Phoenix Park Gas Processors Ltd (PPGPL) produces 45,000 barrels per day, of that amount 95.5 per cent is exported to the Caribbean and Central American market, while a mere 4.4 per cent is consumed locally. PPGPL produces propane, butane and natural gas. When propane and butane are combined in different ratios, liquefied petroleum gas (LPG) is produced and it is used in the Caribbean region for cooking. “All of our LPG, propane and butane go the Caribbean market all the way to Barbados, Grenada right up to the Dominican Republic and into Central America—Panama, Nicaragua and Costa Rica. All of those countries, either directly or indirectly, receive our product,” according to Phoenix Park president Eugene Tiah.
Standards are high, since the Gas Processors Association standards are used in its sales contracts and its products. The company has been performing well and has helped to push T&T’s overall credit ratings higher, due to a US$185 million debt issue. Caribbean Information and Credit Rating Services Ltd (CariCRIS), which is the Caribbean’s regional credit-rating agency, supports the development of regional debt markets in the Caribbean. In its 2011 report, CariCRIS reaffirmed the “highest creditworthiness” for PPGPL. “The ratings on PPGPL continue to reflect its strong operating efficiencies manifested in very low operating costs and low break-even prices for natural gas liquids,” the report stated. According to the report, PPGPL has more than 90 per cent of operating capacity under long-term contracts with National Gas Company of T&T (NGC), Atlantic LNG Company (ALNG) and Petroleum Company of T&T (Petrotrin). Operating costs per production barrel was “extremely low at around US$2, compared to an average product price of US$62.40 per barrel.”
Other prices include:
25.8 cents per gallon (cpg) Propane
32.9 cpg Butane
41.9 cpg Natural gasoline
PPGPL operates 24 hours a day, seven days a week and 365 days a year. “There is not an hour in the day when our operation shuts down. We are continuously delivering product to the market via ships. We have built a reputation of being one of the most dependable and reliable sources of supply in the region. We have been recognised as having one of the fastest turnaround times at our dock facilities.” However, Petrotrin also produces LPG, which is enough to meet the domestic market needs. When Petrotrin is down, PPGPL fills the gap by providing product to the domestic market. Petrotrin is preferred by the State for supplying LPG because it is moving the product from one state entity, Petrotrin, to another state entity, National Petroleum Marketing Company Ltd (NP).
Looking at the production process in PPGPL’s operations, Tiah explained, “All these facilities are operated out of a control room. Everything is fully automated, so signals come back to the control room telling operators what is going on with the facility. Then we have crews that do the necessary maintenance. Everything is controlled in a very central, planned way, based on the nature of our operations. We don’t assign resources based on products or things like that.”
Though the company exports products internationally, all of its divisions, including engineering, marketing and business development are located at the Point Lisas-based plant, with a total of 187 Trinidadian employees.
According to Tiah, the gas comes from the east coast of the island.
“There is a pipeline which we own and operate, which connects the Atlantic facilities to ours that brings these liquids in a mixed form to our facility and we separate them,” he said.
The liquids are separated into storage tanks and then the Phoenix Park customers come alongside for various mixes.STORAGE:
PRODUCT QUANTITY STORED
Propane 1 storage tank containing 250,000 barrels
1 storage tank containing 100,000 barrels
Butane 2 storage tanks each containing 150,000 barrels
Gasoline 1 storage tank containing 350,000 barrels
1 storage tank containing 250,000 barrels
Tiah said, “A ship that takes 350,000 barrels, which is a lot of product, would take 36 hours to load. This is world-class; if you go to the Rotterdam port (in Holland) this is what happens.”
With the slowdown in the international and local economy, Tiah said the fluctuating price of crude oil was one of the things that was impacting his business operations, as well as gas curtailment. Gas curtailment is where there are periods where upstream supply is not sufficient to meet downstream demand.
“How that impacts us is that it reduces the throughput through our facility and reduces our NGL, natural gas liquid production levels,” he said.
Tiah said the gas curtailment represented “under ten per cent impact on production.”
