T&T Pa­tri­ot­ic

His­to­ry is re­plete of ex­am­ples of na­tion­al, state, and pri­vate sec­tor projects that have been dis­mal fail­ures. In the case of the pri­vate sec­tor projects the share­hold­ers/in­vestors bear the loss and in the case of na­tion­al and state projects the pop­u­la­tion/tax­pay­ers bear the loss. From the lessons learned from a re­view of ma­jor mega projects the fail­ures can of­ten­times be traced to a weak de­ci­sion-mak­ing process.

A re­view of the Fly­vberg Data­base For Project Cost Risk1 which as­sess­es the risk of cost over­runs for 25 dif­fer­ent project types based on a re­view of 16,000-plus projects, for the cat­e­go­ry of oil and gas projects the base rate cost over­run is 34 per cent with a 19 per cent chance that the ac­tu­al over­run will be 121 per cent. In a very glob­al­ly com­pet­i­tive sec­tor like oil re­fin­ing, get­ting close to a 34 per cent over­run on costs is like­ly to dri­ve a project in­to fail­ure far less for an over­run of 121 per cent.

We don’t have to look far to see the un­favourable out­come of the Ni­quan GTL (Gas to Liq­uids) fa­cil­i­ty sub­stan­tial­ly dri­ven by an un­der­es­ti­ma­tion of the tech­ni­cal/com­mer­cial risks and con­se­quent chal­lenges which led to a very sig­nif­i­cant cost over­run. The GTL plant is in re­ceiver­ship for a sec­ond time and deep in debt af­ter burn­ing through greater than US$300 mil­lion on failed restart. This has re­sult­ed in sig­nif­i­cant fi­nan­cial fall out for em­ploy­ees, lo­cal banks, in­sur­ance and in­vest­ment com­pa­nies, con­trac­tors and ser­vice com­pa­nies and sev­er­al state en­ti­ties in­clud­ing NGC, T&TEC, WASA and TPHL.

The Pointe-a-Pierre Re­fin­ery has had its fair share of project chal­lenges. Orig­i­nal­ly sched­uled to be fin­ished in 2008, its Gaso­line Op­ti­mi­sa­tion Pro­gramme (GOP) orig­i­nal bud­get bal­looned to US$1.88 bil­lion (TT$12.1 bil­lion) from US$430 mil­lion. This was the fig­ure giv­en in an in­ter­nal Petrotrin newslet­ter in 2005, which en­vis­aged that the con­struc­tion of the four new units would have last­ed three years. The ac­tu­al cost over­run is 337 per cent.

The project was fi­nal­ly com­plet­ed in 2014 with the com­mis­sion­ing of the up­grad­ed Flu­id Cat­alyt­ic Crack­ing Unit (FC­CU) and the as­so­ci­at­ed alky­la­tion and spent acid re­gen­er­a­tion plants. The FC­CU was me­chan­i­cal­ly com­plet­ed in 2013 how­ev­er com­mis­sion­ing was de­layed ini­tial­ly be­cause of the OW­TU chal­leng­ing the in­tegri­ty of the plant’s main frac­tion­a­tion col­umn, there­by re­quir­ing an in­de­pen­dent fit-for-ser­vice as­sess­ment.

The Ul­tra Low Sul­phur Diesel (ULSD) plant which was part of the re­fin­ery clean fu­els pro­gramme to com­ple­ment the GOP af­ter me­chan­i­cal com­ple­tion couldn’t run due to sig­nif­i­cant struc­tur­al de­sign is­sues which re­quired ex­pen­di­tures more than US$200 mil­lion to cor­rect a fa­cil­i­ty that had a bud­get­ed to­tal in­stalled cost of just un­der US$400 mil­lion

Re­gion­al­ly, there was a re­cent at­tempt to restart the St Croix Re­fin­ery and be­low is an ex­cerpt from a Ju­ly 15, 2021 Reuters ar­ti­cle.

