A note from Dax Driver, CEO of the Energy Chamber:
19th December 2014
One of the points that has been raised by the Minister of Finance and Minister of Energy in response to concerns over falling oil prices is that Trinidad & Tobago is primarily a gas-based economy and that while oil prices have fallen below the US$80 budgeted figure, gas prices remain significantly above US$2.75 per mmbtu that was used in setting the national budget.
Based on the statements of commentators in the media and some presentations that I have seen, there is considerable confusion about this US$2.75 figure. Many commentators have assumed that it refers to the widely quoted United States Henry Hub gas price and people have used discussions from the US media about future US gas prices to express opinions on where Trinidad & Tobago gas prices are heading. This is misleading.
In reality the US$2.75 figure used in the budget is the Trinidad & Tobago wellhead gas price. The T&T wellhead gas price is not a published figure and is not directly correlated to any of the main gas benchmark prices. It is a combination of a variety of different contracts and sales to different markets. This includes gas sold to the National Gas Company (NGC) under a variety of contracts from the four main gas producers and gas sold through the Atlantic facility to a wide range of different LNG markets. The marketing arrangements for the different LNG trains are all different, as are the realized prices in the various markets that LNG is sold to. Some LNG is sold under long-term contracts while some is sold on the spot market. Some domestic gas contracts with the NGC are at set prices while others are indexed to final commodity prices. Under current market conditions the value of each unit of gas sold will be highly variable, probably from as low as US$ 1 per to as high as perhaps US$ 6 per mmbtu.
The T&T wellhead gas price is a composite of all of these prices.
So given all of this, which benchmark prices should we be watching to get a sense of where T&T wellhead gas prices are heading? Well it needs to be a combination of Asian, Latin American and European gas prices, and Henry Hub (which still determines some contract prices) plus ammonia prices. Not all of these prices are easy to find, so it is very difficult to tell what the wellhead price is likely to be.
Nevertheless, in very general terms we know that almost all of the important gas prices have some link to oil prices and they will have been heading downwards over recent weeks and months. The one exception is ammonia prices, which seem to be keeping high: this is good news for the NGC, the ammonia producers and upstream companies with ammonia indexed gas contracts but is not going to change the overall wellhead price picture at any great extent.
You can find average annual wellhead gas prices for the previous year by digging through company’s Annual Reports and SEC filings, but these are by necessity very much after the fact (see graph below). There is absolutely no reason to believe that the relatively high prices obtained by bp in 2013, which seemed to have come from effective diversion of LNG cargoes to high price markets, would also have been realized in 2014. We just don’t know. What the historical data does show is that there is no relationship between the Henry Hub price and the realized Trinidad & Tobago wellhead gas prices. So we must stop quoting Henry Hub when we are talking about T&T gas prices.
Perhaps it is time that the Ministry of Energy added a composite T&T monthly wellhead gas price table to its excellent monthly bulletins?