Thursday 3rd August 2006

 

Unprecedented wave of gas-based development

 
 
 
 
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Over the next two years the Government plans a surge in activity in the downstream energy sector on an unprecedented scale.

Information presented by the National Energy Corporation indicates that the eleven major projects under their purview represent some US$12 billion in investment.

According to the plans, these projects will create 29,500 new construction jobs and 4,000 permanent jobs. All eleven projects are expected to begin in the 18-month window Q2 2006 to Q4 2007. Work has already begun on the first of these projects, the MHTL AUM complex. (See Table)

Other projects that have been discussed in the past, but are not listed in table, include the gas to liquids project (Petrotrin), a gas pipeline to Tobago, the Eastern Caribbean Gas pipeline, Phoenix Park Train III Development and a new LNG Train.

Eight of the eleven new plants will be located in the South West peninsula of Trinidad in new industrial estates at Cap-de-Ville, Union Estate and Oropouche Bank (reclaimed land).

The Point Lisas industrial estate will also be expanded eastward to accommodate new industries. This expansion in industrial activity has increased the demand for land along the west coast from Point Lisas to Point Fortin.

These new developments will no doubt place a strain on existing resources particularly in the south-west peninsula where the infrastructure remains woefully inadequate to support the level of planned activity.

These plants will also require water. At present the water supply for Point Lisas comes from the desalination plant. It is not sure whether WASA plans to increase its capacity to deal with the plethora of new industrial plants.

The success of gas-based development in T&T is a result of a number of economic drivers such as substitution for higher cost production in the USA, growth in the demand for products, the competitive cost of natural gas in T&T (as compared to the USA) and a shorter distance to major markets (as compared to a number of other gas producing countries); in addition to the advantages presented by an open investment climate, a stable democracy and trust in the rule of law.

The 2006-2007 wave of gas based development supersedes the gas-based development that took place in the period 1975 to 1982 when Point Lisas was developed.

This initial thrust into gas based development encountered problems such as access to markets as was the case with steel.

Back then the co-ordinating task force under Prof Julien considered some 16 projects of which six were implemented.

These included: iron and steel, Tringen ammonia, Fertrin Ammonia, methanol, urea and the expansion of TCL.

Those that remained in the conceptual stage included a polyolefin’s complex and an aluminium smelter.

The early Point Lisas experience must, however, be appreciated in the context of the steep part of the learning curve that essentially laid the foundation for the successful gas economy we enjoy today.

One of the main differences this time around is the depth of the projects with respect to the products that the plants will produce.

The downstream sector has been primarily a producer of intermediate products (methanol, ammonia, urea).

In 2004 Government instituted a new policy which required investments in the downstream sector to have a value added component. This means that the days of building a plant for the sole purpose of producing and exporting an intermediate product are over.

The other major difference is that whereas Point Lisas was based mainly on methane (C-1) the new phase of gas based development will include methane as well as ethane (C-2) and propane (C-3).

Another fundamental difference is the ownership structure. Whereas the State was the majority shareholder in the Point Lisas projects, in these new projects the State is a minority shareholder—in most cases.

Some of the projects are also owned by local conglomerates such as CL Financial and Ansa McAl.

Local private sector ownership in downstream energy projects was almost unthinkable in the 1970’s. (See Table)

Perhaps the most important and interesting element in these the new projects is the opportunity for backward and forward linkages between the energy sector and the manufacturing sectors.

For example the T&T energy sector is a large consumer of steel, which is used in almost everything from platform fabrication to pipelines. However, most of the steel produced in T&T is never used in the energy sector.

Speaking in the 2005 budget debate, the Prime Minister noted that the Essar steel plant would have the capacity to produce steel plates that can be used to make tubes which have a myriad of applications in the energy sector.

However, it is important to recognise that these linkages are not going to always take part spontaneously.

Deliberate Government interventions, for example through the Permanent Local Content Committee, and considerable work from intermediary organisations such as the STCIC and TTMA will be required to make these linkages a reality.

The provision of comprehensive information and business support, from organisations such as E-Tek and BDC, is going to be required if T&T is to truly benefit from these linkages. The STCIC is committed to play its part.

Project Expected

start date for

construction

MHTL AUM Q2 2006

Alutrint Q4 2006

Essar Steel Q4 2006

First UAN Q4 2006

Alcoa Q4 2006

GTPP Q1 2007

Union Estate Fertilizer Q1 2007

La Brea Nitrogen Q2 2007

TEIL Ammonia Q2 2007

Acetic Acid Q3 2007

Ethylene Q4 2007

Source: National Energy Corporation

Comparison of gas-based development in T&T

Point Lisas Gas based development

1970’s-early 1980’s 2006-2008

Ownership Majority State: (100% Majority foreign private equity,

ISCOTT, 100% Methanol State holding minority interest

Company of T&T, 51% in some projects. Local private

Fertrin, 51% Tringen) equity: CL Financial, Ansa

McAl, GHL

Feedstock Methane (C 1) Methane, Ethane, Propane

(C1- C 3)

Location Point Lisas Point Lisas, Union Estate,

Cap-de-Ville, Oropouche

Products Intermediates Intermediates and Tertiary

Products Methanol, Ammonia, Melamine, Acetic Acid,

Urea, Steel Polyetylene, Aluminum

Drivers Need to utilize flare gas Globalisation and

and to diversify away deregulation of gas

from oil markets in the US have

made it economically

feasible to establish

downstream plants in Trinidad.

Further information: www.southchamber.org

 

 

 

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