WHY ARE INVESTORS OF THE 1% KEENLY INTERESTED IN BUYING THE PETROTRIN REFINERY?

Post date: Oct 07, 2018 5:3:54 PM

WHY ARE INVESTORS OF THE 1% KEENLY INTERESTED IN BUYING THE PETROTRIN REFINERY?

FAVOURABLE MARKET CONDITIONS (DEMAND)

Market conditions are very favourable for firms involved in the refining industry. According to an article entitled ‘The Future of Refining’, “Refining industry experts have predicted sustainable growth in the refining industry worldwide...World demand for refined products are expected to increase from current levels of 75M barrels per day to 115M barrels per day by 2030 with anticipated exponential economic and industrial growth in China and increased transportation demands in the developed nations of Europe and North America. It is projected that almost 75% of the growth will be in the transport sector.”

(SOURCE: PETROCONNECT NO.55, MARCH 29TH, 2006, PG. 7)

FAVOURABLE CONDITIONS (SUPPLY)

Petrotrin has the only refinery in Trinidad located at Pointe-A-Pierre on the west coast.

Refinery throughput is approximately 140 Thousand barrels per day; 45 thousand of which is available locally while the rest is imported from Brazil, Congo, Gabon, Colombia, Ecuador and Russia.

The refinery produces a wide variety of petroleum products which includes liquefied petroleum gas, unleaded motor gasoline, jet fuel, kerosene, diesel, fuel oil, sulphur, bitumen, base lubricants.

Petrotrin enjoys market advantage and customer confidence in the Caribbean, Latin American region and the Eastern Seaboard of the United States.

PRIME INDUSTRIAL REAL ESTATE

The refinery encompasses two thousand acres or 809 hectares of land which is prime industrial real estate.

RELATIVELY NEW CAPITAL EQUIPMENT AND MACHINERY AND THE BENEFITS OF THE OPERATIONS

The Gasoline Optimization project (GOP) which started in 2004 produced five (5) new plants at the refinery:

Fluid Catalytic Cracking Unit (FCCU) – The upgrade of the unit will increase capacity from 26 thousand barrels per standard (BPSD) to 35 thousand BPSD; converting a higher percentage of vacuum gasoil to gasoline and enabling Petrotrin to produce a better quality gasoline with improved octane ratings from 81 motor octane number (MON) to 83 MON. Other benefits include reduced compressor maintenance levels due to reduced Carbon Monoxide and Particle emissions.

Isomerisation Unit – A new Isomerisation unit was constructed to provide the octane for light gasoline. The product is an environmentally-friendly component to enhance the motor gasoline pool enabling Petrotrin to compete in premium markets. This unit has reduced Hydrogen export to the fuel system thereby making more Hydrogen available for reaction processes.

Continuous Catalytic Regeneration Unit (CCR) Platforming Unit – This is a 27,800 BPSD platforming unit which provides for a higher yield of superior octane gasoline. This improves octane rating from 86 MON to 90 MON. Additional benefits include: reduced operating and maintenance cost, improved product yield and quality and increased hydrogen production.

New Alkylation Unit/Sulphuric Acid Regeneration Unit – This new 10,000 BPSD Alkylation Unit replaces the existing 1,800 BPSD Alkylation Unit. Increasing gasoline product to accommodate the increased feedstock generated by the upgraded FCCU. The Alkylation product is a premium high octane, environmentally-friendly gasoline blending component which will add to the pool of high octane gasoline; assisting to maintain an increased refined product market share and eliminate the need for better storage and shipping facilities for LPG. The 60 TPD acid plant has been replaced by a 215 TPD unit which will support the operating of the new Alkylation Unit and provide for sales to the domestic market.

Ultra-low Sulphur Diesel Plant – the Ultra-low sulphur Diesel Plant (ULSD), (Hydro-Desulphurisation/Hydro-De-Aromatisation) is designed to process 40,000 BPSD of diesel boiling-range feedstocks to produce a diesel product that will reduce sulphur content from more than 1,000 PPM to 8 PPM; aromatics from more than 45% to 25% and the cetane number from 41 to 50. This is consistent with the most stringent current and forecasted future on-road fuel specifications. The construction of this ULSD Plant enables Petrotrin to meet stringent new diesel quality specifications (sulphur and aromatics) in the local, regional and international markets.

THE REFINERY AS A GENERATOR OF FOREIGN EXCHANGE

All serious investors cherish investment ventures which generate foreign exchange or hard currency. The Petrotrin refinery has a track record in this regard, making it very attractive to the investors of the 1% both foreign and local. According to one source ‘The Trafigura Group, one of the world’s leading energy commodity trading companies... in December 2016 disclosed, via its Responsibility Report, that in 2016 it paid Petrotrin US$506M for 10,586,000 barrels and 1,425,000 tonnes of refined product. In 2014 and 2015 the company paid Petrotrin and T&T LNG Ltd. (a subsidiary of NGC) a total of US$507M or approximately TT$3BILLION for 5,381,000 barrels of refined products and 2.81M barrels equivalent of gas respectively.”

