The problem is that the NGC is not giving companies sufficient gas. The gas is there, but they primarily have to satisfy Atlantic LNG, since it drives US dollars into the economy and adds the highest value to the downstream.

Peter GHANY Managing Director ESAU Oilfield Supplies

Curtailing the industry slump

June 6, 2017

Peter Ghany, managing director of ESAU Oilfield Supplies, talks to TOGY about the the ways plants are compensating for curtailments in gas supply in Trinidad and Tobago. Statoil began operations in Angola in 1991. Founded in 1972, ESAU is the largest supplier of approved materials for the oil and gas industry in Trinidad and Tobago.

Esau Oilfield Supplies is a local provider of industrial and energy equipment for major oil refining and petrochemicals companies in Trinidad and Tobago. The company supplies valves, pipes, fittings, gaskets, fasteners and power tools for companies in the engineering and construction, upstream and downstream sectors. It is among the largest suppliers of valves in the country. While gas shortages have had a negative effect on Trinidad and Tobago’s hydrocarbons market, ESAU has remained active in the industry with projects associated with the Galeota expansion project and Atlantic LNG.

• On customer satisfaction: We have to satisfy the requirements of the end user. Whatever the end user wants is provided, but there are sometimes conflicts regarding what they want. [In those cases], we would have to change or adapt the materials at the last minute, depending on the company.

• On a sole supplier: The NGC has rationed how much they distribute to companies such as Methanex, which now has to produce old product at a minimum level. How can you run a plant at 75–80% capacity, year after year? This ratio continues to decreases annually. This has been the biggest complaint among major CEOs in Point Lisas, because they’re asking themselves how they’ll survive when they’re dependent on gas aggregated from the NGC.

Ghany also discussed topics ranging from cyber trading to the challenges associated with local sustainability. Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find the full interview with Peter Ghany below.

 

Could you highlight some ongoing projects?
ESAU is supplying all of the pipes and flanges for the Galeota expansion project. We are also conducting the Train 2 turnaround at the Atlantic LNG plant [which was awarded to] by Bechtel.
We’re hoping to win contracts for Yara International’s turnaround, which is scheduled for the end of the year [2017], as well as for the PCS Nitrogen turnaround in early 2018. Atlantic LNG’s CTME project has been given the green light and Bechtel leading the project.
We will be involved in the Angelin platform, which was awarded to McDermott in Houston. We’re also involved in the DeNovo Energy platform to be built by a consortium led by the Proman Group and awarded to Chet Morrison Contractors in Louisiana. We’re hoping that Chet Morrison will [in turn] award us that project.

What role will ESAU play in these projects?

We’re generally involved in conceptualization. The engineering company doing the conceptualisation will ask for our input on the type of materials used and their lead times, so that they can gauge when the project could realistically commence. They will procure the materials and get our advice on positioning.
After simulations, the project will be awarded to an engineering company, which may be different from the one involved in simulation. After the EPC contractor does the engineering and procurement, we get involved in installation and commissioning.

If the EPC contractor is different from the company that completed the initial engineering phase, what challenges does this create for you?
The CTME project was originally engineered by WorleyParsons. [WorleyParsons.] ran simulations, however, Atlantic LNG felt that further simulations should be run by the EPC company, Bechtel. When Bechtel ran its simulations it realised that the material differed from that provided by the original engineering company, because they had two different sets of specifications, and one was a bit more rigid.
Unfortunately, we’re placed in the middle, because we have to satisfy the requirements of the end user. Whatever the end user wants is provided, but there are sometimes conflicts regarding what they want. [In those cases], we would have to change or adapt the materials at the last minute, depending on the company.

What variables are affecting the continuing gas curtailment and the methanol plants shutting down?
In terms of supply, projects like Yara’s, or PCS’s or MHTL plants definitely face challenges because of gas curtailment. The bigger shareholders of Atlantic LNG are the providers and they need to satisfy their cash cow.
Train 1 is reaching its expiration date, being almost 20 years old, but the plant still works really well, so Atlantic LNG as an entity is extremely profitable. They’ve made back their money 10–20 times [over]. The country’s lack of supply has forced two other methanol companies to close down.
The NGC has rationed how much they distribute to companies such as Methanex, which now has to produce at a minimum level. How can you run a plant at 75–80% capacity, year after year? This ratio continues to decreases annually. This has been the biggest complaint among major CEOs in Point Lisas, because they’re asking themselves how they’ll survive when they’re dependent on gas aggregated from the NGC.
However, DeNovo and Proman have found an innovative way to go about this. Blocks 1a and b are located just off the coast of where methanol holdings are. The blocks have proven resources, so the companies are just going to build a small platform to drill and supply their own plant.
It seems like neither the government nor the NGC are going to stop them, and it’s very intriguing that other players such as BP and Shell would allow this. However, if they can fill the gaps for their own plants, maybe other downstreamers could go back to working at 100% capacity.
DeNovo hopes to be drilling by the end of this year and plans to bring in infrastructure this June. The schedule is very aggressive, and while I’m not sure how feasible it is, I hope to be involved.