“In­vestors Balk As Bank­rupt St. Croix Re­fin­ery Needs $1 Bil­lion To Be Vi­able

“The Lime­tree Bay re­fin­ery, which land­ed in U.S. bank­rupt­cy court on Mon­day, needs at least $1 bil­lion to fin­ish a mas­sive over­haul to con­tin­ue as a vi­able op­er­a­tion, ac­cord­ing to bankers, lawyers and re­struc­tur­ing spe­cial­ists in­volved in the case, stack­ing the odds against the Caribbean fa­cil­i­ty re­sum­ing op­er­a­tions.

“The St. Croix-based fa­cil­i­ty’s own­ers burned through US$4.1 bil­lion to res­ur­rect what was once the largest re­fin­ery in the West­ern Hemi­sphere, hop­ing to take ad­van­tage of ris­ing glob­al de­mand. In­stead, the re­fin­ery on­ly op­er­at­ed for three months be­fore US en­vi­ron­men­tal reg­u­la­tors shut it in May due to foul odors and nox­ious re­leas­es that harmed near­by com­mu­ni­ties.”

Root cause analy­sis

Gov­ern­ments world­wide are no­to­ri­ous for not de­vel­op­ing a na­tion­al data­base of crit­i­cal re­views of failed projects that iden­ti­fy root caus­es of fail­ures and the lessons learned which can be avail­able to the fu­ture de­ci­sion mak­ers and the pub­lic. The goal of­ten is of­ten to bury any in­for­ma­tion on these failed projects to avoid any neg­a­tive po­lit­i­cal fall­out.

For this very im­por­tant na­tion­al de­ci­sion on the restart of the Pointe-a-Pierre Re­fin­ery the fol­low­ing de­ci­sion process is pro­posed for con­sid­er­a­tion.

De­ci­sion Process

Staged De­ci­sion Process – Bad out­comes can al­ways be traced to bad de­ci­sion process­es. The prin­ci­ple “think slow act fast” has proven time and time again to be part of the win­ning for­mu­la of a ro­bust de­ci­sion-mak­ing process.

The re­view team that is as­sem­bled and led by for­mer en­er­gy min­is­ter, Kevin Ram­nar­ine if not al­ready do­ing so, should con­sid­er a staged de­ci­sion process that first starts with a clear as­sess­ment, why restart?

That team should al­so be charged with the re­spon­si­bil­i­ty of pro­vid­ing feed­back to the pop­u­la­tion through a pub­lic con­sul­ta­tion process on the out­comes of their as­sess­ments of the costs , ben­e­fits and risks to the Trinidad and To­ba­go and their rec­om­men­da­tions. Com­ments re­ceived should be ad­dressed and any rec­om­men­da­tions ap­pro­pri­ate­ly ad­just­ed based on feed­back.

Stage 1 – Why Re-start?

This as­sess­ment at min­i­mum needs to in­clude:

* A care­ful long-term study of the mar­kets (par­tic­u­lar­ly the At­lantic and re­gion­al), re­fin­ery util­i­sa­tion rates, the lev­el of com­pe­ti­tion in these mar­kets for re­fined prod­ucts, and most im­por­tant­ly the un­der­ly­ing as­sump­tions. Util­i­sa­tion rates cor­re­late with re­fin­ery gross mar­gins. High util­i­sa­tion rates en­hance prof­itabil­i­ty where­as low rates threat­en prof­itabil­i­ty;

* The prod­ucts rev­enue in the mar­ket seg­ments, the cost struc­ture of the re­fin­ery and the per­for­mance re­quired to be achieved to be com­pet­i­tive on a sus­tained ba­sis;

* The abil­i­ty to gen­er­ate suf­fi­cient free cash flow (FCF) af­ter re­cov­er­ing restart costs to meet the de­mand for cap­i­tal to com­pete in a very cap­i­tal-in­ten­sive busi­ness that is sub­ject to prod­uct qual­i­ty and reg­u­la­to­ry changes over its eco­nom­ic life;

* An ob­vi­ous crit­i­cal el­e­ment is the long-term avail­abil­i­ty and se­cu­ri­ty of com­pet­i­tive­ly priced crudes, de­liv­ered to the re­fin­ery gate, that are com­pat­i­ble with the re­fin­ery crack­ing tech­nol­o­gy. There is an un­der­stand­ing that stud­ies were done by Shell Glob­al and McK­in­sey in the lead-up to the GORTT de­ci­sion to cease op­er­a­tions of the re­fin­ery and of­fer the as­sets for sale or lease. There is no doubt that the re­view team will re­view the re­ports of these stud­ies and aug­ment ap­pro­pri­ate­ly as they see fit with oth­er those of oth­er con­sul­tants, Solomon As­so­ciates, Wood Macken­zie and Bank of No­va Sco­tia.

