A REVIEW OF

DOWNSTREAM NATURAL

GAS PORTFOLIO

SELECTION CRITERIA IN

TRINIDAD AND TOBAGO

Edward Bahaw and Sherry-Ann S. Ganase

Conference on the Economy

October 13th -14th 2016

The University of the West Indies

St. Augustine

AGENDA

Background to downstream industries

Review of downstream portfolio selection criteria

New realities facing the natural gas industry

Historical analysis of downstream sub sectors:

Efficiency – Output per bcf

Employment – Headcount per bcf

Value – Output value per bcf

Conclusions/Recommendations

2

BACKGROUND TO

DOWNSTREAM INDUSTRIES

Upstream Gas discoveries

State led downstream investments

Technical and marketing challenges

Structural adjustments and privatization

FDI led downstream investments

Financial incentives

3

UPSTREAM NATURAL GAS

Discoveries

Late 1960s

1970s

1990s

Early 2000s

4

NATURAL GAS MONETIZATION

Previously vented/flared – no value

Government policy - create value

Development of markets – export oriented

Investments in infrastructure

5

BEST USE OF OUR

PETROLEUM RESOURCES, 1975

Government conference

Expansions/Upgrades to:

Power Generation

Ammonia and urea production

Petroleum refining

Cement production

Establishment of export based plants for:

Alumina

Iron and steel

Methanol

LNG 6

Source: Boopsingh et al, 2014

DOWNSTREAM SELECTION CRITERIA

Energy efficiency

Local content

Employment

Value added

Environmental Impact

See Baisden (2002), Julien (2005), Baisden

(2007), Jobity (2013) and Boopsingh (2014) 7

STATE PROJECTS IMPLEMENTED

Electricity expansion

Production of DRI (ISCOTT, 1980)

Ammonia (1977, 1981, 1984, 1988)

Urea (1983)

Methanol (1984)

Cement (1984)

8

SUBSEQUENT DOWNSTREAM

DEVELOPMENTS

State Divestments (Late 1980s to early 1990s)

Product related price formula (1987)

Methanol (1993, 1996, 1998, 1999 & 2004)

Ammonia (1996, 1998, 2002, 2004 & 2005)

LNG (1999, 2002, 2003 & 2005)

9

PROPOSALS BY GCA 2002

Methanol & Ammonia - no additional expansion

LNG - continued expansion

Gas-to-liquids - limited state support

Iron ore reduction & Aluminum - employment

Power - Price electricity to recover costs.

Ethylene and polyethylene - world-scale plant

LPG - Continue Caribbean sales expansion

CNG - development of Caribbean markets

Added value products: private investment

10

Source: Oil and Gas Journal, 2004

RECENT PRIVATE SECTOR PROPOSALS

11

Downstream Output Company

Methanol, propylene & polypropylene Lurgi/Basell

Ethylene & Polyethylene Westlake

Ammonia, UAN, Melamine MHTL, AUM I (2010)

Ammonia, urea, ammonia sulfate MHTL, AUM II

Steel Essar

Bitumen to Synthetic Crude Reliance Industires

Limited

Aluminum Smelter ALCOA

Aluminum Smelter Alutrint

Calcium Cholride Carisal

Maleic Acid Isegen

UPSTREAM NATURAL GAS –

NEW REALITIES

No major gas discovery since early 2000s

Depleted larger fields

Declining natural gas production in T&T

Higher cost of upstream production

Smaller fields

Aging infrastructure

Lower condensate yields

12

UPSTREAM NATURAL GAS –

NEW REALITIES

Needs relative higher gas prices for feasibility

• Availability of cheap natural gas in other

countries

• Investments in primary petrochemicals globally

• Not business as usual

13

14

1200

1250

1300

1350

1400

1450

1500

1550

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Annual Natural Gas

Production (BSCF)

15

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Natural Gas Utilisation in T&T

LNG Ammonia and Ammonia Derriavative Methanol Power Other

16

0

100

200

300

400

500

600

700

800

900

1000 Ja

n-0

6

Au

g-0

6

Mar

-07

Oct

-07

May

-08

Dec

-08

Jul-

09

Feb

-10

Sep

-10

Ap

r-1

1

No

v-1

1

Jun

-12

Jan

-13

Au

g-1

3

Mar

-14

Oct

-14

May

-15

Dec

-15

Ammonia and Methanol Prices

Price of Ammonia (US$/Tonne) Price of Methanol (US$/Tonne)

GAS UTILIZATION EFFICIENCY

Output capacity – tonnes per annum

Throughput capacity – bscf per annum

Efficiency - tonnes per bscf

17

18

16,500

17,000

17,500

18,000

18,500

19,000

19,500

20,000

20,500

L1 L2 L3 L4

LNG Gas Utilisation Efficiency

tonnes/bscf

19

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

A1 A2 A3 A4 A5 A6 A7 A8 A9 A10 A11

Ammonia Gas Utilization Efficiency

tonnes/bscf

20 0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

M1 M2 M3 M4 M5 M6 M7

Methanol Gas Utilization Efficiency

tonnes/bscf

EMPLOYMENT/UNIT OF GAS

Number of employees

Throughput capacity – bscf per annum

Employment per bscf

21

22

0.0

1.0

2.0

3.0

4.0

5.0

6.0 L

1

L2

L3

L4

A1

A2

A3

A4

A5

A6

A7

A8

A9

A10

A11

M1

M2

M3

M4

M5

M6

M7

Employment per bscf

OUTPUT VALUE/UNIT OF GAS

Value of output – based on average destination

price

Natural gas utilization

Output value per bscf

23

24

0

2

4

6

8

10

12

14

16

18

L1

L2

L3

L4

A1

A2

A3

A4

A5

A6

A7

A8

A9

A10

A11

M1

M2

M3

M4

M5

M6

M7

Output Value

(US$M per bscf)

25

0

500

1000

1500

2000

2500

Ethylene Maleic anhydride

Melamine resins

Propylene Propylene polymers and other

Olefins

Anhydrous Ammonia

Methanol

Price Trends of Natural Gas Derivatives

2011 2012 2013 2014 2015

CONCLUSIONS

Declining domestic natural gas production

Evolving international market conditions

Varying – efficiency, employment and

value per unit of resource

Several projects have been cancelled

26

RECOMMENDATIONS

Further downstream – greater value in terms of

employment and revenue

Plant conversion vs new plants

Opportunities – gas supply contract renewals

Risks - High price correlations

Product based natural gas pricing

Risks – to midstream, and upstream

27

Thank You!

28