Lead Editor Business
In an astonishing admission, the chairman of the National Gas Company Conrad Enill has told a radio talk-show programme that the NGC was relying on gas contracted to the downstream petrochemical sector in its effort to restart Train 1 but the market changed and the downstream companies demanded their gas, making its plan inoperable and the quarter billion investment in restarting Train 1 unnecessary.
He also admitted that the reason the Board wanted an indemnity from the government is because it knew that the success or failure of the deal was not in its hands and the Board was effectively putting the success of almost $440 million in hands of the government and the multi-nationals and did not want to take the fall if it failed.
In the interview that was conducted on I95 Enill said, “If you look at what the conditions were at that point in time, the NGC found itself in a situation where most of these downstream companies were not taking the gas allocated to them. So we had a situation where we had gas, we had to pay for gas and the downstreamers were basically saying listen, on the basis of the cost that is available to us, we prefer to shut our plants down, at least for some time. And in those circumstances, we had a situation where the NGC faced a significant amount of losses.”
To understand the issue more closely the NGC has what is called take or pay contracts with the gas producers like bpTT, Royal Dutch Shell, BHP and EOG. This means the NGC has to take the contracted gas and if it can’t, it has to still pay for it. However the NGC sells that gas to the petrochemical companies and traditionally has had no such agreement. This means the NGC has to take the gas it has contracted from the upstream companies and then sell it onto the petrochemical companies, but if they don’t take it, then the NGC is left holding the bag.
Enill went on further to explain what the situation was like in December 2020, “We looked at the situation where we had gas, domestic gas, and yes Curtis is correct, BP wrote us and said to us, listen we have some shortages, we think it is going to be about a month or so, we understood that was normal and we could deal with that. So we were working on the basis that we had gas, and we had no takers. We had planned a Train 1 maintenance of which the NGC would pay some portion because we are part owners in Train 1.”
He added, “Atlantic came to us and said, we need you to make a decision because by January 12th, 2021 if you do not commit to the maintenance on this plant, the next opportunity that you have is in a November of 2021, because immediately, as soon as your plant is maintained, we have to do shut downs on two and then three in the normal course of things......
“We found ourselves in a situation therefore where, NGC took the decision that we are going to support the maintenance of the plant although the others (BPTT, Shell, the Chinese investors) decided that they were not going to so do, because we understood that we had gas that was available for domestic (use) which we were negotiating, which if it had been converted to LNG would have at least given us some revenue. That was in December.
When the plant was finished there was a safety issue and the safety issue had to do with some process issue and they told us that the plant could not be operational. By that time the market had changed significantly and the market had moved in such a way that the gas that would have been available, would have been required by the downstream producers.....
We committed to the downstream producers that once they wanted the gas, the gas would have been available to them. So we moved the gas back into that facility. And the challenge the NGC had with having gas, having to pay for the gas, and having no opportunity for converting it to revenue was resolved. In those circumstances therefore the investment in keeping Train1 operational to use the gas for LNG, was no longer required because thea gas was back into the downstreamers and the company had been restored to the revenue position that it was looking for.”
One must remember that last year several plants were shut down as the impact of Covid19, low international commodity prices and relatively high natural gas prices in T&T meant the petrochemical companies at Pt Lisas could not compete globally and some could not carry the losses, so they shut their plants temporarily.
Further the NGC was in negotiations with downstream petrochemical plants that were seeking new contracts. It meant that at the end of 2020 the NGC had excess gas but appeared not to predict that as the world emerged from lockdowns things would improve and the Point Lisas plants would want their gas. However simply looking at the major business and energy platforms one would have seen from as early as November 2020 there were predictions of a rebound and before the NGC decision to invest quarter billion on Train 1 was made there were already positive signs of improved petrochemical prices.
The NGC Chairman then explained that the company was the only one to invest in the Train 1 Turnaround.
He said, “The issue around Train 1,2 3 and 4, and Curtis is it correct about gas for Train 1, we have not said no, but what we have said is that the government in recognition of that continued to have discussions around the future ownership structure of the Train 1 facility. And to the extent that those discussions are continuing and those discussions are ongoing, there is no decision on what that is going to be, because the issue about no gas going to Train 1 is one issue, but there are other issues around decommissioning, there are other issues around how the facility is going to work, there are contractual issues between all the parties and therefore, those are matters that are ongoing. In the circumstances, NGC also is in the market for selling LNG products.... The decision that we made was always based on government’s approval and negotiations with the parties which we understood.”
In making the decision Enill insisted that it (the Board) was not in control of the outcome and therefore felt it should be absolved if it fails.
“We told the government that because we are not as a Board in control of those decisions that have to be made for this to be successful, should these decisions not go according to our plan we would wish to be indemnified because we do not on this occasion have any influence in those decisions, those are decisions outside of our control, and therefore we think that this is an opportunity for us to use the gas that we have, not to continue at losses.”
He added, “But it is based on that condition, the government and we proceeded. When we did the economics, and Curtis is right, we looked at the additional cost for the year, we looked at the LNG market and the margins that we would have made and the cargoes that we would have contracted on a third party basis, we felt that economically, for the year at least, it made sense, conditions changed, that did not occur and here we are today talking about issues where in some instances some of the information is available, while some is not avaialble.”
He said if the country is successful there should be more gas in two years, and if it does not then decisions will have to be made but noted that unlike oil, natural gas requires processing capabilities and Train 1 provided that opportunity.