The as­sess­ment should al­so im­por­tant­ly iden­ti­fy and ad­dress any in­di­rect neg­a­tive im­pacts (down­side risks) to T&T from a restart. The fol­low­ing list is not ex­haus­tive but should be con­sid­ered as a min­i­mum re­quire­ment:

* Util­i­ties - Con­sid­er­ing the nat­ur­al gas and wa­ter sup­ply short­fall, the re­view team’s as­sess­ment should al­so fac­tor in the op­por­tu­ni­ty cost of the re­fin­ery’s nat­ur­al gas, elec­tric­i­ty and wa­ter sup­plies and re­li­a­bil­i­ty of these sup­plies on the re­fin­ery per­for­mance. It should al­so ad­dress what cap­i­tal ex­pen­di­tures are re­quired if these re­sources are par­tial­ly or ful­ly not avail­able.

From in­for­ma­tion avail­able from var­i­ous pub­lic sources the re­fin­ery needs at least 60 MM­scfd of nat­ur­al gas. It needs wa­ter be­yond what is avail­able from its own reser­voirs, and it needs close to 100 MVA of elec­tri­cal pow­er. It is com­mon knowl­edge that the coun­try’s nat­ur­al gas sup­ply cur­rent­ly falls short of de­mand and nat­ur­al gas prices have been ris­ing due to high­er costs of pro­duc­tion. Wa­ter sup­ply to the re­fin­ery was at best mar­gin­al re­quir­ing sup­ple­men­tal sup­ply from the E&P pro­duc­ing fields and switch­ing to salt­wa­ter cool­ing on over­head con­densers with ad­verse ef­fects on plant re­li­a­bil­i­ty and main­te­nance costs. Wa­ter qual­i­ty was al­so vari­able with sea­son­al changes af­fect­ing boil­er feed wa­ter qual­i­ty, ef­fi­cien­cy, and re­li­a­bil­i­ty. It is al­so com­mon knowl­edge that the na­tion­al wa­ter sup­ply just meets cur­rent de­mand which some con­tin­gency.

*Im­pacts to Her­itage and Paria - Both Her­itage and Paria are cur­rent­ly gen­er­at­ing prof­its which are be­ing used to re­pay the prin­ci­pal and the in­ter­est on the for­mer Petrotrin US$850 mil­lion bond. If the re­fin­ery is restart­ed, will these prof­itable en­ti­ties be neg­a­tive­ly im­pact­ed and if so, what hap­pens?

Fur­ther, as Paria was an in­te­gral part of Petrotrin re­fin­ing and mar­ket­ing busi­ness, the as­sess­ment should in­clude the com­mer­cial and op­er­a­tional re­la­tion­ship be­tween Paria and the new re­fin­ing com­pa­ny and the Pointe-a-Pierre port’s ca­pa­bil­i­ty to han­dle con­ceiv­ably both the stor­age and ex­port of Her­itage crude and im­port and stor­age of for­eign crude for re­fin­ing.

* En­vi­ron­men­tal Con­sid­er­a­tions - Who will be re­spon­si­ble for lega­cy en­vi­ron­men­tal li­a­bil­i­ties and how will fu­ture li­a­bil­i­ties be de­lin­eat­ed and ad­dressed?

* Safe Op­er­a­tions –The at­tempts to start up the Ni­quan GTL fa­cil­i­ty re­sult­ed in two ma­jor in­ci­dents, the first an ex­plo­sion and fire due to over-pres­sure and rup­ture of a process ves­sel dur­ing start-up op­er­a­tions and the sec­ond, the fa­tal­i­ty of a main­te­nance em­ploy­ee work­ing on the plant while shut­down.

