There is a great dan­ger in group­think and be­liev­ing your own rhetoric. Group­think is es­sen­tial­ly the prac­tice of think­ing or mak­ing de­ci­sions as a group, re­sult­ing typ­i­cal­ly in un­chal­lenged, poor-qual­i­ty de­ci­sion-mak­ing.

It is one of the chal­lenges that the coun­try has faced since in­de­pen­dence when we took a po­si­tion that the need for par­ty pol­i­tics meant the death of in­de­pen­dent thought and speech.

This is the on­ly con­clu­sion one can come to as we saw for the first time in the his­to­ry of T&T, the petro­chem­i­cal sec­tor was forced to ap­proach the gov­ern­ment for sup­port in tem­porar­i­ly re­duc­ing the price they are pay­ing for nat­ur­al gas in an ef­fort to keep them in busi­ness.

These are ex­tra­or­di­nary times. The world has been plunged in­to a deep re­ces­sion as de­mand has been shut in by the im­pact of the coro­n­avirus and an al­ready weak glob­al econ­o­my brought to its knees.

Even be­fore the ad­vent of the COVID-19 cri­sis the lo­cal petro­chem­i­cal sec­tor was reel­ing from the rel­a­tive­ly high price of nat­ur­al gas and the con­tin­ued cur­tail­ment of the main feed­stock in­to the pro­duc­tion of am­mo­nia and methanol.

As far back as 2011, the petro­chem­i­cal sec­tor was com­plain­ing about nat­ur­al gas short­ages that was 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.

Speak­ing at a break­fast meet­ing of the En­er­gy Cham­ber Ram­nar­ine said, “There con­tin­ues to be a short­age of nat­ur­al gas to the Point Lisas In­dus­tri­al Es­tate. This prob­lem is not due to a lack of re­serves. It is a re­sult of poor co-or­di­na­tion. In terms of a so­lu­tion, there is light at the end of the tun­nel. We ex­pect that the EOG Tou­can plat­form would com­mence pro­duc­tion in mid-Jan­u­ary to Feb­ru­ary and that this would pro­vide re­lief to the prob­lem at Point Lisas.”

This, of course, proved to be wish­ful think­ing and when the present gov­ern­ment took pow­er it found an up­stream woe­ful­ly short of gas be­hind pipe and a down­stream sec­tor ea­ger for sup­ply.

The Na­tion­al Gas Com­pa­ny 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.

The 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 the NGC.

En­ter Prime Min­is­ter Dr Kei­th Row­ley, En­er­gy Min­is­ter Franklin Khan and Min­is­ter in the Of­fice of the Prime Min­is­ter Stu­art Young. They jet­ted off to Hous­ton in what they used to call the fa­mous Hous­ton Trip, a phrase that has now been ap­par­ent­ly re­moved from their lex­i­con.

He met with the lead­ers of the 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. It was a view shared by my col­league Mar­i­ano Browne.

The gov­ern­ment led by Min­is­ter Young rub­bished the con­cerns call­ing those rais­ing the is­sue of the price as arm chair ex­perts who did not know what was ne­go­ti­at­ed, but as they say time is longer than twine, and now ac­cord­ing to the chair­man of the 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 re-ne­go­ti­a­tion.

It is on­ly group think 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. Renowned 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) a floor price;

(b) a prod­uct ref­er­ence price

(c) prod­uct mar­ket price

(d) a 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.

It is there­fore not an easy so­lu­tion. En­er­gy econ­o­mist Gre­go­ry McGuire has sug­gest­ed that the mar­ket should de­cide the price and the re­moval of the cer­tain­ty that long-term con­tracts pro­vide. I agree with McGuire that a T&T nat­ur­al gas price will pro­vide trans­paren­cy but I sus­pect a bet­ter way of do­ing this is in­dex­ing the well head price to com­mod­i­ty prices so that there is risk through­out the val­ue chain while at the same time re-ex­am­in­ing the role of the NGC.

McGuire was con­fi­dent that the NGC could sur­vive on tolling fees and mak­ing wise in­vest­ments in LNG, petro­chem­i­cals, trad­ing and some up­stream and in­sists that part of the com­pa­ny’s chal­lenge was the raid­ing of its sav­ings by the past UNC. This is true and I have con­demned the par­ty for its role in al­most bank­rupt­ing the NGC and in its poor de­ci­sions in mak­ing the NGC lose op­por­tu­ni­ty with Che­niere En­er­gy and in Ghana. But the prob­lem is deep­er and more com­plex than that.

Of­ten it is dif­fi­cult to re­al­ly un­der­stand the im­por­tance of the sec­tor an 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.

That the com­pa­nies have now come to the gov­ern­ment for tem­po­rary sup­port and the re­al­i­ty that 15 per cent of the coun­try’s pro­duc­tion is down at least tem­porar­i­ly if not per­ma­nent­ly is cause for deep wor­ry.

Ac­tion is need­ed now to solve the prob­lem be­fore it is tru­ly too late.