What makes extracting gas economically viable?
It is cheap to extract oil and natural gas in Trinidad, since our deepest water is roughly about 1,000 feet [305 metres], which isn’t a significant depth, compared to those of other countries that extract. It’s why we’ve been a goldmine for international majors.
The problem is that the NGC is not giving companies sufficient gas. The gas is there, but they primarily have to satisfy Atlantic LNG, since it drives US dollars into the economy and adds the highest value to the downstream. In spite of this, even Atlantic LNG is running out of capacity right now.
I believe that Trinidad cannot afford any more plants, because where would they get the gas? It doesn’t make economic sense. If we were to import natural gas at the local market price, our infrastructure would go through the roof. We have the second-cheapest power on the globe, per kilowatt.
Our power is generated by a natural gas plant at TGU [Trinidad Generation Unlimited] and it will receive enough gas, however, downstream players are third-tier priorities and it is understandable that they are not happy about this.

What will solve the curtailment issue?

We are hoping that BP’s Juniper platform helps to alleviate some of the burden on the economy. There are also the Starfish and TROC (Trinidad and Tobago Regional Onshore Compression) facilities. We were privileged to do every single pipe valve and fitting for the TROC project. These storage projects are crucial in preventing loss from gas emissions.
Shell is very committed to drilling 12 wells in Trinidad and Tobago and should be encouraged to drill more. When the Angelin project comes online it will also help to eliminate the burden, but this will be in 2019, so the Dragon Field Project is of more immediate importance.
To solve the gas curtailment problem the government has to create incentives for Shell, EOG Resources, BPTT, and BHP Billiton to explore their new fields. We’ll be in trouble if they don’t.

What challenges are services companies currently facing in Trinidad?

Petrotrin’s big tenders are won by agents in the Far East. If companies like Bechtel are using this type of e-commerce and the vendor listing is not localised by the end user, it becomes tough for me to do business.
For the major bids we’ve won outside of Trinidad, we’ve been the only local vendor. Because of our relationships with manufacturers and because we’re a direct representative, we can compete on a one-on-one basis with some of the big guys, but it requires us to have tremendously low margins. I have to pay in US dollars, and if the government does nothing to encourage or insist that EPC companies use local vendors, we’re all sunk.
I lost the Atlantic Energy turnaround project to a UK-based company, because its purchasing power far exceeded my imagination. With cyber trading the world has shrunk, and stockers have to question whether we should stop carrying stock.
We do so to provide a competitive advantage that includes speed of delivery. Tradesmen can have a tiny office, zero overhead and live well after marking things up 1-1.5%. I can’t – our operating costs range from 12-15% and our markups have to be relative, to cover our spread.
An increasing number of services companies will have to close down if BPTT, Shell, BHP Billiton and Atlantic LNG do nothing to protect the local economy. Of course, local vendors and fabricators have to do their part to be more competitive.

How do foreign companies benefit by getting supplies from ESAU?

I will have already shipped the product to Trinidad, cleared it through customs, paid the local duties and I will have it in stock. I need to have a carriage and storage cost, but it will be in stock.
Compare this to another company’s 2-6 week lead time plus freighting to Trinidad. They have to hire a freight forwarder and a broker to clear it, as well as a transport company to get it down there and somebody to check it, followed by inspectors.
Still, the success I currently have lies not in my stock, which I have spent millions of dollars to carry, but in my trying to compete in a markup game.

To what extent did activity and revenue decline in 2016?

We’ve experienced a 33% drop since last year, the first of its kind in our history. This year we’re already behind, because a lot of projects slotted for the first quarter have been delayed to the third quarter, so the year may improve.
We’re at a different level of competition this year. As vendors and stockers, we take the responsibility and the risk of carrying stock for our end users. We thought this would be valued, when competing against a multinational. However, BP has outsourced everything to either Wood Group or WorleyParsons, and they use their international networks to get materials. BHP Billiton has outsourced everything to EMAS AMC, a company in the Far East with headquarters in Houston; that was a disaster for ESAU.
We talk about local content and sustainability, but there truly isn’t any. Local fabricators need to find ways to cut their costs, and the people of Trinidad and Tobago have to understand that we are going through a downturn. Rates they enjoyed between 2003 and 2007, when we experienced the country’s biggest boom, can no longer be expected, and this has made fabricators like TOFCO [Trinidad Offshore Fabricators] uncompetitive.
It is cheaper nowadays to do a platform in Louisiana than in Trinidad, which should not be the case. When fabricators become more competitive it will help bring work back. The people of Trinidad and Tobago and the unions have to get together and realise that it is not [only] about making money, it is about local survival.
Our projects are all being farmed out; the Galeota expansion has been farmed out to Turkey, though it will be assembled here, and the government is having Angelin built in Mexico. TOFCO will only get minimal work.

What are your strategies, moving forward?

We are taking a more proactive look at the Caribbean, and we’re hopefully partnering with Grenada on a nice small project. Of course, we’re looking at both Guyana and Suriname, though more at Guyana.
We have an office in Bogotá already, but Colombia is still very quiet, though it will rebound. Based on our reputation with EPCs, we’re trying to get invited to work on more projects outside of Trinidad. Our strategy is to expand to other regions, but the main goal is to bring projects back to this island.

For more information on ESAU Oilfield Supplies in Trinidad and Tobago, including the company’s involvement with BPTT’s Cassia B Platform, see our business intelligence platform, TOGYiN.
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