Where we stand‎ > ‎News & Comment‎ > ‎

PETROTRIN: INTEGRATION OR DISINTEGRATION by Mark Felt

posted 3 Sep 2018, 18:44 by Gerry Kangalee   [ updated 3 Sep 2018, 19:07 ]
Any discussion about the future of the National Oil Company (NOC) Petrotrin must revolve around two key issues. The first is knowing the fundamental raison d’être of Petrotrin and the other is appreciating the role of a National Oil Company in national development.

Petrotrin is an integrated oil company primarily because it adds value to the crude oil reserves of Trinidad and Tobago. In 2015, these reserves were estimated at approximately 300 Million barrels of oil equivalent (MMBOE) in Petrotrin’s land and marine acreages and its share in several joint venture arrangements within Trinidad and Tobago.

Value is added when the crude oil, produced in the country’s land and marine (primarily Trinmar) areas, is processed in the refinery at Pointe a Pierre, together with imported crude blends, to produce liquid petroleum products for the local and regional markets and for some international sales.

Simply put, Petrotrin is the means by which the low quality/low valued crude oil that exists in significant numbers within Trinidad and Tobago, is converted to valuable products for everyday use within our country and the islands of our Caribbean neighbors.

When Trinbagonians use LPG in our homes for cooking, gasoline and diesel in our cars, vans, trucks and boats for transportation and when we fly via commercial airlines CAL and Liat using aviation fuel, it is heartwarming to know that those products are made by Petrotrin and the refinery at Point a Pierre in particular. Moreover, our Caribbean brothers and sisters, from Guyana in the south to Jamaica and the Bahamas in the north, depend on the receipts of these same Petrotrin products, to run their countries and power their economies.

Petrotrin therefore is vital to the security of liquid energy supply, not just in Trinidad and Tobago but in the Caribbean region as a whole. Interestingly (maybe ironically) a few years ago Venezuela challenged this role that Petrotrin/T&T holds as the principal liquid energy supplier to the region, by instituting the PetroCaribe agreements which resulted in a decrease in Petrotrin’s market share in the region from circa 70% to 50%.

However, with the subsequent border dispute in Guyana, burgeoning debts in some of the island economies and the unreliability of supply from PDVSA, most of the region has returned to depending on their supplies from Petrotrin. In fact, both distribution companies RUBIS and SOL who dominate the gasoline/diesel retail market in the region are heavily dependent on the cost-effective supplies received from Petrotrin.

Image result for trinmarThis is because, with its base in Trinidad, Petrotrin has the strategic advantage of location, to supply refined petroleum products much cheaper than the costs to import such small volumes from the USA or other destinations. The off takers of Petrotrin’s products frequently refer to their “milk man run” of deliveries. That is, the vessels leaving Petrotrin’s harbor at Pointe a Pierre begin their deliveries in the south and stop off at each island in the Caribbean chain until they get to the north. Also, whist Jamaica has a small refinery and is today making provisions for natural gas supplies to power electricity generators, their liquid fuel needs are still significant, and they look to their CARICOM supplier in Trinidad, Petrotrin, for security of that supply.

Having established Petrotrin’s importance to the liquid fuel security of the region, it would be worthwhile to return to the issue of how a country like Trinidad and Tobago monetizes its crude oil resources in the context of its continuing national development.

Crude oil is a commodity that is traded all over the world with two reference prices that indicate the state of the market. These are the primarily European based Brent Crude oil price and the US based price referred to as West Texas Intermediate or WTI. The values of these reference prices at any point in time are largely indicative of how efficiently the market responds to the supply of and demand dynamic for crude oil, across the world. Moreover, what is also important to crude traders, that is, those persons and/or entities who buy and sell crude oil, is the quality of the product.

Crude oil specifications vary across the world from one geological and indeed geographic location to another. Consequently, high-quality/high priced crudes are those characterized by low viscosity and low sulphur content - which reduces the cost of conversion to products (refining) like gasoline, diesel, jet fuel etc. On the other hand, low priced crudes are heavier crudes – thicker/more viscous, with higher levels of sulphur and therefore requiring a higher cost of conversion.

It should be noted that the crude oil extracted and produced in Trinidad over the many years of oil production is for the most part low valued crude, that is, crude that is viscous with significant sulphur content. It is because of this fact that both predecessor companies, Texaco and Shell, also invested in refineries as part of their operations in Trinidad. That is, they never attempted to sell the crude oil they extracted and produced but rather ensured that the crude was refined into finished petroleum products, what was used locally and exported regionally and internationally. Even Trinidad Tesoro who operated production facilities primarily in the Santa Flora/Palo Seco 
region sold their crude production to the “local” Pointe a Pierre refinery rather than attempting to export to the traders.

The decision of predecessor companies to refine Trinidad’s crude locally and export the refined products was, and still is, based strictly
 on economics and represents the most feasible solution for monetizing this natural resource.

As Petrotrin evolved to be the NOC of Trinidad and Tobago in 1993, the refining of locally produced crude via the Pointe a Pierre 
refinery remained the most cost optimal way forward and still is. To further clarify the context, the Pointe a Pierre refinery also
imports low-sulphur low viscosity crudes to blend with the local crude, producing the optimal yield of refined products. So that the reason for importing crudes for the Pointe a Pierre refinery is equally about ensuring the optimal crude blends as it is about increased utilization of the refinery’s capacity.

It is also not surprising that there are no crude export facilities at any of Trinidad’s port facilities and any attempt to sell Trinidad’s crude oil on the open market to oil traders will result in a less than optimal sales price. This, because of the quality of the crude oil produced and the fact that our southern location will also impose significant transportation costs and consequently lower netback pricing.

This overall context mandates that the optimal monetization of Trinidad and Tobago’s crude oil reserves requires an integrated oil company in order to achieve the best value for the real shareholders - the current and future citizens of this country.

Any restructuring plan that does not keep this integrated model as the basis for the future of the company is doomed to less than optimal results.
Comments