(SOURCE: EITI REPORT PROVIDES DATA ON PETROTRIN, BUSINESS AND MONEY BUSINESS GUARDIAN, THURSDAY SEPT. 6TH, 2018, PG 8)

THE REFINERY AS THE LEADING ON THE JOB TRAINING FACILITY

Investors stand to benefit handsomely in terms of skilled human resources by investing in the Petrotrin refinery according to a human resource training expert: “The refinery as the primary on the job training ground for T&T’s skilled technical experts is critical for keeping our manpower in the forefront of technological development”. In making a strong case for not closing down the refinery, the expert argued: “All will know that an apprenticeship certificate from TEXACO and later from its successor companies was a passport to any developed country. Shutting down the refinery will remove this critical component from our ability to produce highly skilled craftsmen, technicians, technologists and engineers and by extension reduce drastically the opportunities for high-skills development and maintaining that pride of place we have/had in the global village.”

(SOURCE: OPEN LETTER TO THE PM AND BOARD OF PETROTRIN BY HARRIS KHAN, TRINIDAD GUARDIAN, FRIDAY SEPT. 21st, 2018 PG A20)

PETROTRIN’S GROSS MARGINS ARE POSITIVE

This is good news for any prospective investor whether of local, regional or international origin. One strategic stakeholder of the energy industry informs that: “As director Nigel Edwards informed the Parliament Joint Select Committee in April, the refinery had a very good competitive gross margin of US$10.80." This is higher than many refineries.

(SOURCE: THE CASE FOR KEEPING PETROTRIN - WHY THE OILFIELD WORKERS’ TRADE UNION IS WILLING TO SAVE THE REFINERY, NEWSDAY SECTION A, FRIDAY SEPT. 2018 PG 17)

PETROTRIN’S DEBT IS SERVICEABLE

Every prospective investor will be seriously concerned with the indebtedness of the refinery because it is both a cost (The Servicing of a Debt) and a financial risk (Debt can Impact Negatively on Profit Margins).

The good news according to the above source is that the Petrotrin’s debt is serviceable: “Petrotrin is paying all of its loans and in particular is meeting its obligations, as onerous as they are, on the two US$ bonds. While the US$850 million bond arrangement is that Petrotrin pays only interest at a rate of 9.75% so that there is a single bullet payment of principal in the amount of US$850M in August 2019. The other major bond of US$750M is amortised at 6%; that is we have been paying principal and interest since 2007. The final amount is due in 2022. The actual principal amount still outstanding is approximately US$250M. It has made all of its past payments to date and has just over two years left.”

CONCLUSION:

The issue of the sale of the Petrotrin refinery became very clear to the citizens of T&T when the Prime Minister stated that “The refining assets would now be put into a separate company for opportunity attention”. This included the offer to the OWTU on the “most favourable terms” "A premeditated appeal to the gallery."

(SOURCE: PETROTRIN GALICIA MODEL BY MARIANO BROWNE, TRINIDAD GUARDIAN, THURSDAY SEPT. 6TH, 2018, OPINION A21).

The same source continues “The calculation that the OWTU would refuse the offer to buy the refinery was clear, obvious and correct. That does not mean that there are no other offers. This means that the refinery’s for sale and is consistent with the PM’s January 2017 speech when he announced a 5% pay-rise for the bargaining units”.

What is very interesting are the comments of local economist Dr. Roger Hosein which demonstrate the bright prospect for at least one refinery in the Caribbean and the projection that the Petrotrin refinery may open in 3 years.

In an article in the Newsday September 11th 2018, page 17 entitled UWI ECONOMIST SAYS REFINERY MAY REOPEN AFTER THREE YEARS written by Richardson Dhalai “I am confident that the refinery will open in one form or the other, but I’ll put my technical expertise on the line that at some point in time that in the next three years that refinery will open back, just as the refinery in St. Croix will open back after 4 years. it is not logical to spend 10 billion dollars, the gasoline optimization plant still has life and the ULSD plant still has life. It is still barely spanking new. According to international news outlet, owners of the St. Croix refinery, which was one of the world’s largest refineries, plan to invest US $1.4 Billion to refurbish and restart a portion of the plant. The refinery is expected to supply low sulphur fuels under an international maritime organization mandate.”

We can only speculate on the new owner/owners of the Petrotrin refinery after it has been sold. What our research shows is that it is a worthwhile investment in terms of current and future market trends, production efficiency, foreign exchange earnings, gross margins, access to world-class skilled human resources and capital accumulation in terms of industrial real estate and industrial plants and machinery and equipment. Whichever 1% investor wins the bid it will be at the expense of the taxpayers of T&T.

(Economic Analysis unit of the Labour Advisory Bureau)