Peter Drucker, “the Father of Management”, contributed to the philosophical and practical foundation of modern management theory through his writings. His first major consultancy assignment was to analyse General Motors’ management systems, then the largest company in the world.
His findings were presented in a book entitled “The Concept of a Corporation” in which he noted that while GM was very successful, the management model was suited to that time, but it would not be suitable for all time. The same is true for the National Gas Company of T&T (NGC).
T&T natural gas reserves of 11 trillion cubic feet (Tcf) account for 0.15 per cent of the world’s total proven natural gas reserves of 6,923 Tcf. By comparison, the USA’s proven natural gas reserves were estimated at 626.7 Tcf and 2,973 Tcf of technically recoverable dry natural gas (2021 US Energy Administration). Qatar’s Energy Minister Al-Kaabi on February 26 announced the presence of huge additional gas quantities estimated at 240 Tcf, which raised Qatar’s proven gas reserves from 1,760 to 2,000 Tcf. Qatar plans to increase its LNG production to 85 per cent by 2030.
NGC is important because it is at the heart of T&T’s natural gas sector, the aggregator of every molecule of natural gas produced in T&T for sectors other than LNG which is supplied directly by BPTT and Shell. It is the most successful state enterprise and fronts T&T’s interest in LNG and in finding more natural gas in partnership with the multinationals. T&T was an early-stage adapter and a willing, but small partner in the LNG business (ten per cent) in the ’90s when the international trade in LNG was not well developed. The T&T model demonstrated that value could be created, and markets developed. It was also always predicated on creating value from a small resource base. Any international comparison ought to have triggered an understanding that at some time T&T would have needed to diversify its operations, even if exploration expanded the country’s gas reserves.
Low global growth will affect every country but has more troubling implications for T&T as an exporter of hydrocarbon-related products from a declining resource base. Geoeconomic fragmentation complicates any meaningful effort at cooperation with neighbouring countries to expand the natural gas supply. Courting Venezuela risks offending Guyana, and the US when the sanctions exemptions expire. This presumes that Guyana would be a willing partner in supplying gas to T&T despite the challenges. Building a gas pipeline from Guyana to T&T is expensive (estimated at USD 0.75 to $1 billion) assuming a way to avoid passing through Venezuelan waters could be found.
Why wasn’t investment into other complementary areas not pursued? For example, Qatar’s state-owned oil and gas company, Qatar Energy (QE) has billions invested overseas through key partnerships with international companies and has targeted Europe as a growing LNG export destination through its regasification terminals located in Italy, the United Kingdom, France, Belgium, and Germany. The same is true for Malaysia’s Petronas Gas.
NGC has invested abroad to diversify its revenue sources. However, the investments have not been large enough to create alternative revenue streams to mitigate the dependence on declining domestic natural gas fields and adjacent businesses. Despite the popular success story, there have also been costly strategic mistakes which are not in the public domain. Multinationals still control T&T natural gas production. Shell is the majority shareholder (70 per cent) in the “Dragon deal” and will make all the key decisions.
NGC has missed some notable opportunities to invest abroad. It could have partnered in constructing and operating LNG receiving terminals, storage and regasification facilities where gas from T&T was being offloaded. It did not. Some of those facilities, in the US, are now export locations.
There was the opportunity to invest in power plants and LNG ships. NGC “missed” the opportunity to build a natural gas processing plant in Ghana. It could also be argued that one can see clearly with hindsight.
There were many reasons for not pursuing an aggressive external investment programme. Energy sector investment is expensive, and the risks are equally significant. Whilst NGC boards may have desired more aggressive investment, government policy did not always favour that approach. Invariably, neither the public servants nor the Cabinet whom they “advise” possessed the risk appetite required to adopt an approach that might have enabled NGC to create a viable niche in the global energy space. The emphasis was more often on cash generation to meet budget demands, or to facilitate “community projects”, political largesse disguised as corporate social responsibility.
Another factor is that state enterprise boards are not often led by businessmen knowledgeable in the business. Missing out on the Ghana possibilities was as much due to political bias and short-sightedness as to a risk-averse philosophy.
Civil servants and politicians are not remunerated and incentivised to operate as risk-taking strategic investors. Nor are managers of state enterprises. A botched billion-dollar investment in a wastewater pipeline is a good example of a poor business decision disguised as a national project. Why did the board cooperate in such a project?
In summary, NGC could remain in the international gas business even if the domestic gas production is either exhausted or economically unattractive to extract. However, to achieve this objective, urgent changes to the current business model are required.
Mariano Browne is the Chief Executive Officer of the Arthur Lok Jack Global School of Business. ALJGSB is a not-for-profit corporation.