T&T Natural Gas Value Chain
How natural gas is monetised, and the meaning of value chains.
How Natural Gas is Monetised
The process of deriving value from gas resources is called gas monetisation. This process is not a single stage one, but involves a chain of related activities starting from the extraction of the natural gas from the ground to its transmission to various market destinations.
The Meaning of Value Chains
A value chain is a chain of activities that processes raw material through a number of intermediate stages to a marketable end product. For instance natural gas after production must pass through a chain of activities that add value to the original material such that it is more readily usable by the final consumer. Although there is a cost attached to adding value, it is important to distinguish ‘cost’ from ‘added value’.
A diamond cutter can be used as an example of the difference. The cutting activity may have a low cost, but this activity adds much of the value to the end product, since a rough diamond taken from the ground is significantly less valuable than a cut diamond.
Natural gas needs a dedicated energy market and significant infrastructure even before it can be extracted. As a result, the gas monetisation process is more complex than that of oil which can be easily loaded into a tanker and traded in mature commodity market to a number of well established market destinations.
Activities comprising the Value Chain
Broadly speaking, the natural gas value chain is comprised of the upstream, midstream and downstream.
Forms of Value
Value may be reflected in terms of either:
- Economic or monetary value
- Social value
The primary form of value to all parties involved in the gas value chain is monetary in nature. To local and foreign investors, this value is in the form of dividends which provide a rate of return on the investor’s investment. With respect to investment in gas based industries, over the last thirty years or so, over US$5 billion has been invested in gas based plants at Point Lisas, and a further US$3.25 billion just in the LNG plants. To Government, revenues are collected in various forms all along the gas value chain through dividends, taxes and royalties.
On the social side, value may be reflected mainly in terms of:
a) Job creation and skills development
Key skills, new jobs and generally economic wealth generally would have resulted from extensive growth of the industry over
its years of existence. These may include gas well services, project management, estate and marine infrastructure operation and management, plant and pipeline construction, plant maintenance and operations, gas pricing and sales negotiation, marketing, market research and corporate law. In addition a lot of new service and supply industries would have been developed as a result of having to service the main investment.These indirect or supporting economic activities is what could be referred to as the multiplier effect of the new industry.
b) Positive impact on communities – Energy sector companies have embarked on a wide range of social programmes, including development of community facilities, human capacity and skills development, enterprise development, health, safety and environmental awareness, as well as contributions to educational, social, cultural and sporting initiatives.