sales from Atlantic. Again, there would need to be guidelines in place to manage this, under the ultimate oversight of government/ministry,”the report noted.


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