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Trinidad seeks more from natgas contracts

30 Jan 2018 17:19 GMT
Trinidad seeks more from natgas contracts

Kingston, 30 January (Argus) — Major LNG producer Trinidad and Tobago is renegotiating gas sale contracts with downstream consumers, saying the country is not getting its fair share from the production and export of LNG, ammonia and methanol, the country's energy ministry tells Argus.

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 outlining the issues seen by Argus.

"Transfer pricing and avoidance of tax issues have long been a part of the behaviour of some in the industry and these are issues being looked at by the government," according to the documents.

The country's LNG is produced by the Atlantic consortium that operates a four-train 14.8mn t/yr liquefaction complex. It includes BP and Shell as the major shareholders, with minority partners China's sovereign wealth fund CIC unit Summer Soca and Trinidad's state-run gas company NGC. BP and Shell are also leading natural gas producers in the country.

The sales contracts were written as the trains were commissioned from 1999-2005, and were based on the expectation the US would be the primary market for the LNG. Since then US domestic natural gas production has boomed thanks to shale production, leading to the country becoming a gas exporter.

The contractual arrangements concerning LNG production and export are "complicated" as they are long-term and are different for each of the four trains, an official of Trinidad and Tobago's energy ministry told Argus. But the changes in the market place have led to LNG cargoes "being diverted to high priced markets with no sharing of the upside, in accordance with the contracts," according to the ministry official, who spoke on condition of anonymity. "The resultant effect of the LNG marketing arrangements are low netback prices when compared to domestic prices."

Consultants contracted by the government estimate that the potential value lost from the four LNG trains averaged around $6bn/yr between 2011 and 2014 because of the contract, according to the energy ministry's documents.

BP declined comment on the government's plans to revise contracts and increase the state's earnings. But "important contracts between NGC and petrochemical players still need to be negotiated," BP's regional president Norman Christie said in a speech on 22 January.

"Government 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," Christie said.

Shell said it does not comment on discussions with governments, but that it buys and sells LNG under a wide variety of contract terms and conditions.

Trinidad and Tobago was exporting 80pc of its LNG to the US in 2000, but this fell to 12pc in 2016 when Latin American markets took 60pc.

The ministry's documents did not indicate the prices the government is seeking from downstream consumers, but negotiations for new gas prices are unlikely to be smooth. Ammonia producer CNC shut its 650,000 t/yr plant on 24 January after 10 months of failed talks with NGC for a new gas sales agreement.

"CNC had accepted multiple interim extensions of its gas supply until 23 January, at a detrimental cost to itself," CNC said.

NGC "will not be bullied by CNC, its affiliates or anyone for that matter, to act in a manner that is detrimental to NGC and ultimately the citizens of the country," the company said.