Ammonia prices at near record highs
More government revenue reported
Money going into foreign exchange market
T&T and, by extension, Finance Minister Colm Imbert is receiving an ammonia windfall as the country benefits from significantly higher earnings from the petrochemical sector with ammonia prices reaching near record levels.
The commodity, which is a key ingredient in the production of fertilisers, is in great demand and with some reports of global shortages. Not only does it result in more money for the government but it means that the National Gas Company (NGC) is also a major beneficiary, as its gas prices are in part linked to the global petrochemical prices.
Higher prices allow the government to triple dip, receiving higher revenue from taxes on profits from the petrochemical companies, potentially higher dividends from a more profitable NGC and higher taxes on profits from the NGC.
The present price for ammonia is twice the price it was at this time last year, averaging over US $1000 a metric tonne compared to just over US $500 a tonne in January 2021 and up from the lows of under US $300 a tonne in 2020. It must be noted that ammonia prices over time usually average US $400 a tonne.
Part of what has been driving the higher prices has been the fall out from higher natural gas prices in Europe and the United States caused by last year’s prolonged winter and lower than expected performance from renewables. There is also growing demand as the world emerges from lockdowns and improves its ability to live with the pandemic.
According to Argus Media there are now shortages in several areas including India where premium prices are being paid for spot cargoes.
T&T, however, has not been able to sell any ammonia on the spot market because of commitments to markets and limits to its production profile due to continued curtailment caused by lower natural gas production.
According to Argus, “The last Tampa settlement puts netback fob ( freight on board) prices at around $1078/t fob Trinidad. No new spot availability is reported from the island, with strong industrial demand from the US Gulf, coupled with strong demand from Mexico, Chile, Brazil, Morocco and Europe absorbing all availability.”
The only spot that T&T was able to take advantage of in 2021 was 10,000 tonnes from Nutrient which was bought by Trammo in the USA.
The positive impact of higher ammonia and petrochemical prices are already being felt in the economy.
According to the Central Bank, provisional data show total exports increased by 52.8 per cent (year-on-year) to US$4,541.6 million in the first half of 2021. The improvement the bank said was driven mainly by energy sector exports.
“The uptick in commodity prices amid stronger global demand underpinned the growth in energy receipts. Notable increases were recorded for exports of crude oil, refined products and petrochemicals. Non-energy exports also rose by an estimated US$318.3 million to US$1,055.9 million over the reference period.
“At the same time, total imports were estimated to have increased to US$2,866 million from US$2,256.6 million in the previous year, reflecting higher fuel and non-fuel imports. Provisional estimates for the first eight months of 2021 suggest exports rose owing to higher commodity prices, while imports may have also increased due to the latter.”
The Central Bank’s Monetary Policy report for November 2021 read.
It added that despite generally persistent tightness, elevated energy prices allowed some decompression of the local foreign market in 2021. The results meant that there was more access to foreign exchange last year even though it still had a deficit of over US $1 billion.
The November 2021 Central Bank Monetary Policy Report read, “Authorised dealers’ purchases of foreign exchange from the public increased by 12.8 per cent over January to October 2021 to US$3,149.8 million relative to the same period a year prior. Higher purchases were facilitated by a 38.0 per cent increase in conversions by energy companies when compared to the same period in 2020. The improved performance is likely due to an uptick in crude oil and petrochemical production and higher energy prices. As such, purchases from the energy sector accounted for 76.7 per cent of all purchases of foreign currency.”
It added, “Foreign currency sales also rose thus far in 2021. Authorised dealers’ foreign exchange sales to the public reached US$3,992.9 million over January to October 2021, an increase of 6.5 per cent relative to the same period a year prior.
“Credit cards (32.2 per cent), Retail and Distribution (26.6 per cent), Energy Companies (10.5 per cent) and Manufacturing (8.5 per cent) made up the bulk of foreign exchange sales to the public (Chart 3.3). The net sales gap reached US$843.1 million over January to October 2021. Central Bank sales to the authorised dealers of US$1,012.1 million supported the market over the reference period.”
While these high prices are unsustainable it allows T&T’s ammonia plants to have positive cash flows and significantly helps both the NGC’s balance sheets, the forex market and the government coffers.
It is also well known that ammonia gives the government more money per molecule than any other of the energy sector export.
According to a government study of the natural gas sector that was carried out by Poten and Partners and completed in 2015, over the period 2005 to 2014 the ammonia plants consistently gave the highest netback prices to T&T, followed by the methanol plants.
“Typically one would expect that LNG would have been the most attractive form of gas utilisation for gas export. Over this period LNG was selling at high prices (particularly in the Pacific Basin, where LNG prices were often in excess of $15 MMBtu).
“Any plants constructed before the significant global construction cost rise over the latter part of the last decade will have benefited from low liquefaction costs and will likely have netted back prices to the plant inlet well in excess of $7/MMBtu.
“Unfortunately for T&T, as detailed earlier in this section, the commercial and contractual structures of ALNG trains have been such that little of the benefit from high global LNG prices has flowed back to T&T. This is illustrated by the low netback prices that have been realised over recent years (weighted average of $2.42/MMBtu in 2012, $3.07/MMBtu in 2013 and $3.22/MMBtu in 2014).
“As well as ammonia, methanol has also outperformed LNG over recent years, with weighted average netback prices of $3.90/MMBtu in 2012, $5.00/MMBtu in 2013 and $4.80/MMBtu in 2014.” the report read.
Early last year the NGC Board and its CEO Mark Loquan gambled against the petrochemical sector and lost over quarter billion dollars on a scheme to use gas designed for the petrochemical sector and send it to the lower earning Train 1 LNG plant, their plan failed as the global ammonia and methanol prices rebounded and the local petrochemical plants demanded their gas.
The Government has since said it was an investment risk gone bad.