On April 1 Methanol Hold­ings (Trinidad) Ltd an­nounced that it had tak­en a de­ci­sion to im­me­di­ate­ly shut down its M4 and M5000 methanol plants in Point Lisas, with the lat­ter be­ing the largest methanol plant in the coun­try and the world.

Ac­cord­ing to MHTL the de­ci­sion was due to the ces­sa­tion of the sup­ply of nat­ur­al gas from the Na­tion­al Gas Com­pa­ny (NGC) af­ter NGC failed to re­new its con­tract with MHTL be­cause the pro­posed price for the nat­ur­al gas was too high.

The M4 and M5000 plants have a com­bined pro­duc­tion ca­pac­i­ty of 2,467,500 MT/year and are amongst five methanol plants owned by MHTL, part of the Pro­man fam­i­ly of com­pa­nies.

Man­ag­ing di­rec­tor of Pro­man T&T Claus Cron­berg­er said his num­ber one pri­or­i­ty was to sus­tain the com­pa­ny’s op­er­a­tions and se­cure the liveli­hoods of “all of our peo­ple.”

“I recog­nise this is an un­set­tling time for em­ploy­ees and I will con­tin­ue to keep you all up­dat­ed on any de­vel­op­ments. As al­ways please do con­tact me or your line man­ag­er if you have any ques­tions,” Cron­berg­er told staff.

He ex­plained that de­spite the com­pa­ny’s very best ef­forts through­out March, it was un­able to se­cure an eco­nom­i­cal­ly vi­able short-term gas sup­ply con­tract for April and there­fore had no choice but to make the “ex­treme­ly dif­fi­cult de­ci­sion” to idle its M4 and M5000 plants.

Cron­berg­er said the M2 and M3 plants will con­tin­ue run­ning on De­N­o­vo gas on­ly.

He said, “While we have reached the ab­solute lim­it of our flex­i­bil­i­ty on con­tract price and terms and con­di­tions, we are con­tin­u­ing to take a so­lu­tions-ori­en­tat­ed ap­proach and en­gag­ing with NGC and the Gov­ern­ment.”

Any­one who has read this col­umn over the last two years will not be sur­prised by this de­vel­op­ment.

T&T, which in 2015 when the present gov­ern­ment took the reigns of pow­er, stood tall as the world’s largest ex­porter of methanol and am­mo­nia. It has now lost over half its to­tal methanol pro­duc­tion and a sig­nif­i­cant amount of its am­mo­nia out­put.

There is no oth­er way of say­ing it, this gov­ern­ment met a chal­leng­ing sit­u­a­tion and has mis­man­aged the sec­tor to the point where it ap­pears to be on prover­bial life sup­port, with doc­tors who have nei­ther a di­ag­no­sis far less a treat­ment plan for the pa­tient.

On May 12, 329 days ago, I wrote an ar­ti­cle en­ti­tled, Save the Petro­chem­i­cal Sec­tor in which I warned that the fall-out from the gov­ern­ment’s ac­tions would lead to a dis­as­ter at Point Lisas.

At that time I wrote the fol­low­ing which is per­haps even more rel­e­vant than when I first penned it.

“As far back as 2011, the petro­chem­i­cal sec­tor was com­plain­ing about nat­ur­al gas short­ages that were im­pact­ing its av­er­age cost of pro­duc­tion and the re­li­a­bil­i­ty of op­er­a­tions.

The then Min­is­ter of En­er­gy Kevin Ram­nar­ine as­sured that it would be solved by 2012, eight years lat­er the sit­u­a­tion is still un­re­solved.

The NGC which has the role of ag­gre­ga­tor and was ex­pect­ed to sup­ply the gas to the down­stream was short and fac­ing le­gal chal­lenges. It was al­so in ne­go­ti­a­tions with the up­stream com­pa­nies who in­sist­ed that they could no longer sell gas at the prices the NGC had been ac­cus­tomed to and the hikes had to come be­fore they would un­lock in­vest­ments.

NGC stood its ground in­sist­ing it could not agree to the prices be­ing de­mand­ed and the sit­u­a­tion reached a po­si­tion where con­tracts were com­ing to an end and the up­stream would be un­der no com­mit­ment to sup­ply gas to NGC.

En­ter Prime Min­is­ter Dr Kei­th Row­ley.

He met with the lead­ers of the (up­stream) com­pa­nies and when the meet­ing was over the NGC signed an agree­ment that is now prov­ing to be un­work­able.

For the record, this news­pa­per, more than a year ago, warned that the agree­ment bro­kered by the Prime Min­is­ter was go­ing to have dis­as­trous con­se­quences.

