Petrotrin: The Business
Many people probably still base their knowledge of Trinidad on the novels of VS Naipaul but do please lay those aside, begs Hemraj Ramdath. Trinidad has changed out of recognition and in any case Naipaul lived abroad for too long to really understand the country of his birth! Hemraj is VP of Strategy and Business Development at Petrotrin, one of the island’s largest employers and the largest oil and gas producer in the island, operating its only refinery. He too spent a number of years abroad working in the oil industry in the Caribbean, USA and Canada before returning to Trinidad in 2012, but now he’s back and keen to improve life for all the stakeholders.
Petrotrin is a state-owned enterprise active both in the upstream and downstream markets. It directly employs 5,500 people, and engages with at least 700 smaller local companies, supporting in all perhaps 20,000 individuals out of a population of just 1.3 million. The company produces a little over 45,000 barrels per day (bpd) of crude oil and 180 million cubic feet of gas, while its refinery has the capacity to process around 170,000 bpd, making products for a variety of local, regional and international markets from fuel oil to Aviation fuels.
These figures indicate a mismatch between the quantities produced locally and the refinery demand from the market Petrotrin serves in Trinidad itself and regionally. This has to be filled by imports and that is costly. “One of our mandates is to increase production considerably from the present day figure. Currently we produce about 40 percent of our own requirements in Trinidad. The gap between our production and our needs is in the region of 100,000 bpd – and that we have to source globally.”
Though he doesn’t think that the gap can be entirely eliminated, every effort is going to be made over the next decade to reduce it, and that means increased exploration activity. The company is carrying out an intensive programme of 3D seismological surveying and interpretation that Ramdath hopes will produce good results and help achieve a modest though significant increase in the medium term: “We are hoping we can move from 40,000 bpd to 50,000 or maybe 65,000 bpd in, say five to ten years from now. That would be good for us because the more local crude we get the better our margins.” Rising costs, the impact of shale oil discoveries and the ‘crack spread’ (the relation between crude and ex-refinery prices) differentials are among the factors putting pressure on Petrotrin’s margins, another reason for increasing the proportion of local production.
So the strategic goal for Petrotrin starts at the wellhead – and it is a goal shared by the government, which is currently engaged in bid rounds for both onshore and offshore exploration licences and these should close by the end of the year. Three onshore blocks each in the region of 50,000 to 70,000 acres are involved. The oil resources here are concentrated in the south of the island and extend in all directions offshore. In this way Petrotrin is hoping to attract partners to invest in exploration with a view to oil and gas production in the near future. Petrotrin operates many partnerships already, he explains: of around 4,000 onshore wells in Trinidad Petrotrin handles some 3,000 but going forward it would prefer to invite other companies to share the capital expenditure, expertise and equipment.
That’s the most effective way to reach the goal of greater local production, he thinks. The main objective is to increase the supply the Pointe-à-Pierre refinery with crude from local sources. “Our joint ventures are mainly in the gas sector but we also have other types of partnership including farm-outs, leaseholds and subcontractors who are also undertaking exciting work here with us operating small wells – there’s no way we can deal with all these resources ourselves so it is a good way of engaging others, bringing in their expertise and of course leading to our ultimate goal to increase production.”
If Petrotrin has a physical hub it is the Pointe-à-Pierre refinery, or rather complex because the refinery is just one part of it. Pointe-à-Pierre is Petrotrin city, built for and populated by the company’s employees and incorporating a hospital, extensive staff facilities and even a wildlife sanctuary. It is close to the island’s second city San Fernando. The refinery itself was brought to a high standard in 2000 following a $355 million investment programme, has been continuously upgraded since then, and is currently the source of downstream products, 20 percent of which Petrotrin sells in Trinidad, a further 30 percent to the Caribbean market and the remaining half internationally. However the market is constantly changing and Petrotrin is now in the final stages of a further massive upgrade costing $1.2 billion.
The Clean Fuel Upgrade is designed to meet the stringent specifications now in place internationally, says Ramdath: “We had to change our production processes to get better, cleaner fuels that meet new environmental targets.” A key component of the Clean Fuels Upgrade, the Gasoline Optimization Program (GOP) is one of several strategic initiatives being implemented to ensure Petrotrin’s survival in the face of changing market demands. The project was embarked upon in response to challenges facing the refinery and to improve overall profitability and competitiveness through the replacement of ageing equipment, improved plant reliability and integrity.
It’s important, he says, for the company to shift its emphasis from lower value, high volume products such as fuel oil to higher margin products like aviation fuel and low-sulphur diesel. “Our ultra low sulphur diesel (ULSD) plant, will come on stream at the end of this year, and it will give us nice clean low sulphur diesel that meets the stringent new diesel quality specifications covering sulphur and aromatics content. By the end of this year we will be well prepared for getting into any market.”
The object of the exercise is to get a better return on the products, a higher margin and a chance to be competitive in high spec markets, he stresses. The refinery upgrade addresses what he calls the top-of-the-barrel processes, however that’s only half the story, Hemraj Ramdath continues. The company sells a great deal of fuel oil, some 50,000 bpd, and to get that amount out into the market means that some of the time it is realising less than the crude price. That is clearly unsustainable, he emphasises: “We are now also looking at a bottom-of-the-barrel solution – the heavy end if you like – to see how we can better utilise that fuel oil and convert it into higher value product. This will mean further investment of up to $2 billion over five to six years but once we have finished that the entire plant will be a world class facility and tailor made to meet our goals.”
The demand for fuel oil will still have to be met, but it will form a smaller proportion of Petrotrin’s output, he predicts. Another opportunity that excites him is the Trinidad government’s $2.5 billion highway project, which provides the opportunity to upgrade the bitumen plant at Pointe-à-Pierre, not just to supply this project but to sell to the rest of the islands.
Beyond its own shores, Petrotrin is looking to expand its bunkering business, supplying fuel oil to the shipping industry. “We do about 25 percent of the bunker of all the ships passing through Trinidad but we believe we could do far better. We are limited right now because we have just the one vessel so we are looking at acquiring another tanker or a larger vessel to do some bunkering outside of Trinidad.” Active discussions are taking place, he reveals, with companies based in Panama to set up facilities there and take advantage of the Panama Canal expansion that is taking place.
This makes sense despite what he said about reducing the overall proportion of fuel oil sold. “The bottom line is that we are now open for business. We must keep asking, where are the opportunities for us to go out and increase our business? Traditionally we have kept to the role of a manufacturer, exploring, refining and selling to brokers in the market. I think we are ready to take a step further down the value chain. Panama is one opportunity because the market is huge, not only for bunkering but also for other products as well. Bunkers allow us to enter the market and provide a base to expand into the other opportunities that may exist, and there are plenty of these including gasoline and aviation fuel, which we already produce.”
All of this activity represents a large-scale rationalisation, he says finally: it is not a bid to actually increase the size of the organisation or the throughput. It is unlikely the capacity of the refinery will be much increased, he suggests. Upgrading of its two crude distillation units (CDUs) might result in an extra ten percent being squeezed out but the primary goal is to produce, as far as possible from local crude, a consistent 168,000 bpd of high end product – product that meets international standards, can be taken into any market, at margins that contribute more strongly to Petrotrin’s bottom line.