eNRgyTT’s Thoughts: Atlantic LNG’s Retrenchment

June 13, 2017

Trinidad and Tobago news outlet CNC3 reported that Atlantic LNG made the following statement on June 13, 2017:

"Atlantic will on June 14 2017, make a Voluntary Separation of Employment Package available to permanent employees.

Atlantic is facing the toughest period in its 20-year history. Global LNG prices remain at depressed levels and at the same time, Atlantic continues to suffer from unprecedented levels of gas supply shortfall. Over the last two years, the severe gas supply shortages have resulted in facility utilization rates of less than 70%.

Recognizing the need to respond to the gas shortages, to streamline its activities and ensure it remains efficient in the new environment Atlantic has conducted a comprehensive review of its business – part of which has included a review of the required resources.

Regrettably, Atlantic will be reducing its permanent staff by what is expected to be less than 50 persons, equating to approximately 7%. It is hoped that the reduction can be achieved as far as possible via voluntary separation."

What does this mean?

Firstly, it must be noted that the price of oil and natural gas are closely related, meaning that when the price of oil is low, the price of gas is also low. Currently the prices are:

  • Oil –

  1. WTI Crude = US $46.36 (per barrel)

  2. Brent Crude = US $48.66 (per barrel)

  •  Natural Gas – Henry Hub Gas Price = US $2.978 (per 1 million British thermal units or MMBtu)

Cost of Oil (per barrel) vs. The Cost of Natural Gas (pwe MMBtu)

 

There has also been a decline in production of natural gas over the years, see the following pictures…

 

 

Crude Oil Production vs. Natural Gas Production

Now logically speaking, if the production of natural gas is down, the amount of Liquefied Natural Gas (LNG) exports would also be down, resulting in a decline of money being earned by Atlantic LNG. This the issue of natural gas shortages in Trinidad and Tobago, not only affects Atlantic LNG, but also the Point Lisas Industrial Estate. If they are not earning the amount of money needed to cover their expenses, their expenses would therefore need to be cut. Unfortunately, in this case, this means that workers would be retrenched. Even though the expected employee cut is 7%, according to LNG’s statement, and seems to be a small fraction, it amounts to 50 employees which is a significant cut in their workforce.

 

According to the Central Statistical Office, the oil and gas sector employs 2.9% of the work force. It is expected that a portion of this work force will be let go due to low prices coupled with low production. I personally believe that while this is unfortunate for the workers being sent home, it is a casualty that cannot be escaped. Another company, IPSL, was also forced to retrench workers this year. It is evident that this may be an ongoing issue.

 

Also, apart from the companies suffering, the economy also suffers since natural gas production is closely related to the GDP. When the production of natural gas and oil is up, there would be an increase in GDP, and when the production is down, there would be a decrease in the GDP.

 

I think we can expect an increase in these lay-offs throughout the energy sector.

 

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