The petrochemical sector has been a life jacket for the T&T economy admitted Finance Minister Colm Imbert as he presented the mid-year budget review last Monday.
Imbert told the Lower House that the increase in government revenue for the first six months of the fiscal year was due to higher than anticipated receipts of taxes upon incomes and profits of $3.2 billion.
“If we drill into the figures what we find is that the good performance on taxes on incomes and profits was due to higher than projected receipts collected from other companies and that category includes the petrochemical companies which are proving to be a significant, let’s call it a life jacket for T&T, due to the considerably increased prices of petrochemicals,” Imbert said.
He added, “For those of us who monitor these things one would see that the prices of petrochemicals, ammonia, methanol, urea, etc have doubled, tripled and quadrupled over the last couple years and the taxes from the petchem companies is a direct correlation with the prices of the end product, the petrochemicals, the methanol and so on. So we have had a significant boost from the petchem sector.”
US ammonia prices increased from US $487 per tonne in 2020 to US $746 per tonne in 2021, increasing US $259 per tonne, or a 53 per cent increase. The last time the anhydrous ammonia price was above $746 per tonne was in June 2014.
The price for ammonia in the US market is now over US $1,400 a tonne.
One week ago prices were US$1,425 per tonne and has been at that level since the start of May.
The story is not as stellar with methanol but still the prices are extremely strong, all good news for the country and the Minister of Finance.
According to one of the world’s largest methanol producer Methanex, its North American methanol prices have moved from US $276 in September 2020 to US $639 per tonne as of May 1, 2022.
Imbert’s revelations of the petrochemical sector as being a life raft are in keeping with the argument that were contained in the Poten and Partners Natural Gas master plan which advised government that the country earns more per molecule of natural gas from the petrochemical sector than it does from LNG.
Therefore, according to Poten and Partners, priority for natural gas should go to the downstream sector and not LNG.
The government taxes the petrochemical sector at 35 per cent corporation taxes, higher than the 30 per cent it charges other companies, and it is the same as what the banks pay.
Unlike the banks, however, the petrochemical companies also pay their taxes on profits to the government in US dollars, significantly helping government with much needed foreign exchange and the general small open economy with the hard currency needed to remain sustainable.
Further with the exception of the Caribbean Gas Chemicals Methanol Plant the petrochemical sector is mature and, therefore, not enjoying tax holidays.
High petrochemical prices also helps government by getting higher taxes at the well head from the natural gas producers as some of the well head prices are indexed to petrochemical prices.
It also helps the NGC by increasing its profits, leading to higher government taxes on profits and larger dividend payments.
While no one expect these extraordinary prices to remain so in the long term, the CEO of Methanex John Floren is predicting continued strong prices for methanol for the next two quarters or for the rest of T&T’s financial year.
Floren was asked during an earnings call in Canada what is the real value of methanol at the moment and said, “I think there are a number we always watch one is the MTO (methanol to olefin) that’s the one on the affordability curve, the one that gets impacted first.
“In the high-priced energy environment that we are seeing today, that is also very good for olefin prices because they are obviously paying more for naphtha today than they would have been this time last year, so that slipped into the cost curve nicely, so the MTO producers are running like 95 per cent today so unless you saw a huge correction in olefin prices then that would mean energy prices falling quite a lot from where they are today I think we are going to be fine on the demand side.”
He acknowledged that there is a lot of negative sentiment in the market with the current lockdown in China and the inflationary pressure but said when Methanex looks at its supply/demand balance it feels demand is holding up.
“MTOs are running well, high energy prices make the other energy applications very, very attractive for methanol, so we expect demand to continue to grow and we are watching it very closely and we have visibility throughout the globe…and we are not seeing any impact on demand.”
He said there are likely to be a number of planned outages and pointed to the fact that there was already a plant in T&T that is down. He noted this will lead to a continued favourable supply/demand balance for Methanex.
Prices have been beyond the cost curve and part of that is due to constrained global Methanex supply.
Floren told the earnings call that Methanex saw the restart of its idled plant in Trinidad as one area of growth in production for the company and was hopeful that it could be restarted.
Methanex CEO said the company wanted to ensure it would get gas at a price that it can sustain throughout the cycle and was in discussions with the government to finally restart operations.
Floren revealed that the government has told Methanex that it wanted to see all of the downstream production and was hopeful that it could get a gas deal once negotiations were concluded between the National Gas Company and the upstream suppliers.
He said, “Our focus will be on getting our idle plants in New Zealand and Trinidad restarted. So that will be our growth because they are idle today....Right now the upstream and the government are negotiating, their contracts are coming up this year and you know until that negotiation gets finalised I would say it is unlikely that Titan will secure a gas contract to allow that to restart, but those contracts will be negotiated this year and the government has told us they want to keep all the downstream alive and they just need to have their contracts negotiated with the upstream and that is ongoing.
“We are continuing to dialogue with the government and the task is to get gas at an economic price that allows us to operate Titan through the cycle and that’s what we are focused on.”