Trinidad and Tobago has started renegotiating LNG marketing arrangements with BP and Shell because the current contracts are "untenable," energy ministry Franklin Khan said yesterday.
The government is reviewing the contract terms to boost the state's income, Khan told a conference in Port of Spain. The contracts for offtake from the four-train Atlantic liquefaction complex expire between 2018 and 2027.
"The government finds the situation with the LNG marketing arrangements to be untenable, in that significant revenues are flowing offshore while the government is facing severe revenue shortfalls," Khan said.
"The government has communicated to the upstream companies and their affiliates that the status quo in relation to LNG marketing arrangements cannot be maintained and a new framework that is beneficial to Trinidad and Tobago will have to be instituted," he said. "The state, as the resource owner, has a sovereign right to extract a fair economic rent on behalf of the people."
Khan did not indicate the increased volume of revenues the government is anticipating from the renewed LNG contracts.
"These are matters that are highly confidential, as are the terms of the current contracts," a Trinidadian energy ministry official tells Argus.
The Atlantic consortium that operates the 14.8mn t/yr liquefaction complex includes BP and Shell as the major shareholders, with minority partners China's sovereign wealth fund CIC unit Summer Soca and Trinidad's state-owned gas company NGC.
BP and Shell are also the country's leading natural gas producers.
BP declined comment on the government's plans to revise contracts and increase the state's earnings.
But the government's revenue from the industry "is still way below historical levels, not because of overly generous past fiscal policies but because we are still adjusting to the shock of a precipitous drop in commodity prices coupled with lower national oil and gas production," BP's regional president Norman Christie said in January 2018.
Shell said it does not comment on discussions with governments, but said it buys and sells LNG under a wide variety of contract terms and conditions.
The revision of the LNG marketing contracts coincides with an improvement in output thanks to recovering natural gas production.
LNG production of 2.69mn m³ in January 2018 was the highest monthly output in three years, according to energy ministry data.
Gas production in January averaged 3.908bn cf/d, 17.1pc more than in January 2017, and the highest monthly average in two years.
The data indicates that the country's gas production is beginning to level out after steadily falling off a 2013 peak of 4.1bn cf/d.
The downward trend eroded LNG production by an accumulated 23.7pc in 2013-17, and also suppressed ammonia and methanol output.
The LNG sales contracts were written as the Atlantic trains were commissioned in 1999-2005, and were based on the expectation that the US would be the primary market for the LNG. Since then, US shale gas production has boomed, transforming the country into a growing LNG exporter.
A major complication in Trinidad's existing LNG contracts is that they are long-term and were concluded separately for each of the four trains, the ministry official said.
"Most of the LNG was originally sold to the US, and now most of it goes to higher priced markets, but the government's revenues do not reflect these higher prices."
Trinidad was exporting 80pc of its LNG to the US in 2000, but this fell to 12pc in 2016 when Latin American markets took 60pc, according to the energy ministry. Among the main buyers of Trinidad's LNG cargoes are Chile and Argentina.
The contract renegotiations will be supported by legislation to be passed this year to address matters such as "the manipulation of contracts" that has led to "low netbacks from exports," according to energy ministry documents seen by Argus in January.
"Transfer pricing and avoidance of tax issues have long been a part of the behavior of some in the industry and these are issues being looked at by the government," according to the documents.
