Anthony T. Bryan: " Shaping the future of Caribbean Energy"
Offshore exploration projects by the international oil companies (IOCs) are still
underway in the island Caribbean (e.g. in Jamaica, Barbados, Grenada) and the Guianas.
The global fall in oil prices has produced mixed results for the Caribbean. Oil importing countries have benefited from lower commodity prices, while oil and natural gas exporters such as Trinidad and Tobago and Venezuela face declining revenues from the sector.
- A major trend is the emergence of new offshore oil provinces in the wider Caribbean: Guyana, Suriname, Cuba and French Guiana, and the renewed investment in the deepwater by international oil companies (IOCs) in the mature oil and gas province of Trinidad & Tobago.
- A second trend is the growing importance of Natural Gas, LNG and GNG as transition fuels in the region. The United States, and Trinidad & Tobago are the major producers and exporters of LNG, and the Dominican Republic is emerging as a key transshipment point for the wider region.
- A third trend is the shift to various forms of renewable energy (geothermal, solar, hydro, wind) for power generation in the Caribbean. Despite the small size of the local market, the technical hurdles, and the challenge of capital investment, ambitious goals have been set by several island countries including Cuba, Jamaica, Barbados, Dominica, and St. Vincent and the Grenadines.
- Finally there is discernible progress toward regional energy cooperation and integration: U.S. natural gas trade and energy diplomacy toward the region; emerging cross-border oil and gas exploration and development of natural gas pipeline infrastructure networks between Venezuela and Trinidad; and the functioning of Trinidad as a deepwater logistics base for energy service companies that are building oil and gas capacity off Guyana, Suriname, French Guiana and islands in the southern Caribbean--are all indicative of this tren
The consequences of the fall in oil prices produced mixed results for the Caribbean region. Oil importing countries saw their bills drop by half for oil and for petroleum products, while low global oil prices have created additional opportunities for upstream projects. Oil and natural gas exporting countries such as Trinidad and Tobago (T&T) and Venezuela continue to face declining revenues from the sector, resulting in serious budgetary constraints and economic adjustments.
But it is not all doom and gloom for the future of regional hydrocarbons. Offshore exploration projects by the international oil companies (IOCs) are still underway in the island Caribbean (e.g. in Jamaica, Barbados, Grenada) and the Guianas. Some countries in the region are now adjusting their tax structures to create a more competitive and attractive environment for foreign investment. The current hot spot for exploration and expected production in the near future is the Suriname-Guyana Basin (GSB). The U.S. Geological Survey (USGS) estimates that the GSB has undiscovered resources at 13 billion barrels of oil, and 32 trillion cubic feet of gas and ranks as the third province in terms of undiscovered conventional oil and gas resources within 31 geologic provinces within Central and South America and the Caribbean.4 In fact, Guyana and French Guiana have both had substantial offshore commercial finds since 2010; Suriname is on the verge of offshore discovery as well; the potential for Cuba‘s EEZ in the Gulf of Mexico is great but failure to find any deepwater wells by IOCs since 2012 is a great disincentive. The lucrative cross border oil and gas potential between T&T and Venezuela is expected to reap substantial rewards and a new level of energy integration for both countries by 2022. Finally, The island Caribbean and the Guianas are full of possibilities for the continuous development of renewable energy (RE) resources and the improvement of their respective national energy matrix as a route to energy sufficiency and regional energy security. A quick look at a possible energy future for the region reveals several trends.
Here is a closer look at current oil plays in four countries in the region: Guyana, Suriname, Cuba, and Trinidad & Tobago. Guyana and Suriname are potentially oil-rich states located on the northeastern tip of South America, with deep social, cultural and regional roots in the Caribbean and are members of the Caribbean Community--Caricom.
The full monetization of Guyana's oil and gas is perhaps 5-15 years in the future. The reality is that Stabroek is a prime Greenfield area and will be more costly to develop than a similar piece of acreage off the mature oil province off Trinidad for example. The IOCs do not anticipate production before 2021. In the meantime, as a new hydrocarbon player Guyana faces some practical challenges: it has to establish a state energy company, draft a regulatory framework including PSAs for hydrocarbon extraction, and plan for ?scal regimes, state participation, and environmental protection statutes. Available expertise from Trinidad and Tobago has been recruited to assist in these endeavors. 6
The hurdles to overcome in the development of these energy resources in Guyana are mostly above ground issues including: unresolved border and territorial disputes, management of the potential windfall, and social and environmental concerns. The above ground risks are many and will require studied responses, and in some cases diplomatic resolution.
The critical factor that threatens the Guyana offshore oil and gas sector is the maritime border claim by Venezuela of sovereignty over Guyana's EEZ.7 Guyana has countered the threats from Venezuela by pursuing a judicial settlement to the matter at the level of the United Nations. Venezuelan pressure should not deter the IOC's, nor put a damper on exploration in other parts of Guyana's current exploration blocks. The only short-term risk is that the Venezuelan navy will increase its patrols in Venezuela's EEZ, deterring ships from conducting oil exploration activities close to the maritime border. Such a move could also increase the risk of other types of ships and vessels being intercepted and detained by the Venezuelan navy beyond the EEZ and into disputed waters.
