Home' Trinidad and Tobago Guardian : December 18th 2014 Contents DECEMBER 2014 • WEEK THREE www.guardian.co.tt BUSINESS GUARDIAN
Higher-than-expected labour cost has
pushed the cost of constructing the Mit-
subishi Corporation/Massy Holdings/Inte-
grated Chemical Company Ltd s methanol-
to-petrochemicals plant up by $640 million
Sources at both Massy and Mitsubishi tell
the Business Guardian that the company
has had to take the hit in the higher wage
bill and the project that was initially to cost
US$850 million has now increased to $950
million. Further, it is expected that the main
contractor will have to forego some of his
profits in return for a stake in the project.
Sources told the BG: "We looked at all the
possibilities and none of them quite worked
out for us. We looked at bringing in Chinese
labour but when we cost it and looked at
the productivity, we felt it was not going to
lead to a reduction in the construction cost.
We also looked at areas like Pakistan and
India but, again, it did not work out. We
have decided to stay with the local labour
which has the expertise of constructing these
Interviewed recently at the opening of the
Port of Galeota, Energy Minister Kevin Ram-
narine confirmed that the project was
US$100 million over budget but he did not
feel that the increase jeopardised the eco-
nomics of the project.
Mitsubishi Corporation leads a consortium
that includes Mitsubishi Gas Chemicals,
local partner Massy Holdings Ltd and Inte-
grated Chemical Company Ltd (ICCL), a
Texas, United States-based company.
Negotiations were led by Mitsubishi Cor-
poration for the project, the first phase of
which will involve a total investment of
US$950 million and will be situated in the
Union Estate Industrial Park near La Brea
in south Trinidad.
The first stage of the Methanol to DME
project will produce one million metric tonnes
per year of DME.
During phase two the Mitsubishi consor-
tium will consider the production of mono
ethylene glycol, (MEG) from Syngas and or
ethane extraction. MEG can be used to can
be used to develop additional downstream
products like automotive coolants, polyester
fiber and PET resins.
In introducing the project to the Energy
Chamber in 2013, Massy chief executive offi-
cer Gervais Warner had touted the construc-
tion of the plant as one that will be envi-
"This is a methanol-to-DME plant.
Methanol is produced in this country already.
It is what we call a clean fuel. DME is another
green fuel. I would expect the environmen-
talists will be really encouraging us to do
Warner added: "One of the applications
is that it is a substitute for diesel. I would
expect that any environmentalist will want
to see as much DME replace diesel in T&T
because we do not have the cleanest burning
diesel. We have that grey black smoke diesel
that we see on our highways. Won t it be
fantastic to see less of that and more of clean
fuel on our nation s highway? I hope they
can see this is a good."
During the construction phase, the project
is expected to create 3000 temporary jobs
and when completed 180 permanent oppor-
BG has also been told that the issue of
the water supply to the plant has now been
agreed to between the Water and Sewerage
Authority and the consortium. Sources said
that Mitsubishi wanted to have its own
desalination plant to provide cooling water
to the plant. They had argued that the project
would ensure they did not take the precious
commodity away from the residents while,
at the same time, ensuring reliability of sup-
ply.This led to a virtual standoff between
WASA and the consortium with the utility
assuring that it could pump the water from
the Beetham Waste Water Treatment plant
to La Brea without hurting the supply to the
Eventually Environment and Water
Resources Minister Ganga Singh and the
Energy Minister had to step in and the matter
has been resolved.
A certification of environmental clearance
is all that now stands in the way of the final
investment decision being made. This is
expected to be done by January 2015.
High labour cost push
plant up by $640m
Standard & Poor s Ratings Services on Tuesday updated its
price assumptions for Brent crude oil and West Texas Inter-
mediate (WTI) crude oil, according to the methodology set
forth in its "Methodology For Crude Oil And Natural Gas Price
Assumptions For Corporates And Sovereigns."
The rating agency dropped the forecast price of WTI, on
which T&T s national budget is predicated, to US$65 per barrel
(bbl) in 2015 and US$70 per barrel in 2016. S&P s old forecast
prices were US$75 per barrel in 2015 and US$80 per barrel in
On Brent crude---which is closer to the price for which T&T
crude sells, according to BHP Billiton country manager Vincent
Pereira---S&P shaved off US$10 per barrel. Its forecast for
Brent crude in 2015 was changed to US$70 per barrel from
US$80 per barrel previously. In 2016, S&P revised its forecast
down from US$80 per barrel to US$75 per barrel.
Interestingly, S&P did not revise its forecast prices for Henry
Hub natural gas. Both Energy Minister Kevin Ramnarine and
Finance Minister Larry Howai have said the country gets most
(about 67 per cent) of its energy revenue from gas, but that
very little of T&T s LNG exports now go to the US.
S&P maintained its forecast for Henry Hub gas price to
remain at US$3.75 per million British thermal units (mmbtu)
in 2015 and increase to US$4 per mmbtu in 2016 and beyond.
