‘ T&T
did not apply Chavez savvy’
By Asha Javeed
The Trinidad Guardian
Port
Spain
Petroleumworldtt.com
05 13 07
The
Caribbean’s proximity to Latin America—with
its strong leftist movements and support of radical
Venezuelan leader Hugo Chavez—has left some
commentators worried about a possible spill-over
effect.
Jamaica’s signing of a Memorandum of Understanding
with Chavez in March for the supply of liquefied
natural gas from the Loran/Manatee field which
straddles T&T and Venezuela by 2009 has pushed
the issue of energy security to the top of the
Government’s agenda.
It
raises questions about T&T’s role
in supplying fuel to regional markets and whether
it will be displaced as the dominant supplier in
the Caribbean.
Former
finance minister Wendell Mottley commented that
Venezuela’s reserves stand at $30.75
billion with petroleum sector reserves growing
from $11 billion in 2003 to $26 billion in 2005
compared to T&T’s 2005 revenues of $2
billion. He noted that Petrotrin remained the most
vulnerable.
“Compared with the aging Pointe-a-Pierre
refinery, Petroleos De Venezuela South America
(Pdvsa) has several state-of-the-art refineries
capable of supplying a superior quality product
than Petrotrin’s as these markets upgrade
their quality standards, and at prices that are
politically rather than economically determined,” he
said at the Petroleum Conference hosted by the
South Chamber last year.
Minister in the Ministry of Finance Conrad Enill
indicated that state-owned oil and gas company
Petrotrin will have to look for new markets for
its crude. (See box).
Energy
consultant Tony Paul explained that Caribbean
countries, as consumers of energy, would look for
the best price while T&T as a supplier would
look for the best market.
“The real issue in the Caribbean is not
whether or not they will get oil or gas or fuel
for energy. It is whether they can afford it. And
I think the energy security issue is around that,” he
explained to the Business Guardian in an interview
last week.
He
explained that what Chavez has done is given
the Caribbean an affordable alternative to T&T
which doesn’t mean that T&T could not
have kept the market by competing along the same
lines. “What T&T did not apply is financial
savvy or commercial savvy in the way that Chavez
did.
“He actually made a commercial play and
got strategic mileage for it. My interpretation,” he
mused.
Chavez’s actions—the radicalism and
politicising—tend to take away from the commercial
aspects of PetroCaribe.
“Chavez isn’t
giving away oil, you know. Chavez is creating
strategic alliances by
offering oil at preferential financing terms. Chavez
is giving up current revenue for current benefits
in kind and potential other commercial benefits
in kind as well.”
He qualified this by pointing out that refineries
and ships get margins of profits which override
the fact that oil is being shipped at deferred
payments.
Energy security
Establishing security is another issue. Paul explained
that the expenditure of small island states on
energy as a percentage of their gross domestic
product (GDP) is a disproportionate number which
makes economic performance highly sensitive to
oil prices.
He explained that the Caribbean markets were previously
locked down by international suppliers which controlled
the toll gate and therefore the mark-ups to end
users. PetroCaribe allowed countries to build their
own terminals which removed the international supplier
barrier. Caricom countries were guided in the direction
of de-privatising their oil industry infrastructure
in favour of setting up state-guided facilities.
“Again, this is not new strategy because
it is a small terminal, it is a small volume. Where
do you get the fuel from: T&T and Venezuela.
Both countries were in a position to take advantage
of that. T&T, if they choose to, could have
handled Venezuela in that strategy but was probably
never offered the opportunity in this round. To
my knowledge, that was offered many years ago.”
The issue therefore arises: how much to spend
on fuel with reduction of fuel import uppermost
in the mind of governments?
“Energy
security speaks about the supply and volume used.
It could be moved to reduce consumption,
best practices, incentives for conservation, substitution
for cheaper forms of power or finding your own.”
How to reduce the fuel costs?
“That only works if we get natural gas into
the market cheaper than oil. That is not hard to
do because, traditionally, natural gas has been
cheaper than oil. In addition to which, T&T
can play a role. It can seek to trade to get into
the carbon credits by offering natural gas for
credits.”
In terms of reducing the fuel import, the question
is: how good small countries are at negotiating
their energy prices and how flexible the market
is?
