Rivalry sends Trinidad in search of new LNG markets

Increased global competition by new and aggressive liquefied natural gas (LNG) market entrants is forcing Trinidad and Tobago to go hunting for new buyers, including Jamaica. Energy companies, which see an uptick in rivalry for buyers in major markets in the United States, Europe and Asia, says it has forced Trinidad into a defensive posture.
"We have entered an era of increased competition and it can be argued that we no longer have or enjoy the first mover to market advantage that we have had," Robert Riley, chairman and chief executive officer of BP Trinidad and Tobago (BPTT) said. "At BPTT, we refer to the new LNG entrants collectively as a wave because of the sheer volumes that will be added to the market," he told business leaders in Port-of-Spain.

Major shareholder
BPTT is a major shareholder of Trinidad and Tobago-based Atlantic LNG whose four processing trains have a total production capacity of 15 mm tpy. Other shareholders are BG, Repsol, Suez and the National Gas Company of Trinidad and Tobago. The new entrants, according to Riley, will add 12 bn cf of gas per day between 2008 and 2011, and there will be, he said, a 50 % increase in global LNG over the next three years. The global LNG production is currently about 22 bn cfpd.
Atlantic LNG exports to the United States (US), Europe, The Dominican Republic and quite recently began sending supplies to Chile and Brazil. It also sells on the spot market in Asia.

Earlier, Trinidad and Tobago's Prime Minister Patrick Manning said sending LNG to stimulate investments in Jamaica's alumina sector has become a matter of national priority for his country. The two countries had in 2004 signed an agreement for the supply of 1.1 mm tons of LNG per annum over a 20-year period, beginning 2009 for use by the Alcoa-controlled refinery Jamalco, and Marubeni/Taqa owned Jamaica Public Service Company (JPS).
Trinidad previously said it could not supply the LNG to Jamaica because of limited reserves. But Manning said a supply of gas to Jamaica might now become available because of deteriorating markets outside the region.

His outreach to Jamaica comes as energy companies there are forecasting a decline in natural gas revenue, as Riley did, and pointing to a downturn in related energy industry activity. Energy earnings have also been hit by lower prices for ammonia and methanol on world markets still deep in recession. At this time last year, oil prices were on their way to their peak of $ 147 a barrel, while natural gas prices were at the $ 7 mark. Crude is trading at or around $ 70 and natural gas at $ 3.80 per cubic foot.
Riley said the additional volumes of LNG from the new entrants will have to be absorbed into a low-demand environment and that world growth, when it returns, could be sluggish.

"The new entrants are big low-cost producers who have the ability to 'give away' this gas because it is produced along with significant liquids. These liquids are so valuable that they drive production with the gas a virtual by-product. So, we have a wave of LNG coming on to the market. That wave will also find its way to US shores, with as much as 8 bn cf a day making its way to the US market," he said.
The US, he said, acts as a "sink" for natural gas, as it has both the largest current consumption and storage capacity. The US, the largest market for Trinidad's natural gas, is also a driver of LNG prices because of the availability of its own domestic supplies. In just three years, the US has moved from gas shortage projection to indigenous supply for the next 100-years, Riley said.

Roughly 70 % of Trinidad's gas is sold on the world market, and while the global economy has changed, Riley said, the commercial structure of the natural gas market in Trinidad remains the same.
"In the BP world, for example, our business, whilst a robust one, is one of the lowest-margin businesses we have across the upstream sector. It is essentially a low-margin business because of the lower gross revenues we access for the largest portions of the gas and the relatively high rate of government take at 70 cents on the dollar," he said.

What makes it work, he continued, is the relatively low cost of finding and development of the gas, coupled with the high volume produced and sold.
"It is best described as a high-volume, low-margin business. To be profitable as a natural gas producer and yield high government revenues in a natural-gas-based economy, you need to produce very large amounts at lowest cost," said Riley. "This is a fundamental of the gas business as we have it in Trinidad and critical to our understanding of how to sustain it successfully long-term."

Riley said Trinidad's domestic natural gas industry should stretch past another 20 years.