THE reason the Caribbean Gas Chemical Limited (CGCL) contract was impaired is related to the significant increase in the price National Gas Company of Trinidad and Tobago (NGC) pays for natural gas since 2019.
When the NGC/ CGCL contract was finalised in 2015, the NGC would have based the pricing formula on a view of what they were paying for natural gas, the methanol market and future trends.
It should be noted that the price that NGC realises for the natural gas it sells to CGCL is indexed to methanol.
What was certainly not foreseeable in 2015 was the significant increase in the price the NGC pays for natural gas from its suppliers. This situation is related to the “now famous” gas negotiations in Houston in 2017.
These new contracts between NGC and two upstream suppliers became effective in 2019. They significantly distorted the natural gas market in T&T.
The first manifestation of this distortion was the fallout between NGC and CNC which morphed into a public spat. At that time, the Ministry of Energy in a press release dated January 26, 2018, admitted that “the gas supply situation and in particular, the pricing of gas has changed significantly, and the Government has been, and will be, engaging upstream gas suppliers and downstream gas purchasers to address this”.
Therefore, there were two forces at play when the contract became effective in 2020. The first is the much higher price the NGC had to pay for natural gas as of 2019 and the second was the lower price it would realise for sales to CGCL on account of low methanol prices in 2020.
Given the publicity of this contract, it would be of interest to know what assumptions were used by the NGC in coming to the decision to impair the contract based on 2020 conditions. I say this because methanol prices have rebounded in 2021 and are expected to remain buoyant for some time. In that circumstance this contract will be a cash positive contract for the NGC in 2021 and beyond.
The actual decision by the NGC to impair one of its contracts under the IAS 37 rule is also debatable and the assumptions used to make that decision should be questioned.
What was the methanol price or prices used to make that determination?
The impairment was based on an aberration in market conditions for methanol in 2020.
Could the NGC say whether the contract is still an onerous contract in mid-2021 given the higher prices of methanol currently being realised?
These are questions that need to be answered by the NGC finance department.
I assume that in 2021 with higher methanol prices the contract will be re-evaluated. One wonders what will happen, and what will be the response of Energy Minister Stuart Young when this impairment is re-calculated under more normal market conditions next year and the NGC shows a gain.
At the end of the day, despite all the odds, despite all the criticism, the aberrative market conditions of 2020, politics and impairment, there is an operational one million tonne per day methanol plant in La Brea which carries forward our story of industrialisation.
Ramnarine Blames 2017 Houston Trip for NGC Losses
THE reason the Caribbean Gas Chemical Limited (CGCL) contract was impaired is related to the significant increase in the price National Gas Company of Trinidad and Tobago (NGC) pays for natural gas since 2019.
When the NGC/ CGCL contract was finalised in 2015, the NGC would have based the pricing formula on a view of what they were paying for natural gas, the methanol market and future trends.
It should be noted that the price that NGC realises for the natural gas it sells to CGCL is indexed to methanol.
What was certainly not foreseeable in 2015 was the significant increase in the price the NGC pays for natural gas from its suppliers. This situation is related to the “now famous” gas negotiations in Houston in 2017.
These new contracts between NGC and two upstream suppliers became effective in 2019. They significantly distorted the natural gas market in T&T.
The first manifestation of this distortion was the fallout between NGC and CNC which morphed into a public spat. At that time, the Ministry of Energy in a press release dated January 26, 2018, admitted that “the gas supply situation and in particular, the pricing of gas has changed significantly, and the Government has been, and will be, engaging upstream gas suppliers and downstream gas purchasers to address this”.
Therefore, there were two forces at play when the contract became effective in 2020. The first is the much higher price the NGC had to pay for natural gas as of 2019 and the second was the lower price it would realise for sales to CGCL on account of low methanol prices in 2020.
Given the publicity of this contract, it would be of interest to know what assumptions were used by the NGC in coming to the decision to impair the contract based on 2020 conditions. I say this because methanol prices have rebounded in 2021 and are expected to remain buoyant for some time. In that circumstance this contract will be a cash positive contract for the NGC in 2021 and beyond.
The actual decision by the NGC to impair one of its contracts under the IAS 37 rule is also debatable and the assumptions used to make that decision should be questioned.
What was the methanol price or prices used to make that determination?
The impairment was based on an aberration in market conditions for methanol in 2020.
Could the NGC say whether the contract is still an onerous contract in mid-2021 given the higher prices of methanol currently being realised?
These are questions that need to be answered by the NGC finance department.
I assume that in 2021 with higher methanol prices the contract will be re-evaluated. One wonders what will happen, and what will be the response of Energy Minister Stuart Young when this impairment is re-calculated under more normal market conditions next year and the NGC shows a gain.
At the end of the day, despite all the odds, despite all the criticism, the aberrative market conditions of 2020, politics and impairment, there is an operational one million tonne per day methanol plant in La Brea which carries forward our story of industrialisation.