This
time the market isn’t very flexible
because of high prices. “PetroCaribe is a
good option,” Paul said.
As for the US?
“I think it is probably in the US’ best
interest, and I could be wrong, for T&T to
play a role. You can’t have that big divide.
The US needs Venezuela’s natural resources:
oil and gas. So somebody has to play that role.
It’s in T&T’s interest to get the
natural gas to come to shore. It’s in the
US interest to get natural gas to come to the US.
It could be in Venezuela’s interest to get
natural gas developed quickly. They could all come
together at the same time and everyone could benefit.”
PetroCaribe initiative
The Petrocaribe initiative was promulgated in
June 2005 at a time of record high oil prices on
a debt-ridden Caribbean dependent on tourism.
Thirteen
Caricom governments—including Cuba
and the Dominican Republic—signed an agreement
which converts part of the payment for oil shipments
into long term low-interest loans.
T&T’s opposition to Chavez’s
PetroCaribe left it sidelined along with Barbados.
The spill-over effect
What does it mean for Petrotrin and its refinery
products?
“Again, it comes back to a person’s
ability to market its products. Unfortunately,
we don’t spend a lot of time there and that
is a big part of the value train, people who trade
commodities,” Paul explained.
Paul
said that Petrotrin’s trading arm,
while not mature, does not disqualify it from being
part of the trading game.
As for looking for new markets for its crude,
Paul insisted that Petrotrin must be part of the
trading game.
“I am not sure that Petrotrin’s
capability has been developed enough given the
track record
they have in trying to find new markets. I am not
aware that they have a strong trading capability.
Now, they may well find a knight in shining armour
to take all their products. That might be a trader,
that might be an end user. Ideally you want to
get to the end user.”
He
acknowledged that the issue is being underplayed.
He said an examination of the percentage of revenue,
Petrotrin’s product lines, its market and
how much of it is Caribbean and the PetroCaribe
displacement needs to be done and its no simple
analysis.
One of the options is a new refinery.
While the present refinery is configured to produce
few, low-end products, there is need to get a more
complex refinery to get more high-end products.
“If
that happens, the market would no longer be Caribbean
because the Caribbean is the low-end
product but we will still produce Caribbean products.”
Economics
aside, Mottley commented that he felt T&T
should elevate the level and sophistication of
its diplomacy in the successful promotion of
its national interest.
“The obvious first target of T&T’s
sharpened diplomacy has to be our Caribbean sisters.
But we have to be pragmatic in taking into consideration
their interests as well. As a major Caribbean energy
provider, T&T should have a clear construct
of regional energy integration and how diplomacy
might be harnessed to that end,” he said.
Transition
The majority of Caribbean countries use oil rather
than natural gas. The Eastern Caribbean Gas Pipeline
Project (ECGP), should it happen, will introduce
natural gas into the power market.
“The option to the Caribbean will be natural
gas or LNG until CNG comes into its own and that
is not far off. That can happen. The demand is
not huge. Then it becomes a question of economics:
the further you go, LNG becomes more attractive
if your market is big enough to support the infrastructure
and shipping costs,” said Paul.
To move the Caribbean economies to natural gas
depends on the aggression of governments. Once
the ECGP is in place, the markets of Guadeloupe
and Martinique can be easily transitioned.
“They could go to all natural gas when the
pipeline exists. They have the fuel oil as a backup,” said
Paul.
In Barbados the demand will be so big they can
go forward with natural gas, he said.
“The other islands, for instance the Dominican
Republic, they have LNG. They are now looking to
bring in coal which is cheaper. Colombia is pushing
coal. Jamaica is asking for natural gas,” he
said.
Paul’s
prediction is that the smaller islands do not
have the infrastructure or the technology
in place but a transition can technically happen
in 15 years.
Integration
Paul
explained that Latin American politics has wrestled
power in the hands of indigenous people
for the first time and, in this group, Chavez sees
himself as the “first person of colour to
take power in Venezuela.
“US policy has ignored Latin America’s
social issues. There is a lot of economic decline.
“What you are seeing is the politicians
playing on that and getting into power. So Chavez
is seeing the opportunity. He didn’t create
it. It happened in the region at the same time.
What you are seeing is people who have a common
history and a common place,” he said.
