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Trinidad says traders are skimming off most of the profits from its LNG exports

Petrostrategies, December 17, 2018

The press may not talk about it much, but some LNG exporting countries are increasingly blaming traders for imposing “unfair benefit sharing” on producers. These accusations were recently brought to a head by the Prime Minister of Trinidad & Tobago (T&T), Keith Rowley, who said that this state of affairs cannot be allowed to continue. T&T’s head of government issued his warning on November 14, 2018, while inaugurating the 20th ministerial meeting of the Gas Exporting Countries Forum (GECF) in Port of Spain. “The GECF has a mandate to support the sovereign rights of its Member Countries over their natural gas resources”, said Keith Rowley, challenging the organization to address this problem “so that our people and others will no longer be deprived of their sovereign rights”.

T&T used to have solid competitive advantages in LNG trading, with relatively low natural gas production costs and geographic proximity to the US market, which was the main outlet for its LNG before the “shale revolution”. Today, the US market is “saturated” with domestically-produced gas, said T&T’s Prime Minister. As a result, T&T's LNG is now seeking other markets and is increasingly open to “spot trading and [short]-term sales” (43% of its exports in 2017). “T&T exports are now competing for market share […] on price”. However, “traders have begun using the system to their advantage. Through clever portfolio management, traders are able to benefit unfairly from our LNG production. As such, very little of the returns from high global LNG prices makes its way back to T&T. This cannot be allowed to continue and as such, the current system must be reviewed”, said the country’s Prime Minister.

T&T’s situation is not helped by the fact that its production costs are increasing. As its reserves are declining, it is being forced to develop new natural gas resources that are more expensive to produce. An agreement has even been reached with Venezuela for the development of the cross-border Dragon offshore gas field, which is a part of the Mariscal Sucre gas complex and straddles Trinidad’s north-western coast and Venezuela’s Caribbean coast. This future production will be processed in T&T. These developments come at a time when, due to the “saturation” of the US market, “T&T gas products […] will have to travel further to reach new markets”, Keith Rowley said. T&T has no control over LNG pricing on the international market. However, the Prime Minister noted that European countries are increasingly switching from from oil-linked pricing to hub-based pricing, and as Europe is a “market of last resort”, its attitude is having more and more impact on the international LNG market. Moreover, previously “compartmentalized” regional markets are becoming increasingly interconnected due to increased trade in LNG, he noted.

Under these circumstances, it is becoming increasingly urgent to develop a Gas Pricing Index to serve as a global reference price, said the Trinidadian official. “I would like to encourage the GECF to work expeditiously to develop and implement the Gas Pricing Index, which I know many members have been working on assiduously. Now more than ever, the need for such a global reference price is evident, in order to protect both producers and consumers alike”, Rowley said.

That being said, T&T has managed to diversify its gas markets, thus reducing its vulnerability to LNG price fluctuations. Although the Atlantic LNG liquefaction plant at Point Fortin accounts for 54% of the country's overall gas consumption, petrochemicals (nitrogen fertilizers and methanol) account for nearly 25%. Most of these petrochemicals are exported. T&T will continue to extend its operations further downstream and is currently completing the construction of a complex which is expected to produce 1 million tons/annnum of methanol and 20,000 tons/annnum of di-methyl ether (DME).