The gov­ern­ment led by Min­is­ter of Every­thing Stu­art Young rub­bished the con­cerns call­ing those rais­ing the is­sue of the price as arm­chair ex­perts who did not know what was ne­go­ti­at­ed but, as they say, time is longer than twine and now, ac­cord­ing to the chair­man of NGC, the gov­ern­ment has had to re­turn to the ne­go­ti­at­ing ta­ble. Young has since fo­cused on COVID-19 and has not said a word on the rene­go­ti­a­tion.

It is on­ly group­think that could al­low the Min­is­ter of En­er­gy to de­fend a price that he must know was not work­able and it shows why politi­cians need to stay out of com­mer­cial arrange­ments.

But we were warned about this even­tu­al­i­ty.

Econ­o­mist Dr Ter­rence Far­rell did a sig­nif­i­cant study about the state of the petro­chem­i­cal sec­tor and pre­dict­ed it could be lost if as a coun­try we do not make the right choic­es.

In his study, he said: “The down­stream petro­chem­i­cals in­dus­try is at a point of in­flex­ion. In a sce­nario of scarce and ex­pen­sive gas feed­stock, the in­dus­try is set for de­cline and pos­si­ble demise. En­er­gy pol­i­cy has not ad­e­quate­ly ad­dressed the chal­lenges which the in­dus­try now faces.”

This warn­ing was ig­nored by the gov­ern­ment be­cause in this so­ci­ety when red is the colour of choice all ad­vice that does not come from that colour or is crit­i­cal of it is seen as yel­low and sim­i­lar­ly when yel­low ris­es all ad­vice that is not yel­low is seen as red.

Ac­cord­ing to Far­rell, T&T has moved from be­ing a high-re­serves, low-cost gas pro­duc­er and the largest ex­porter of LNG to the Unit­ed States, to a low-re­serves, high-cost gas pro­duc­er ex­port­ing LNG to mar­kets in Eu­rope and South Amer­i­ca.

He ex­plains that the gas sup­ply agree­ments with the down­stream petro­chem­i­cals plants are con­fi­den­tial but es­sen­tial­ly in­volve:

(a) floor price

(b) prod­uct ref­er­ence price

(c) prod­uct mar­ket price

(d) fac­tor which is ap­plied to the dif­fer­ence be­tween the ref­er­ence price and the mar­ket price when the mar­ket price ex­ceeds the ref­er­ence price.

He point­ed out that the in­tent of the pric­ing arrange­ment is that NGC shares some of the up­side of ris­ing methanol and am­mo­nia prices dur­ing cycli­cal up­swings but the down­stream pro­duc­ers have a de­gree of gas price cer­tain­ty in re­spect of the cost of nat­ur­al gas when methanol and am­mo­nia prices are cycli­cal­ly low.

“Each of the el­e­ments of the pric­ing for­mu­la is po­ten­tial­ly prob­lem­at­ic. The floor price needs to re­flect the cost of gas to NGC from the up­stream pro­duc­ers plus the costs of com­pres­sion, trans­port and re­moval of liq­uids. NGC does not con­trol the well-head price, and de­vel­op­ment costs of gas have been in­creas­ing.

“In ad­di­tion, NGC pur­chas­es gas from the up­stream pro­duc­ers on a take-or-pay ba­sis and there is no pro­vi­sion for cush­ion gas to man­age sup­ply dis­rup­tions or sched­uled turn­arounds up­stream. As a ma­jor source of div­i­dends and tax rev­enue for the Gov­ern­ment, apart from the sub­sidy which is ex­plic­it­ly giv­en to the pow­er sec­tor, NGC will not price gas to the down­stream pro­duc­ers that would re­sult in a loss,” the re­port read.

Of­ten it is dif­fi­cult to re­al­ly un­der­stand the im­por­tance of the sec­tor and Far­rell’s re­port helps us.

Over the ten-year pe­ri­od 2009-2018, rev­enues from am­mo­nia and methanol (Cor­po­ra­tion Tax, Busi­ness Levy and Green Fund Levy) ranged from a low of $1 bil­lion (US$156 mil­lion) in 2009 when prod­uct prices were cycli­cal­ly low, to a high of $ 3.1 bil­lion (US$489 mil­lion) in 2012.

In that re­gard, the eco­nom­ic im­pact of the down­stream petro­chem­i­cals in­dus­try is clear­ly sig­nif­i­cant. Cap­i­tal em­ployed in the in­dus­try is es­ti­mat­ed at US$8 bil­lion. It ac­count­ed for 3.4 per cent of GDP in 2017 down from 7.0 per cent in 2012.

