Kevin Ramnarine: Dealing with the natural
gas supply problem in Trinidad and Tobago
BG (now Shell), a company that once easily produced one billion cubic feet
of natural gas per day, now struggles to produce 0.7 billion cubic feet per day.
The Prime Minister addressed the nation last Sunday on a range of issues. The press release that announced the address to the nation didn't say much. This led to speculation on social media as to what the content could be. When all was said and done the Prime Minister really didn't tell us anything new.
The PM dwelled a lot on energy. He repeated that oil production was in decline (as it has been for the last 10 years) and that natural gas production is in decline (as it has been for the past six years). The natural gas shortage has been with us since late 2010. Considering the first seven months of 2016, the actual supply is 3.2 billion cubic feet per day compared to the contracted natural gas demand of 3.9 billion cubic feet per day. This means that we have a contractual shortfall of about 22 per cent.
When I became Minister of Energy in mid-2011 the shortage was already in motion. Managing that shortage was the biggest challenge of my four-plus years as Minister of Energy. The root cause was a period of underinvestment in the previous decade, a fact which can be proven statistically. There was also a lengthy period of maintenance by BPTT which was a response to the April 2010 Macondo oil spill.
However, something had to be done to deal with the situation of the shortage. There was no quick fix. The only solution was to increase natural gas production. This meant that the companies that were already here had to drill more which meant they had to increase investments.
Investment requires a return on capital (ROC) and the companies were no longer getting the returns they needed in T&T. To incentivise the companies to invest the former Government passed into law a range of fiscal incentives over four years. This policy worked as it led to an upsurge in investments and drilling.
One of these incentives included restructured capital allowances for development and exploration drilling. These restructured capital allowances and other incentives led to investments such as the BP Juniper project and the EOG Sercan project. These projects together with the “Trinidad Regional Onshore Compression” or TROC will bring an additional one billion cubic feet of natural gas into supply at various times in 2017. This represents a 31 per cent over current gas supply rates.
I have already written that these three natural gas projects will end the recession in 2017. Their full benefit will be felt in 2018. The PM made passing reference to this when he said, “While there are some activities afoot to raise the 2016 figures going forward the overall trend is downwards and troubling.” The genesis of these “activities” was incentives and policies that were enacted between 2011 and 2014.
In understanding the story of the natural gas shortage we must discuss Starfish. This was a natural gas development by BG which was supposed to produce 225 million cubic feet of natural gas per day by mid-2015 from three wells. However, it went badly and ended up producing nothing (zero). This has hurt the two companies involved and has hurt its customer (the NGC) and by extension the country. Starfish today holds the title of “most expensive failure in the history of T&T's oil and gas business.”
As a consequence, BG (now Shell), a company that once easily produced one billion cubic feet of natural gas per day, now struggles to produce 0.7 billion cubic feet per day.
The PM also spoke of agreements with Venezuela. We have been working on Loran Manatee for over a decade. I don't think that this can be counted on as a solution on the immediate horizon. There is a lot of natural gas in Loran Manatee (10 trillion cubic feet) and coming to the end of my tenure, the Venezuelans indicated that they were prepared to monetise their portion of the Loran Manatee gas in T&T. This is a shift in their position from previous years that came about through a lot of strategic diplomacy.
The other Venezuela related project is Dragon which was the subject of an MOU a few months ago. There are some questions that arise. The first is what infrastructure would be required to get that gas to T&T? If the gas is wet there would issues around liquids management. The second is what will be the cost of that infrastructure and who will pay for it? The third is, who will buy the gas from Venezuela (I assume the NGC or an affiliate) and at what price and in what quantity? There are a lot of questions here.
The bigger issue moving forward is how to sustain the increase in gas supply that will commence next year. Part of the answer is in the much referenced Natural Gas Master plan which was presented to me in September 2015. There is also the issue of demand management. In that regard, the closure of the Mittal plant was really a blessing in disguise.
Another key resides in the country's fiscal regime which will need further adjustment to continue to attract investment as it has done from 2011 to 2015. After all is said and done, the companies that can help T&T out of this problem in the shortest time are the four natural gas producers who are already here. Government needs to listen to them and understand their challenges. Relationships, respect and trust are important.
Kevin Ramnarine is the former Minister of Energy of Trinidad and Tobago. Petroleumworld does not necessarily share these views.
Editor's Note: This commentary was originally published by Trinidad Guardian; on Sept. 13, 2016. Petroleumworld reprint this article in the interest of our readers.
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