Then there was the loss of four lives af­ter com­plet­ing re­pairs to a 30-inch sealine ris­er at No.5 Berth Pointe-a-Pierre port which was well re­viewed and in­ves­ti­gat­ed by the Com­mis­sion of En­quiry (CoE).

The CoE ex­posed man­age­ment and the con­trac­tor ig­no­rance of the dif­fer­en­tial pres­sure (delta P) haz­ard work­ing on sub­ma­rine pipelines and fail­ure to fol­low man­age­ment-of-change pro­to­cols af­ter chang­ing the agreed work method.

The Pointe-a-Pierre re­fin­ery of course is much larg­er and very com­plex. As­sur­ing safe op­er­a­tions for a restart­ed re­fin­ery is go­ing to be of para­mount im­por­tance. As a re­fin­ery restart most like­ly will be phased, there will be mul­ti­ple work fronts con­cur­rent­ly on the var­i­ous util­i­ties and process plants at dif­fer­ent stages of the restora­tion, com­mis­sion­ing and op­er­a­tions cy­cle.

Ef­fi­cient sched­ul­ing and ef­fec­tive co­or­di­na­tion and com­mu­ni­ca­tions across the site will be crit­i­cal for a safe and suc­cess­ful restart. This re­quires strong lead­er­ship, a ro­bust process safe­ty cul­ture, strong sys­tems and process­es and trained and com­pe­tent peo­ple.

Do we still have the com­pe­tent hu­man re­sources avail­able, and will any po­ten­tial in­vestors pro­vide the crit­i­cal re­sources to as­sure safe op­er­a­tions?

Does the Min­istry of En­er­gy and En­er­gy In­dus­tries, which is the reg­u­la­tor, have the re­sources and ca­pa­bil­i­ties to re­view the plans for restart and pro­vide the nec­es­sary checks and bal­ances for safe op­er­a­tions as­sur­ances?

The Lime Tree Re­fin­ery in St. Croix, men­tioned above, pro­vides a cau­tion­ary tale. It was shut down three days af­ter restart be­cause of a sig­nif­i­cant op­er­a­tional is­sue on Feb­ru­ary 4, 2021, when a tox­ic plume qui­et­ly flowed from the re­fin­ery’s flare stacks and show­ered oil droplets on the sur­round­ing neigh­bor­hoods.

* Iso-bu­tane Avail­abil­i­ty – Pri­or to shut down of the re­fin­ery, iso-bu­tane was pro­vid­ed by PPG­PL. Since that time there has been a con­tin­ued re­duc­tion in the pro­duc­tion of nat­ur­al gas liq­uids by PPG­PL due to a com­bi­na­tion of low­er nat­ur­al gas vol­umes for pro­cess­ing and the liq­uid con­tent of the nat­ur­al gas.

Is there suf­fi­cient iso-bu­tane to meet the needs of the Alky­la­tion Unit or would there be a need to im­port sup­ple­men­tal sup­plies of iso-bu­tane?

The as­sess­ment should al­so ad­dress the al­ter­na­tive us­es for the Pointe-a-Pierre re­fin­ery and its as­sets/li­a­bil­i­ties. For ex­am­ple, could the new plants or process equip­ment be sold and the “re­fin­ery safe­ly de­com­mis­sioned “and the site re­pur­posed for an­oth­er type of in­dus­try.

If there is a com­pelling and ro­bust eco­nom­i­cal­ly vi­able case from Stage 1 to restart the re­fin­ery, with a clear­ly iden­ti­fied plan to mit­i­gate any down­side risks, then the process can move the next stage of se­lect­ing a suit­able en­ti­ty to own/lease and op­er­ate the re­fin­ery. That’s next week.

The three au­thors of this piece in­di­cat­ed that they pre­fer to use a pseu­do­nym so that read­ers can fo­cus on the mes­sage rather than the mes­sen­gers.