BPTT executive blames long-term LNG contracts for revenue losses

BP Trinidad & Tobago’s Regional Pres. Norman Christie confirmed that Trinidad and Tobago has lost billions of dollars in potential revenues because of the contractual arrangements between the Caribbean twin-island nation and partners in the Atlantic LNG (ALNG) venture surrounding LNG exports.

Trinidad and Tobago Finance Minister Colm Imbert told the parliament in his budget presentation that transfer pricing arrangements had benefitted ALNG and its partners disproportionately to the government. Imbert said the loss to the country was well over $1 billion/year.

Asked if that was correct, Christie agreed there was significant loss of revenues, but said it was simply due to the contractual arrangements that were put in place almost 20 years ago.

In an interview with OGJ, Christie said, “Yes but I would use different classifications of the reason for the loss. What the government is saying is absolutely true in the sense that revenue that could have been earned by Trinidad and Tobago was not earned largely because of contractual arrangements that were made almost 20 years ago which did not anticipate the environment that we are in. That happens.”

He added, “When you do these long-term contracts, they don’t work for every single environment that occurs. So in an ideal world, your contractual arrangements would have afforded you all of those benefits. They didn’t.”

Christie said Trinidad and Tobago now has an opportunity to correct the situation, and BPTT will support higher returns to the country in negotiations for a new ALNG Train 1 contract.

“We are fully aligned with the government. They should be trying to get as much rent back to the country as possible. They can look backwards and say they could have earned more if the arrangements were different.” Christie told OGJ.

He added that it made sense at the time when the contracts were signed 20 years ago, but times have now changed.

Christie told OGJ, “Take Train 1. At the time we did a buy sell arrangement. Where was the dominance in terms of market? We did it for US and Spain. It was a market-led development and so you did it in the environment that existed with the leverage that existed at that time. That’s changed!”

Christie said the partners had benefitted from arbitrage in the global LNG market that in the past made Pacific LNG significantly more expensive than the prices at Henry Hub but added that those days appear over. “I think the fundamentals point to that. I would not want to be a predictor, but I think we need to plan our business assuming it is gone.” Christie told OGJ.

Christie said in a way the success of ALNG has impacted global LNG markets. He said people saw that LNG was a good business to be in and therefore what needs to be done is to ensure that “we look now at competitiveness and in that sense Atlantic sits in a very good position.”

Christie said, “It was built at a time when costs were at their lowest so it can be a low-cost provider of LNG and we need to use that advantage to the benefit of the country.”

ALNG operates a four-train liquefaction facility with a total capacity of 15 million tonnes/year.

BPTT is the second-largest shareholder in ALNG having recently been surpassed by Royal Dutch Shell PLC following its acquisition of BG Group’s assets.

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