“Petro­chem­i­cals con­tributed over 20 per cent of to­tal ex­port earn­ings since 2011, and it con­tributes an es­ti­mat­ed 15 per cent of the cash in­flows of for­eign ex­change to the bank­ing sys­tem. While the down­stream petro­chem­i­cals in­dus­try is not it­self an em­ploy­er of large num­bers of work­ers, it does pro­vide jobs de­mand­ing high lev­els of skill and knowl­edge that need to match the best in the world in a va­ri­ety of tech­ni­cal and man­age­ment dis­ci­plines.

Pay­ment of wages and salaries and ex­pen­di­ture on lo­cal sup­pli­ers and in­puts amount to US$400 to US$500 mil­lion and lo­cal val­ue-added amount­ed to be­tween US$338 and US$415 mil­lion.

“Ap­ply­ing an ex­pen­di­ture mul­ti­pli­er of 1.9, lo­cal val­ue added by the down­stream petro­chem­i­cals in­dus­try is of the or­der of $5.3 bil­lion or 3.5 per cent of GDP.

Over the pe­ri­od 2013-2017, tax­es paid by am­mo­nia and methanol com­pa­nies av­er­aged US$300 mil­lion/an­num,” the re­port re­vealed.

Ac­cord­ing to Far­rell, these re­sults sup­port the con­clu­sion that ex­ist­ing plants will be earn­ing a low­er than tar­get rate of re­turn and/or fail to gen­er­ate suf­fi­cient cash flow when prod­uct prices are cycli­cal­ly low and as gas in­let prices in­crease.

Mem­bers of this gov­ern­ment are ex­perts at pal­ter­ing and they try to rewrite his­to­ry. Un­for­tu­nate­ly in the days of the dig­i­tal age it’s not so easy to take back what you have said.

In prepar­ing to write this ar­ti­cle I re-read Min­is­ter Khan’s ad­dress to the T&T En­er­gy Con­fer­ence from 2017. I in­vite every­one to read it. For it re­al­ly shows the ex­tent of promis­es that nev­er ma­te­ri­alised and the re­al crux of the prob­lem which is the new­ly ne­go­ti­at­ed nat­ur­al gas prices.

Yes, de­mand ef­fi­cien­cy, the val­ue chains are all cru­cial but the price of nat­ur­al gas in T&T is not sus­tain­able, pe­ri­od.

Khan knew this in 2017, long be­fore the Far­rell re­port. He said, “Over the last year, there have been re­quests by the up­stream and right­ly so for the align­ment of val­ue with risk.

This cre­at­ed an im­passe with the nat­ur­al gas ag­gre­ga­tor NGC in the ne­go­ti­a­tions on the terms of new con­tracts for the sup­ply of gas to down­stream com­pa­nies. Its res­o­lu­tion re­quired the in­volve­ment of the ho­n­ourable Prime Min­is­ter, who met with se­nior ex­ec­u­tives of BP and EOG Re­sources at the now fa­mous Hous­ton meet­ing where the mat­ter was re­solved.”

NGC was re­sist­ing sign­ing terms with the up­stream for new gas prices and it was the in­ter­ven­tion of the po­lit­i­cal di­rec­torate that led NGC to ac­qui­esce.

Khan added,”These de­vel­op­ments were oc­ca­sioned by a com­mit­ment from up­stream com­pa­nies to ac­tive­ly pur­sue ex­plo­ration and de­vel­op­ment ac­tiv­i­ty to im­prove gas sup­ply. How­ev­er, the new gas con­tracts be­tween the NGC and down­stream com­pa­nies would ob­vi­ous­ly be at high­er prices.”

“Dis­cus­sions be­tween NGC and the down­stream com­pa­nies have com­menced on the terms for new gas con­tracts. The new re­al­i­ty is that low prices, which ob­tained in pre­vi­ous years are no longer avail­able. There­fore, greater em­pha­sis has to be placed on the ef­fi­cient and cost-ef­fec­tive con­ver­sion of gas in­to petro­chem­i­cal prod­ucts. Ad­di­tion­al­ly, all ne­go­ti­a­tions now have to take in­to con­text its ef­fect on the en­tire val­ue chain.”

There­in lies the ker­nel of the mat­ter.

There­fore this of­fen­sive talk by the NGC that “The Gov­ern­ment and NGC are man­dat­ed to act in the best com­mer­cial and fi­nan­cial in­ter­ests of the peo­ple of T&T. There­fore, all ac­tions by the com­pa­ny shall be con­sis­tent with this man­date,” is de­signed to raise bo­geys about the pri­vate sec­tor and for­eign in­vest­ment.

We are in trou­bled times and it’s like­ly to get worse.