Opinion
- Editorial
STCIC:
Linking energy to manufacturing
The
establishment of a polyethylene industry in T&T
has long been an ambition of governments dating
back to the 1960s.
In
April of this year T&T came closer to realising
this ambition when the then Government signed an
MOU for the construction of an ethylene complex.
Details of this project were presented to Parliament
by the Minister of Energy on July 5.
This
project has the potential to further deepen the
process of natural gas based industrialisation and,
more importantly, provide an opportunity to link
the energy sector to the manufacturing sector.
In
the past, the main constraint to the development
of an ethylene complex was the volume of natural
gas produced in T&T which was never sufficient
to allow for the required amounts of the main feedstock
ethane. Ethane is a constituent of natural gas and
accounts for about three per cent of natural gas
in T&T.
Natural
gas is mainly methane (which accounts for about
94 per cent). As a result of this composition large
amounts of natural gas were required to produce
the amount of ethane required to justify a world
scale ethylene complex.
With
the commissioning of LNG Train IV and T&T’s
natural gas production now in the region of 3.8
billion cubic feet per day, the requisite amounts
of ethane is now available.
Based
on 2006 figures, the NGC can supply approximately
28,000 barrels of ethane per day to Phoenix Park
with ALNG supplying another 24,000 barrels per day
(based on production from four Trains). This combined
52,000 barrels of ethane per day can support a world
scale ethylene plant of 800,000 metric tonnes per
year.
The
availability of quantities of ethane to justify
world scale ethylene complex means that the natural
gas sector has reached a tipping point where because
of the large volumes of gas we now produce there
is another opportunity to add value to this asset
that didn’t previously exist.
Global
scenario
The
decision to build an ethylene complex in T&T
is driven by the same global economic factors that
have led to the establishment of methanol and ammonia
industries in T&T. These factors include the
cost of natural gas in T&T and our proximity
to North America. Globally the demand for ethylene
and polyethylene is on the increase.
In
2001, global ethylene production was 90.4 million
metric tonnes, with an estimated value of US$60
billion. In 2004, this figure had increased to 114
million metric tonnes.
McKinsey
estimates that ethylene capacity would increase
to 148 million metric tonnes by 2010 with most of
this new capacity will be built in the Middle East
due to the cheap price of ethane and the proximity
to China and India.
Project
details and project financing
The
proposed ethylene complex in T&T will be constructed
on 250 acres of land with construction beginning
in Q4 2007 and taking place in three phases. First
production is expected in 2010. The project is expected
to cost US$1.5 billion. During construction the
project will require some 4000 workers and once
completed will provide permanent jobs for 500 people.
Of
concern here is the availability of labour. The
unemployment rate in T&T is currently under
seven per cent and the labour available for the
energy sector is now stretched thin due to the number
of projects currently in progress.
The
plant will be constructed by Westlake International
Investments Corporation a fully owned subsidiary
of Westlake Chemical Corporation a publicly traded
company in the United States of America. West Lake
has thus far established a track record of constructing
11 ethylene crackers and polyethylene plants in
locations throughout the world.
According
to details provided by the Minister of Energy, the
project will be financed by equity 30 per cent and
debt 70 per cent with the Government having the
option of acquiring not less than ten per cent,
and up to 30 per cent equity in the project.
This
debt/equity financing arrangement provides an opportunity
for participation from the local financial sector.
It is hoped that a portion of the (ten-30) per cent
would be made available to the local private sector.
Although
a number of energy investment funds have been established
in T&T the number of investment opportunities
available to these funds has been limited.
With
respect to the 70 per cent debt financing option,
the STCIC has recommended that under the local content
and local participation policy framework that Government
mandate that for projects such as this one source
a component of its financing from the local financial
market.
While
it is understandable that the local capital market
is limited by its size, it may be possible that
local financial institutions can provide a percentage
of project financing.
Linking
energy and manufacturing
As
we mentioned in a previous column on polypropylene,
the linkage between the energy sector and the manufacturing
sector is weak.
Apart
from receiving relatively cheap electricity and
competitively priced natural gas (which amounts
to less than a per cent of T&T’s total
daily production), the competitive advantage of
the energy sector has never been used to leverage
a similar advantage for the manufacturing sector.
Local
manufacturers involved in the plastic industry must
import resin for their operations. A locally available
source of resin would greatly reduce the cost of
resin since a major component of the cost of imported
resin is the freight cost.
Research
published by the former Tidco indicates that in
2002 there were 330 companies involved in the plastics,
printing and packaging sector in T&T. These
companies collectively employ some 11,000 people.
The
products they manufacture include plastic bags,
PVC pipes and water tanks. It is estimated that
in excess of 65,000 tonnes of resin is imported
to meet local demand per annum.
Some
the products that can be manufactured from polyethylene
are: containers, pipes, appliance parts, bottle
crates, film sheeting, bags and bowls.
The
establishment of a polyethylene complex is step
in the right direction. In the past there has been
much debate about the diversification of the economy
away from its dependence on oil and gas.
While
there is a need to build other sectors, attention
must also be paid to the diversification of the
energy sector so that we participate not only at
the level of primary and secondary products but
at the level of tertiary products.
The
polyethylene complex will therefore only bring maximum
benefits if it is used to build competitive advantage
within the local plastics, printing and packaging
sector.
STCIC
is
Southern Trinidad Chamber of Commerce. Petroleumworld
not necessarily share these views.
Editor's
Note: This commentary was published by The
Trinidad Guardian,
on
July 20th 2006, Petroleumworld reprint this article
in the interest of our readers.
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Petroleumworld
07 23 06
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