Tuesday, January 16, 2018

New ‘breach’ claim against NGC

THE National Gas Company (NGC) has been hit with another billion-dollar claim for breach of contract over gas curtailment issues.

Ammonia producer Point Lisas ­Nitrogen Company Ltd (PLNL) filed a US$120 million claim against the NGC two weeks ago.

It is the second breach-of-­contract claim that has been filed against the NGC—the country's most profitable State enterprise, which ­accounts for 40 per cent of Government ­revenue—in the past two years.

In August 2015, Methanol Holdings (MHTL) slapped NGC with a US$385 million (minus interest) claim over curtailment issues.

The Sunday Express understands the PLNL contract with the NGC, which was signed in 1996, is the only gas supply contract with a breach-of-contract clause.

PLNL is a privately owned company, with 50 per cent shareholding each by Koch Fertilizer LLC and CF Industries Holdings Inc.

What the clause says


The clause explains failure by the NGC to supply natural gas will make the NGC liable for damages.

The clause read: “The Seller (NGC) is ­obligated to deliver to Buyer (PLNL) on such day pursuant to this Contract, then, with ­respect to each day(s) of Seller's ­failure, Seller shall pay to Buyer damages which shall be determined by multiplying (1) the difference between (a) the number of ­metric tonnes of ammonia (determined using ­generally accepted ­engineering ­calculations based on recent ­operating history) that would have been ­produced at ­Buyer's Plant on such day of ­Seller had ­delivered to Buyer the ­quantity of gas that it was ­obligated to deliver on such day and (b) the number of ­metric tons of ammonia actually produced at ­Buyer's Plant on such day by (2) the difference between (c) the ‘Offtake Sales Price' which is the higher of (i) the Ammonia Market Prince in effect for such day less five per cent (5%) or (ii) $120 per metric ton during the first six contract years and $115 per metric ton during each contract year thereafter and (d) the ‘variable costs' of production of a metric ton of ammonia at Buyer's Plant which would have been incurred on such day of Seller had delivered to Buyer the quantity of Gas that it was obligated to deliver.

“Variable costs of production shall include all capital costs, fixed operations and maintenance costs and labour costs.

“If, on any day, Seller fails to deliver to Buyer a sufficient quantity of Gas to render the operation of Buyer's Plant technical feasible and Buyer does not operate Buyer's Plant, then, for purposes of the forgoing computation, Seller shall be deemed to have failed to deliver the entire quantity of Gas that Seller was obligated to deliver to Buyer. If the operation of Buyer's Plant during a delivery failure by Seller causes reduced Gas production efficiency, then, in addition to the amounts calculated above, Seller shall pay to Buyer an amount sufficient to compensate Buyer for such lost Gas production efficiency. Buyer shall deliver to Seller a statement for any amounts due hereunder to Buyer as soon as practicable following the end of a month in which a failure of Gas ­delivery occurred.”

NGC responds


The PLNL claim comes as the NGC is challenged with a reliable supply of natural gas has taken a toll on the Point Lisas Industrial Estate.

In a statement to the Sunday Express yesterday, the NGC said: “Gas curtailments have occurred commencing 2010 and were left unaddressed leading to a number of claims and counter-claims arising from the 2010-to-2015 period. These claims were inherited by the current NGC executive. These matters are sub judice and are being defended by NGC and its attorneys. NGC cannot comment publicly on these matters.”

In addition to MHTL's, the company announced it intends to mothball two of its plants, which will place over 100 ­workers and related service companies on the ­breadline.

From 2010 to 2014, eight energy companies based in the Point Lisas Industrial Estate suffered combined losses of US$1,639,694,699.20 (or roughly TT$10 billion) because of irregular natural gas supply.

In turn, the National Gas Company (NGC) lost US$653.3 million (about $4.1 billion) in revenues, the Government lost US$217.4 million (about TT$1.3 billion) in corporation tax and US$1.4 million (TT$8.82 million) for the Green Fund.

According to Ryder Scott's 2014 report, T&T has proven natural gas reserves of 11.5 trillion cubic feet, probable reserves of 3.3 trillion cubic feet and possible reserves of 1.3 trillion cubic feet, a total of 16.1 trillion cubic feet.

With T&T utilising $1.4 trillion cubic feet of natural gas a year, the natural gas equates to about 12 years' supply.

The NGC statement continued: “As you are aware, NGC, this week, signed the historic Heads of Agreement with PDVSA and Shell which will provide access to significant gas in the Dragon Field. This is a transfor­mative initiative which will help to alleviate gas curtailment and assist Venezuela in monetizing its gas.

“Shell, BPTT and other upstreamers, with NGC, have accelerated efforts to reverse this long-standing supply challenge. These initiatives include TROC and Juniper, which will yield 750 mmscf of gas. Other recent initiatives also include ­securing gas from small and marginal fields. NGC has also ­improved coordination of ­supplies amongst all ­stakeholders.”