Jan 2012 Financial News

Second chance for Caribbean gas pipeline

Jan 18, 2012

"Is the Eastern Caribbean Gas Pipeline (ECGP) project alive or dead?" was the question posed – though not exactly in those words – in my final Energy Insider for 2011 on December 28.

The answer has now come that it has been brought back to life, following a period when its demise was predicted by many.

But over the ten years that this initiative has been gestating, the original vision of the founders – the late Trevor Boopsingh, Dr Trevor Byer and economist Dennis Phillip – has had to be considerably watered down.

The French departments of Martinique and Guadeloupe are no longer available as customers for the gas the pipeline will deliver – they have deserted to liquefied natural gas (LNG) and are now to be the first customer of the "dedicated small LNG facility to be built at La Brea to serve the regional Caribbean market" according to the statement from Prime Minister Kamla Persad-Bissessar's office following the meeting in London with Gasfin Development SA, led by Roland Fisher, which put the idea of such a facility into the government's head, after his initial approach to the energy ministry's Selwyn Lashley had apparently not been followed up for over 33 months.

If Martinique and Guadeloupe are out, then so are Dominica and St Lucia, also among the offtakers from the pipeline which figured prominently in the original concept. This is because both were to be served by spurs from the two French territories (and if you look at the map, you will see why).

This leaves only one customer for the Eastern Caribbean Gas Pipeline Co - Barbados. So far, Barbados, whose Barbados Light and Power Co (BLP) will require 30 million cubic feet a day (mmcfd) of gas to run its turbines.

The Barbados government gave permission for the project in early 2010, almost two years ago. What's more, it hoped that the tariff that ECGP would charge for transporting gas the 188 miles between Tobago and Barbados would, to quote the words of the relevant minister, "be reduced when Martinique, Guadeloupe, St Lucia and Dominica begin to utilise the pipeline."

Since none of the four are now not likely to do so, Barbados is going to have to bear the full brunt of the transmission cost, with no spread of overheads by ECGPC over a wider client base.

Presumably, the promoters of the pipeline regard the Barbados market alone as enough to amortise the US$320 million or so the pipeline is estimated to cost at this time, pay for minimal maintenance and other operating costs and return a margin to themselves.

But why has the project taken so long to materialise?

As with so many other activities in the energy sector, the change of government in May, 2010, put a damper on the gas allocation process and required the People's Partnership to re-affirm the export of gas to its Caricom neighbour.

This was subsequently done but even prior to that, the four local parties in the company – the Intra-Caribbean Gas Pipeline Co (nine per cent), Guardian Holdings Ltd (40.5 per cent), the Unit Trust Corporation (40.5 per cent) and the National Gas Co (ten per cent) were feverishly seeking a "strategic investor" to join in, because they felt themselves unable to pull off the major debt-raising effort required to fund the project.

As the pipeline company's chief executive officer, Greg Rich, well known in the local energy sector through his involvement with Amoco Trinidad Oil Co (ATOC) many moons ago, pointed out to me once: "While the existing partners are strong and capable, when it comes to going out and raising several hundred million dollars in the debt market, not one party around that table has the specific expertise or track record to be able to execute and manage a project of this size."

This has now at last been finalised, as will have been seen by the announcement last week that Beowulf Energy llc of New York, a private equity firm focussing on energy and First Reserve Energy Infrastructure Fund, which, as its name implies, invests in energy assets, were taking a majority share in ECGPC."

Of course, the "size" of the project has now shrunk dramatically but, presumably, Mr Rich would still stand by his words.

Part of the reason for the lengthy negotiations, as Andrew McIntosh, president of NGC until February 29 this year, told me was because the strategic investors wanted to be extra-thorough in their due diligence and insisted on carefully scrutinising again many aspects of the project that had earlier been agreed upon, such as the economics, quality control and so on.

All these concerns are eminently understandable, especially since the pipeline project has been narrowed down to a single market.

The two strategic investors will be taking 60 per cent in ECGPC, with 25.5 per cent coming from UTC's share, 25.5 per cent from GHL's share and the whole nine per cent attributable to the Intra-Caribbean Gas Pipeline Co, which originally devised the grand pipeline initiative. This suggests that, while messrs Byer and Phillip and the estate of the late Trevor Boopsingh will obtain a cash inflow, the first two will no longer have an active role in ECGPC and may even gain nothing from the long-term revenue generated by the pipeline.

While the ownership arrangements have been settled, Mc Intosh says it will take another 12-14 months to get to financial closure.

"And there are still technical challenges to be looked at which may throw up something we are not aware of today."

The final gas price also has to be agreed between the supplier, bpTT, BLP and the National Petroleum Corporation (NPC) of Barbados, to whom the government has delegated responsibility for the actual importation of the 30 mmcfd.

All of this makes you wonder why the NGC board, chaired by banker Larry Howai, has chosen this moment to let McIntosh go, by the simple expedient of not extending his three-year contract by a further two years, which it could easily have done.

This must rank as one of the most questionable decisions a board has made for a long time. The pipeline is only one of the major initiatives on which NGC is currently engaged – the drive into Africa and capturing the small Caribbean LNG market are two others and it would surely have made more sense to keep McIntosh on to oversee the company's transition into a new dimension.

As it stands, an entirely new president will have to spend months familiarising himself with the intricacies of the many strategic endeavours in train.

Doesn't make any sense to me at all.


David Renwick was awarded the Hummingbird Medal (Gold) in 2008 for the development of energy journalism in Trinidad and Tobago.


Source:
David Renwick
Trinidad Express
Wednesday January 18, 2012

http://www.trinidadexpress.com/business-magazine/Second_chance__for_Caribbean_gas_pipeline-137541838.html