DeNovo gas supply contract hits snag in Trinidad and Tobago

The Trinidad and Tobago government has not approved a plan by DeNovo Energy to sell 90 MMscfd of natural gas directly to the world’s second-largest methanol firm Methanol Holdings Trinidad Ltd. (MHTL). Government officials tell OGJ that under the production-sharing contract for Block 1(a), DeNovo has to get approval from the Ministry of Energy and Energy Industries for any marketing plan for its gas.

The Trinidad and Tobago government has not approved a plan by DeNovo Energy to sell 90 MMscfd of natural gas directly to the world’s second-largest methanol firm Methanol Holdings Trinidad Ltd. (MHTL). Government officials tell OGJ that under the production-sharing contract for Block 1(a), DeNovo has to get approval from the Ministry of Energy and Energy Industries for any marketing plan for its gas.

DeNovo is owned by Germany’s Proman AG and the company recently bought Centrica’s stake in Blocks 1(a) and 1(b) on which lie Iguana, Zandolie, and Anole fields as well as a fourth prospect named Whiptail.

The company had announced a plan to sell 90 MMscfd directly to MHTL including building a dedicated pipeline to the methanol producer’s 4 million tonne/year facility. However, this has hit a snag because in Trinidad and Tobago, upstream companies are not permitted to sell gas directly to downstream producers. Instead they are required to sell to state-owned National Gas Co. Ltd., which uses its extensive pipeline network to transport the gas and then sells it to the downstream producers.

Government officials in the Caribbean twin-island nation said despite pressure from companies, upstream and downstream alike, NGC’s role as an aggregator will not change because there is concern in a time of gas curtailment that the upstream companies will sell to the highest bidders while some companies will simply not get gas and will have to close down rather than all the companies facing gas curtailment.

“We will not allow a situation to develop like Australia where there is no aggregator and as a result some companies have to shut down simply because they have no gas,” a source close to the negotiations told OGJ.

OGJ has also learned that Denovo Energy was informed that it will not be allowed to build a dedicated pipeline because NGC already has spare capacity along its pipeline and because there are issues of cost recovery in the PSC. This will mean less taxes for the government should a pipeline be built. The government has a share of the gas in all PSCs, which is as high as 50%, and it can take its share as either gas or as taxes. In this case, the government is insisting on the gas so it can be sent to the general grid and not dedicated to one company.

MHTL produces a quarter of the world’s methanol and it announced that it would remove 25% of its production by closing two of its plants due to gas curtailment on the island nation.

It has been in negotiations with NGC for nearly 2 years for a new gas agreement and requires 215 MMscfd to run its three plants that are now out of contract.

OGJ was told that while those plants require 215 MMscfd to operate at their nameplate capacity, for some months between 2015 and 2016 NGC delivered 172 MMscfd of gas to the plants on a month-by-month contract, reflecting a 20% gas curtailment.

NGC last year offered to deliver 115-130 MMscfd to MHTL, which would have allowed the four plants to operate if one was taken down for maintenance on a rolling basis.

MHTL sources told OGJ that in November 2016 NGC was only prepared to offer MHTL 45 MMscfd. In offering MHTL only enough gas for one methanol plant citing that it was obliged to give preference in the supply of gas to companies that had contracts with NGC.

NGC and BP Trinidad & Tobago are in negotiations for gas agreements from BPTT to NGC and also for the supply to Train 1 of Atlantic LNG.

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