Time for T&T to reap LNG profits
Published on Jun 7, 2016, 11:30 pm AST
IT is time for Trinidad and Tobago to take a closer look at the operations of Atlantic and the marketing of approximately 50 per cent of the country’s natural gas output on global markets.
Last week, Government, through Finance Minister Colm Imbert and Rural Development and Local Government Minister Franklin Khan, questioned whether it was in the country’s best interests to sell cargoes of LNG to countries where “below-benchmark prices are realisedâ€.
The Ministry of Energy noted, in response to Parliament’s Joint Select Committee on energy affairs, “…Some companies (shareholders in Atlantic) have opted to manipulate the spirit of the contracts and so the original intents of the contracts are not being honoured.â€
Just so we understand what’s at stake here, when T&T first ventured into LNG back in 1995, with Train 1 coming on stream in 1999, that facility was given a ten-year tax holiday.
The ownership structure then was Amoco (since acquired by BP) 34 per cent, BG 26, Repsol 20, and NGC and operators Cabot ten per cent each.
What this arrangement meant was while T&T boasted of blazing a trail with LNG, all the country benefitted from it were dividends for its ten per cent stake, royalties for the gas used, and jobs for personnel employed.
No taxes were paid on profits.
Trains 2 and 3 followed in 2003 and 2004 with similar ownership structures, and the giant Train 4 began operations in 2005. These trains enjoyed “depreciation recovery†instead of “tax holidaysâ€, and while Cabot controlled the processing, shipping and marketing for 1, 2 and 3, it only processes gas for the stakeholders in 4.
Because the government earns revenues from LNG based on prices, hence profits (tax holidays having expired), it is in the country’s interest to sell cargoes where prices are higher.
It was not by accident that focus shifted from the US, once our biggest market, to countries in South America, Europe and the Far East.
However, a common practice by LNG traders, not necessarily corporations based in T&T, is to sell cheap to buyers with whom they share interests, who then re-sell the cargoes at higher prices.
In instances, companies engage in “spot selling†on the high seas-a method by which the real end-price is never revealed.
Experts in energy say netback pricing, in which the final selling price is known, and costs (feedstock, processing, shipping) deducted, is fairest to all parties.
Clearly, though, based on what Ministers Khan and Imbert said at the JSC meeting, they do not believe the country has been getting its just dues.
From another perspective, the oil sector, from crude to refined, is heavily taxed: on profits, royalties, withholding tax, share of profits, oil imposts and more.
Natural gas producers and processors have had an easier run, with good reason: they were willing to invest in new ventures that had yet to prove themselves globally.
With T&T established as a major player in the global LNG trade, producing approximately 15 million tonnes per annum, it is time for the country to benefit from the real profits derived from this leading export product.
Almost from the completion of Train 4 in 2005, LNG jumped ahead of crude oil in export value-60 per cent to oil’s 17 per cent, a gap that will have widened since, what with oil production and exports almost halved, and prices barely recovering from a US$30 per barrel low.
The global conglomerates that have operated in this country for decades cannot claim to have been unfairly treated by any government.
The fact that they continue to invest in exploration and production at a time when they are cutting back elsewhere, confirms their confidence in the country. Now that the country needs every dollar it earns, or ought to earn, from the sales of approximately two billion cubic feet of LNG produced a day, these companies should pay up.
As we say in T&T, one hand can’t clap.
www.trinidadexpress.com/20160607/busines...-to-reap-lng-profits