He points out that Caribbean history is entirely
different.
“The thing about the Caribbean is that there
are many islands. Will Venezuela be able to corral
the Caribbean in the same way that they did Latin
America? I don’t think it is possible,” he
said.
Mottley
suggested that when a balance of T&T
and island interest is being served, T&T must
then seek the support of Brazil and Mexico with
the region’s assistance in “delicately
balancing our position between our revolutionary
neighbour, only seven miles distant and our commercial
and social ties with North America and Europe.”
Petrotrin seeking new markets
With
Venezuelan President Hugo Chavez meeting the
oil needs of the Caribbean under his PetroCaribe
initiative, T&T’s State oil company Petrotrin
will now have to look for new markets for its crude.
PetroCaribe, which was signed in June 2005, include
13 members of Caricom and Cuba and the Dominican
Republic.
Conrad
Enill, Minister in the Ministry of Finance, acknowledged
last week that T&T could be displaced
by Venezuela as the regional energy supplier.
“Even if we do, that is a possibility based
on the decisions that the other countries make.
Part of the refinery upgrade at Petrotrin is to
make crude that will allow us to go into other
markets besides Caricom. So what we’ve done
is organised our resources to go to places where
we do not now go on the basis of investment,” he
said.
Accessing markets should not be a problem based
on the demand for the product and the competitive
shipping rates now available, he noted.
He explained that Petrotrin continues to operate
as it has in the past and it continues to upgrade
its refinery capability to go into markets where
there is a significant demand for the product.
The company has almost raised US$750 million required
for part of its refinery upgrade. It floated a
senior unsecured bond, underwritten by Citibank,
with a tenure of up to 15 years to begin work on
a three-year Gasoline Optimisation Programme.
Investor
service Moody’s, which gave the
notes an investment-grade rating of Baa2, reported
that the project “should allow for an improved
product mix with improved gasoline and lighter
distillates yields and increased compliance with
certain environmental specifications, greater reliability
and over the long term, lower refining unit costs.”
Enill explained that with the company now having
to look for new markets for its crude, a new refinery
becomes more viable.
“In order to upgrade you need a new refinery
because you cannot do certain things because of
its (Petrotrin) current configuration,” he
said.
“The question of the upgrade was to focus
on how it can produce more for its market. Now
whether the market is Europe, South America, Nigeria,
it doesn’t matter. For the company to be
able to do that, the requirement is an upgrade
and that is what's happening,” said Enill.
The energy super company
By
the end of June stakeholders in the energy industry
will begin deliberations on the merger
of four state-owned energy companies—Petrotrin,
National Energy Corporation, National Gas Company
and National Petroleum Marketing Company Ltd—to
form an international energy corporation.
Conrad
Enill, Minister in the Ministry of Finance, said
that T&T had reached a stage in its energy
sector development where the question of moving
forward was prevalent.
He
noted that the country’s energy wealth
had spawned downstream activity but there was now
a need to get into more secondary activities.
In 1968, the then government considered the establishment
of a National Oil Company but those plans fell
through.
Asked
whether he thought the Government was getting
ahead of itself and why would a merger be successful
now, Enill replied: “First of all we are
not saying it is going to be successful. What we
are basically saying is that we are bringing the
group together.”
He
said the Government had based its decision to
merge the companies on other models around the
world. He qualified this by saying that collecting
taxes from companies, in Trinidad’s case
multinationals, “does not allow you to know
the business in the way you need to know the business.”
He insisted that knowledge of the business to
manage the depleting resource has prompted the
Government to become more involved in the business.
Prime Minister Patrick Manning had told energy
executives at a luncheon hosted by British Gas
that this was the future direction of the energy
sector, but hinges on the agreement of stakeholders
in the state enterprises.
Manning
said such a company came with risks such as the
risk of irresponsible trade union activity
which could affect the company’s image.
The options
Petrocaribe
Natural gas for which Trinidad is positioned in
some areas
The Eastern Caribbean Gas Pipeline Project which
will connect Barbados, Martinique and Guadeloupe.
Distance and geology of Grenada and St Vincent
does not make a pipeline option feasible.
Trinidad
Guardian
Thursday 10th May, 2007
Copyright ©2007
Trinidad
Guardian All Rights Reserved.
