The LNG Reality Impacting T&T in 2017
The inability to produce and supply the requisite amount of gas to Atlantic LNG necessary to maximise economic production levels is not the only reality impacting the contribution of this facility to the national coffers. The reorganisation of world energy markets as a result of US exports of shale gas LNG and the coming on-stream of especially the LNG plants in Australia have especially impacted the Asian market which is the largest market for LNG trades. The increased volume of supply has now allowed the Japanese importers with the support of the government to insist that the destination clauses of the long term contracts that forbid Japanese importers from re-selling their imported loads be amended to allow Japanese re-selling. Suppliers including those operating in T&T are applying the pressure for the Japanese importers to drop this request but US shale gas LNG producers as Cheniere are offering contracts linked to US Henry Hub prices unlike the present contracts which are linked to oil prices and allow re-selling of loads purchased from US suppliers. The lesson in this scenario to T&T is that under the contracts ratified by the then UNC government for trains 1 to 3 the LNG exporters of T&T can move product to various markets but they are taxed on US Henry Hub prices even though the prices at the importing market are higher and the operators also allow importers of T&T LNG to re-sell their loads as is the case with Gas Natural of Spain but these said operators insist that Japanese importers cannot re-sell loads sourced from these operators. Wonder why? Wonder who is a major shareholder of Gas Natural? The US producer is presently supplying loads governed by contracts signed with Japanese importers. US shale gas LNG has also entered Latin American markets and as production expands and new production facilities come online the competition posed to T&T LNG will intensify as it’s clear that US producers intend to win market share by any means necessary and with a facility in T&T faced with a heightening shortfall in gas supply in existence without relief for some 5 years hard decisions will have now to be made by the major shareholders especially Shell. The acquisition of BG at a most inopportune time in the energy industry has forced Shell to dispose of assets in order to reduce the debt on its balance sheet and this process commenced in 2016 and continues. Shell has repeatedly made it clear that it intends to continue to grow its LNG trading arm towards ensuring it is the premier LNG trader in world markets and in 2016 Shell indicated that this strategy is not premised on investment in LNG production facilities that it considers offering less than optimum return on investment in the life of facility. The report on Bloomberg in 2016 that Shell was rumoured to have marked its shareholding in Atlantic for disposal possibly arose from this strategy of Shell. But Shell in 2017 and thereafter has another strategy possible in T&T that will contribute to attaining its LNG trading strategy and maximising its take from the gas market from T&T by biting multiple times on the LNG cherry. You sell your shareholding in Atlantic but bind the purchaser of your share to long term LNG supply contracts to Shell’s trading arm which you then sell on world markets, you develop the gas fields acquired from BG in T&T and become an independent/non-shareholder supplier/seller of gas to Atlantic bypassing the NGC cut off the top and to facilitate all of this you dance with the Chavista government of the day to enable the supply of gas from Dragon to the designated end users then you enable the Loran/Manatee development and the flow of gas to T&T with you and Chevron as gas suppliers. A T&T government ever thankful, ever beholding to Shell has then to facilitate the multiple biting of the cherry and enabling the cherry to grow in size whilst being bitten. In the reality of this dreamland scenario I wonder what we the ordinary citizens profit from this. What profit in this for us? Remember diversification T&T style is foreign franchise merchandise, goods and services for sale on the local market burning up foreign exchange it does not and cannot earn but such is the model of Bogota, Panama City and Santo Domingo and others in the Caribbean Basin. New England, USA remains the most profitable US market for LNG from T&T as the pipeline system to move shale gas into this state especially during winter remains underdeveloped to satisfy demand for energy especially during harsh winters as the 2016/17 winter. Imported LNG via Everett, Massachusetts which is close to Boston is used to satisfy energy demand resulting in an explosion of prices per million BTU at Everett outstripping Henry Hub prices. In this scenario LNG produced in T&T is sucked into this market to exploit the high gas prices. But what is the benefit of exploiting this windfall price to the people of T&T given the terms of the contract governing especially Trains 1 to 3 of Atlantic? But this artificially produced shortfall in supply is under pressure from the energy supply companies and with Trump and his merry oil men in power brace for the end of this artificially created choke point as it’s not only Standing Rock will soon capitulate.