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.