T&T’s LNG back on the front burner

T&T’s LNG back on the front burner

Anthony Gomes

Wednesday, May 30, 2012

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ON November 27, 2004, I wrote in this column: "Signing the Memorandum of Understanding (MOU) for the supply of Trinidadian Liquefied Natural Gas (LNG) at agreed prices for 20 years is a positive interim measure that permits planned energy diversification with natural gas to proceed."

The MOU, however, does not resolve the troublesome pricing issue related to "National Treatment" entitling Jamaica to Trinidad's domestic consumer price, according to the Revised Treaty of Chaguaramas.

The Caricom Secretariat is reported to have prepared an Advisory Legal Opinion supporting Jamaica's position. Jamaica requires a price "equal to that in the domestic market plus only the cost of liquefaction and transport". The landed cost of LNG in Jamaica should be constituted thus: Cost of Liquefaction, plus the same Free On Board (FOB) Port-of-Spain price, as sold to the domestic market, to which would be added Carriage, Insurance & Freight (CIF) to Jamaica, and finally the regasification cost. This should constitute the Landed Cost of the LNG in Jamaica.

Trinidad was to be a joint venture partner in Jamaica's diversification project, including financial participation in construction of the re-gasification facility. Trinidad is also the nearest supplier and is party to the Revised Treaty of Chaguaramas and the Caricom Single Market and Economy, with Rules of Origin that qualify the LNG as wholly of Caricom Origin, and therefore free of duty on imports to Jamaica, with a transit time of approximately two days.

Then Prime Minister PJ Patterson signed the agreement with Prime Minister Patrick Manning in Port-of-Spain after agreeing to defer the controversial pricing for arbitration at the Caribbean Court of Justice (CCJ). This, to the best of our knowledge, never took place, and neither was there any motion for specific performance then or in the future during the life of the agreement.

The next development was the news that T&T not only could not agree on a pricing method for the LNG sold to Jamaica, but had then announced that there was insufficient supply of LNG to supply to Jamaica, and T&T was unable to perform under the agreement. A cone of silence then engulfed the situation that has been in suspended animation since then.

According to Zia Mian in the Gleaner of November 7, 2004: "It is understood that T&T would sell 1.15 million tons per annum of LNG to Jamaica at an agreed base price for a 20-year period. The base price would be subject to annual escalations that are based on the US consumer price index (CPI). T&T would also participate in the equity ownership of the regas project in Jamaica, deriving benefits from the entire LNG supply value chain. The project is expected to cost about US$240 million."

In November 2004 came another surprising revelation that T&T has 10.5 years before natural gas runs out, as reported by the Trinidad Guardian newspaper. The T&T minister of energy has admitted that proven reserves have dropped to 18.8 trillion cubic feet from 20.76 cubic feet as announced at the end of 2003.

The David Renwick column in a Trinidad newspaper commented thus: "T&T's advantage is having low-cost gas, and happens at the moment to be a matter of major contention within Caricom. The impressive success of this country's manufacturers in the region is believed to owe much to their cost-suppression advantages from low-cost, gas-driven electricity and other factory energy needs, as well as, of course, additional factors such as the favourable exchange rate and their own productivity improvements in recent years.

"T&T manufacturers have, because of their more competitive pricing, in effect wiped out a large part of the light goods sector elsewhere in the region."

The result of this marketing offensive can be seen with the JMA's contribution to GDP being diminished from 15.4 per cent in 2002 to 8.5 per cent recently!

A recent Go-Jamaica release reported that a decision has been taken to reopen discussions for the supply of LNG from Trinidad & Tobago to Jamaica. This is indeed good news which resulted from discussions between Jamaica's minister of industry, investment and commerce, Anthony Hylton, and T&T's Energy Minister Kevin Ramnarine. Minister Hylton has extended an invitation to Minister Ramnarine to visit Jamaica, to continue discussions with Energy Minister Phillip Paulwell and himself on the issues related to the supply of LNG.

Meanwhile, the world LNG situation has changed dramatically, with a universal oversupply of the gas resulting in significant reductions in its price as LNG suppliers struggle to remain competitive. Trinidad, now with four production trains to maintain, has the additional concern of locating new gas fields to remedy the last reported shortfall in gas reserves to 10.5 years. The latest explorer to join the search for new gas fields is British Petroleum (BP), which already has production facilities in T&T.

In this age of transparency it would be progressive to put the Memorandum of Understanding (MOU) into the public domain, and limit the prevailing cone of silence during the upcoming negotiations. The Jamaican private sector deserves no less, after being the "sacrificial lamb" on the altar of expediency during all these very difficult intervening years.

At this time, it would be prudent to allow Minister Hylton the opportunity to negotiate on the issue, and aim to achieve a positive result by end August 2012, before the Joint Caricom Working Group adopts a reactive posture which could hamper the sensitivity of what is a delicate process.

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