Is a gas exporters forum beneficial to Trinidad?

May 15, 2005 02:00 AM

Following the meeting of the Gas Exporting Countries Forum (GECF), Trinidad and Tobago Energy Minister Eric Williams endorsed our conclusion that GECF is a long way from being an OPEC. In an earlier column, we pointed to the structural market conditions that would make the emergence of an OPEC-style organisation an improbable event for the foreseeable future.
What are the potential benefits of Trinidad and Tobago participation in GECF? Should Trinidad and Tobago not jealously guard its position as the premier exporter to the United States, the world's most lucrative market?

Potential benefits from the GECF fall in three areas.
The first is an exchange of knowledge. We would expect these countries to learn from each other's errors and successes through an exchange of information on commercial, legal and technical matters.
Such an exchange should lead ultimately to more equitable treatment from the mighty TNC's who control the LNG business.

The issue of price determination is of particular significance to Trinidad and Tobago because of the practice of cargo swaps and exchanges that has become prevalent in the Atlantic Basin trade.
In early 2005, Williams publicly announced that the GORTT knew of this discrepancy and critically noted that the GORTT did not benefit from this arbitrage. At the conference the Minister again alluded to the problem by stating that "gas exporting countries must begin to organise if they want to be prepared to deal with the "vagaries of the international market" and "avoid being caught off-guard."

Interestingly, Williams explained that energy ministers from other countries had approached him and asked whether he knew of the arbitrage play carried out by ALNG customers and whether he knew the implications of this arbitrage.
At the conference, he argued for a "fair price for LNG," which seems to reflect his discomfort with current levels of profit sharing. However, since it appears that the multilateral GECF is wavering, Algeria and Trinidad have begun bilateral cooperation in order to share information on swap arrangements.

Keen interest also should be paid to the treatment handed out to host communities by LNG producers. Are the same standards applied for safety and security? What about its commitment to the betterment of its host community? How does ALNG approach in Point Fortin differ from what happens in Oman or Botang, Indonesia?
In its recently published Corporate Social Responsibility Report 2004, ALNG is given the thumbs up by an independent reviewer.
"Atlantic's efforts at doing this work set it apart from those companies which tend to support urgent charitable needs that may be neither developmental or sustainable."

The endorsement of ALNG is based on a stakeholder survey results that showed "the community is pleased with Atlantic's performance in the area of supporting youth development through the various programmes such as Apprenticeship Training, Operator Training, and the Point Fortin "finest". However, the qualitative assessment of "goodness" is subjective unless judged against a standard.
Will GECF provide the necessary information to allow us to make a comparative assessment of ALNG's performance?

Technical cooperation is likely to be a high agenda item for GECF members. This may include discussions on new developments in technology, advances in local content policy and practice and staff training. In this regard, Trinidad and Tobago may be constrained in so far as the state does not have a controlling interest in the plant and training exchanges must meet with the approval of ALNG.
The final area of co-operation may be in respect of joint commercial ventures among the members. Trinidad and Tobago lags behind other members of GECF with respect to participation along the LNG value chain. Qatar, for example has majority shareholding in plant shipping and regas facilities. We wait to see whether the much touted Train X will feature greater national participation? Moreover, would GECF members begin to develop their own "South to South" LNG projects?

Unfortunately, the probability of success in the minimal areas of cooperation highlighted above seems low. Two major impeding factors can be identified.
Firstly, the international gas industry always has been characterised by its proclivity for confidentiality. There is an abundance of local evidence that attest to these phenomena. Local natural gas contracts, gas prices, LNG agreements, etc. are confidential arrangements between the buyer and seller and hence, are never in the public domain. Over the past decade, many have lamented the lack of transparency under which the natural gas industry operates in Trinidad and Tobago. We are not unique. It seems improbable, therefore that there can be any agreement among GECF on exchange of substantial contract terms including price and volume information.

Secondly, even at this early stage interest in GECF seems to be waning. Reports out of the conference noted a small attendance of key members and energy ministers. Some of the major reasons cited were the lack of cooperation, the lack of transparency and the lack of information. Among the 15 members of GECF, only 4 energy ministers attended the meeting, while 4 countries sent no delegation at all.
Algerian Energy Minister Chakib Khelil was quoted as saying that bureaucracy has hindered the success of GECF thus far, and hence, "the conference would have been a waste of his country's time". The election of Venezuela, a volunteer, as the forum's next president, and confirmation of an organisational structure were the only meaningful outcomes of the Forum.

Looking towards the future, it is clear that the gas trade, both LNG and pipeline, will continue to expand rapidly. It is still early days in the life of the organisation and given the anticipated expansion in gas share of global energy, the power and influence of GECF can grow.
However, the early indicators are not encouraging. The onus is on Minister Williams, as President of the organisation, to make the best of this opportunity. Any benefit that may accrue to Trinidad and Tobago would not flow naturally but must be strategically planned and pursued.
Are we prepared for the challenge?

Source: Trinidad Express
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