At a Point of Inflexion : The Downstream Petrochemicals Industry in Trinidad and Tobago

The Downstream Petrochemicals industry has experienced great success since the implementation of the Point Lisas strategy in the mid-1970s. However, over the last 10 years, the Downstream Petrochemicals industry has faced several challenges. First, Trinidad and Tobago’s natural gas reserves have declined steadily since 2002 and its R/P ratio has declined from over 35 years to less than 10 years by 2017. The cost of finding and developing new gas fields has increased for the upstream companies who would therefore want a higher netback price at the wellhead. Netback margins are calculated for ammonia, methanol and LNG assuming new and existing plants under certain financial assumptions. The results support the conclusion that existing plants will be earning a lower than target rate of return and/or fail to generate sufficient cash flow when product prices are cyclically low and as gas inlet prices increase. It also raises prominently the issue of gas allocation as between downstream petrochemicals and LNG using netback value as a criterion for the allocation decision. However, while netback value is a critical factor, other considerations ought to bear on any gas allocation policy, including the economic impact of the industry other than revenues (rents) for the Government.The Downstream Petrochemicals industry is at a point of inflexion. In a scenario of scarce and expensive gas feedstock, the industry is set for decline and possible demise. Energy policy has not adequately addressed the challenges which the industry now faces. The current explicit and implicit structure of incentives would seem to encourage (a) upstream companies, who have little or no interest in petrochemicals, to maximise the LNG value chain; (b) the Government to maximise the rents from natural gas to support government current expenditure; and (c) petrochemical companies to shift incremental investment in new plant to other locations while running down existing plants to eventual closure