T&T s budget is calculated on a natural gas netback price of
US$2.75 per mmbtu, which takes sale price and subtracts the
cost of shipping, liquefaction and regasification.
However, in Parliament on November 28, Howai had said
that with an oil price of US$60/bbl---with all else, especially
gas prices, remaining constant---the country would face a $2.4
billion reduction in total revenue. He said also that in that
scenario the fuel subsidy would be reduced by $676 million,
and the overall fiscal deficit will move to 3.2 per cent of gross
domestic product (GDP) from 2.3 per cent of GDP. Up to press
time, Howai had not responded when asked by e-mail if this
is what has occurred, as WTI traded as low as US$53.60 per
"Over the coming weeks, we will be updating our forecasts,
and we anticipate a number of corporate rating actions in the
upstream and oil field service sectors," S&P said. The National
Gas Company of T&T (NGC) is rated by S&P.
"However, any such actions also depend on company-
specific factors, including our other rating assumptions and
issuers flexibility to adapt to lower prices, hedge positions,
and liquidity. We anticipate few immediate sovereign rating
changes as a direct consequence of these updated price assump-
tions, following several outlook revisions earlier this month,"
Repeated downward revisions
The repeated downward revisions to its 2015-2016 oil price
assumptions reflect the precipitous declines in futures prices
for both Brent and WTI, S&P said.
"This reflects a combination of relatively unconstrained
supply and weaker demand. Our oil assumptions for 2017 and
beyond are unchanged," S&P said.
"We recognse current spot oil prices are even significantly
lower than our US$70/bbl Brent (US$65/bbl WTI) average
price assumption in 2015. We still expect some stabilisation
and ultimately recovery is likely as oil companies curb production
of high cost wells and push out new capital spending, while
uncertainty also remains on OPEC s future decisions," S&P
From a commercial perspective, a reduction in US shale
development drilling is likely in 2015 if WTI prices remain
below US$75/bbl, which should thereafter slow production
growth and could support prices, S&P said.
S&P quoted energy consultants, Bentek, who estimate that
a 10 per cent cut in annual drilling activity by exploration and
production companies would result in a 4.0 per cent reduction
in production growth in six key US resource plays in 2015 and
a 6.0 per cent reduction in 2016.
Bentek also estimates, S&P said, that a 25 per cent cut in
spending would result in an 11 per cent, and 16 per cent reduc-
tions, respectively. Similarly, such prices render developments
of many deep-water oil fields less economically viable.
Asked on December 2 at what oil price price their exploration
into T&T s deep water would be economical, both Pereira and
BG T&T President Garvin Goddard failed to give a number.
Pereira would only say that the company thinks of its exploration
and production long term.
No near-term drop in US oil production
Growing output from US regions---including the Bakken
shale, Permian Basin, and Eagle Ford shale---has also put
downward pressure on prices, S&P said.
Before the recent price declines, Bentek Energy expected
that US crude oil production would average nearly 10 mbopd
in 2015, a 14 per cent increase over its estimate for full-year
2014 average production of 8.7 mbopd.
"We do not foresee a dramatic drop in near-term US crude
production, but we believe the rate of investment in growth
is likely to slow with prevailing spot and futures prices," S&P
Until the second half of 2014, oil prices had been robust
for about two years due to expectations that demand would
keep pace and concerns over political risk-related supply dis-
ruptions. Prices subsequently declined as shipments from
Libya resumed and fighting in Iraq did not interrupt production
from the main southern oil fields.
S&P said: "In addition, we understand that Saudi Arabia---
OPEC s most influential member---is maintaining current oil
production levels rather than cutting output to support prices.
Furthermore, a series of negative economic data has led to
reduced expectations for oil consumption, including the Inter-
national Energy Agency, which reduced its global demand
growth forecast for 2015 to 900,000 barrels/day in its December
monthly report from 1.1 million barrels previously."
Lastly, S&P said, a strengthening US dollar relative to other
major currencies has driven down the dollar-price of oil. "The
combination of relatively unconstrained supply and weaker
demand has prompted us to lower our average price assumptions
for 2015 and 2016," S&P said.
From a sovereign perspective, we believe Brent below
US$80/bbl is less than the fiscal breakeven price---the implied
oil price needed to balance government budgets---for many
major oil-producing countries.
"In our view, sovereigns that are more vulnerable to falling
oil prices are likely to attempt to influence key decision makers
within OPEC," S&P said.
"Geopolitical risks related to these or other factors persist,
and shipments from Libya in particular could be interrupted
again. Such security factors were likely responsible for elevated
prices earlier in 2014 and before. Barring supply interruptions
or improved economic growth, however, we anticipate that
markets will be well supplied, leading to prices markedly below
the levels of the past two years."
S&P's lowers crude forecasts by US$10 per barrel
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