The second big issue that would impact on the business is the price of its products, since PPGPL’s products are correlated with crude oil prices. “Crude oil prices have started to fall. Earlier in the year it had gone above US$100 per barrel and crude right now is around US$82 per barrel. The key driver for that is what is happening in Europe and the outlook with regard to the demand in the developed world, that has a significant impact on crude oil prices. “When crude oil prices trend down, our product prices trend down. In addition to a ten per cent impact on production for the year that is forecast as a result of gas curtailment at Point Lisas, the other factor is a reduction in product prices,” he said. Tiah said gas curtailment and reduced crude oil prices would have an impact on earnings and dividends. “Product prices for the first three months (2012) were close to what we had predicted it would be. Looking out for the next six months, which would be July to December (2012), that is when we think a greater impact, particularly to product prices, would impact the business,” he said. While Tiah couldn’t specify through figures because he was not presented with the latest forecast for PPGPL, a forecast is usually done at the beginning of the year for the entire year and then quarterly forecasts are done.
Outlining the challenges to doing business in the international community, Tiah said, “Our LPG goes to the Caribbean and Central America and our natural gasoline goes much further. It actually goes West Africa or it can go to Columbia or other locations. We have always operated our business by exporting into the regional markets or extra-regional markets.”
For new and upcoming projects, gas availability and pricing is a concern for Tiah. The 2011 Ryder Scott report indicated that T&T’s natural gas reserves recorded a decrease in proven gas reserves and estimated they would last nine more years. Commenting, Tiah said the entire sector should not be judged by a snapshot only, since this does not tell the full story. He added that there are ongoing efforts to find new reserves. “We know that there is exploration and production activity that is trying to be stimulated. We also know a lot is happening globally as well, where tremendous amounts of reserves of gas have been discovered in Africa and elsewhere and ultimately it comes down to how competitive we are as a nation. An investment dollar from an exploration and production activity company, where should it go? Should it go into exploration and production in Africa or somewhere else, Australia? Should it come to T&T? It all depends on what the expected return on the invested dollar is and the likelihood of finding the resource and being able to market it,” he said.
Monetising gas should be done by conversion into other products. He said as a country, T&T has to re-think its strategy, “how we are going to go forward to deal with the energy industry.” Phoenix Park is exploring opportunities internationally, such as in Africa. “If we (T&T) can’t grow domestically due to the reality that things are pretty stagnant right now, then we need to look for opportunities to grow internationally. These are emerging locations, particularly West and East Africa. There have been lots of major finds of oil and gas and they are at their very embryonic stages of their development. They don’t have a history of expertise in that area so we see these as the better fit for what kind of capabilities and services we can offer,” he said. Areas in South/Central America where oil and gas is produced, for example, Colombia, the problems in Argentina and Venezuela that cause people not to want to go there because of their nationalisation activity surrounding foreign direct investment. “Certainly Colombia or Peru are interesting locations that have oil and gas—those are the areas that have very open policies with respect to foreign direct investment and participation in the oil and gas sector. In East Africa, you have Mozambique, Tanzania and other countries that have had enormous gas finds and are looking to monetise that resource. In West Africa, there is Ghana, which is a newcomer to the oil and gas industry, then Nigeria, which is a well-established oil and gas province and other West African countries.”
Asked why Phoenix Park is not looking at the Middle East to deepen its footprint, he said, “The Middle East is a well sought-after area with a lot of major players already established there, and, therefore, it is going to be a difficult market in which to operate and to establish a presence immediately.” Asked how would PPGPL find the funding for its projects internationally, he said, “Funding with some equity and leverage with debt. I believe one would look at projects in a non-recourse way and then with a reasonable amount of gearing between 30 to 40 per cent equity and between 60 and 70 per cent debt.”
Non-recourse financing is debt where the loan is completely secured by collateral, which is often real estate. Although the benefits of such financing are obvious (the borrower is not using its balance sheet for the loan and can therefore undertake more leveraged projects than it could otherwise), such financing comes at a cost. Lenders often seek other credit guarantees and will almost certainly charge more for the loan than with more traditional, recourse financing. Non-recourse financing does not mean no risk, and some companies may undertake projects that have a riskier profile than they should otherwise assume.