Suriname's offshore exploration is still in its infancy, since an offshore commercial well is yet to be discovered. But it is prepared for offshore discoveries. The regulatory system for oil and gas has been in place for many years, and unlike Guyana, the country has most of the resident skills, and the local negotiating capacity to deal with the IOCs if there is an oil and gas bonanza in the future. The state oil company Staatsolie Maatschappij Suriname N.V. (Staatsolie) is in control of the exploration, production, trade in crude oil and derivatives, and refining, and very active in the increase of Suriname's bidding rounds. It has been in the business of attracting exploration and production (E&P) contracts, offering bids, and negotiating production sharing contracts ( PSCs ) since 2004. The company is both the regulator and market participant and operates a PSC model also used by Malaysia.Suriname's exploration efforts can suffer if global oil prices remain low and deter cash-strapped oil companies from investing their scarce resources. Oil exports typically constitute around 10 per cent of Suriname's goods exports. Suriname's economy has always been characterized by cyclical boom and bust! The country is currently in recession (2017), because of falling hydrocarbon and mineral prices, and the end of an international commodity boom. Suriname is unable to implement countercyclical policies during recessionary periods because it lacks macroeconomic diversity. Short and medium-term growth will be influenced by two main factors: the IMF Stand-By Arrangement (SBA) which runs for 24 months from May 2016, and a possible recovery in the extractive industries. Suriname's economy underlines that the historic concentration on mineral commodities is a serious vulnerability. The country needs to diversify its exports, and to reduce its fiscal and external vulnerability to changes in global commodity prices.
Exploration in the GSB as of July 2016
Cuba has significant oil and gas potential . Historically, most of its oil production of heavy oil has come from onshore and near-shore wells. As of 2016, Cuba had more than 10 producing oil fields near-shore within five kilometers of its northern coast . The potential for increased offshore production lies in Cuba's untapped Exclusive Economic Zone (EEZ) in the Gulf of Mexico that is known in the industry as the GoM-CEEZ. The Gulf of Mexico is one of the world's great petroleum and gas mega provinces and the GoM-CEEZ is at the southeastern margin of this province in waters that range in depth between 200 meters and 3000 meters. The GoM-CEEZ has significant hydrocarbon potential given its location where oil and gas fields are prolific and oil resources are estimated to be 114 billion barrels of oil equivalent (BBOE).8
Cuba has a good track record in onshore and near-shore (coastal) exploration and production. The state-owned oil company Unión Cuba-Petróleo (CUPET) founded on 25 th March 1992 is responsible for managing all aspects of the oil and gas industry, including all downstream and upstream operations. It is a vertically integrated and highly specialized entity comprised of 41 companies that include state enterprises and 5 joint ventures. CUPET is responsible for conducting negotiations with IOCs and the signing of PSAs. Since 1991 it has signed more that 44 PSAs with a value of USD 2.5 billion.9
Even given its vast potential there is little interest now among IOCs in new exploration of the Cuban GoM-CEEZ. The four wells explored over the last decade by important IOCs at a cost of about USD100 million each, without commercial reward, is a great disincentive!
Although US capital investment is available, there is no discernible interest by US companies in the GoM-CEEZ, despite the improvement in US-Cuba relations. In any case interest by US companies cannot advance until the embargo and ( Cuban Liberty and Democratic Solidarity [Libertad] Act of 1996), the US federal trade prohibitions, are relaxed or the embargo comes to an end. In the final analysis Cuba's exploration of its GoM-CEEZ will depend in some part on its relationship with Mexico and a possible fruitful dialogue with the USA.
Cuba faces five challenges in trying to attract new bid rounds to the GoM-CEEZ: the failure to find commercial quantities; the continuing US embargo and many of the provisions of the Helms-Burton Act law that support the embargo and prohibits US trade with Cuba ; attractive new opportunities in the liberalized oil sector of the Republic of Mexico; the focus of major IOCs on new provinces in the Caribbean such as Guyana, Suriname and French Guiana; and the IOCs reluctance to embark on new mega exploration projects in favor of smaller fields. Within the next 3-5 years it is quite unlikely that the level of deep water exploration that existed before 2012 will be increased. The best estimates by trusted oil experts are that Cuba's deep water potential could produce only 200,000 to 250,000 B/D—or about 40% above Cuba's current rate of consumption.10 In the short term the Achilles heel of the Cuban energy matrix is Venezuela which provides Cuba with some 100,000 B/D under a special barter arrangement signed in October 2000. If oil shipments from Caracas were to stop, Cuba could face a $1.3-billion deficit in its national budget.
Cuba also faces a serious political transition after President Raúl Castro retires in 2018. The old generation of revolutionary leaders is giving way to a younger more pragmatic group. It is difficult to speculate on potential successors to Raúl Castro and their perspective on energy and possible energy relations with the USA. We can only assume that the PCC leadership will proceed with caution toward any succession plan.11
CUBA: Well location and sea bottom depth in the GoM-CEEZ.
Trinidad and Tobago (T&T)
Trinidad and Tobago the Caribbean's major oil, natural gas and LNG producer has had to face the full brunt of the fall in oil and natural gas prices. It is a mature oil and gas (O&G) country (120 years of oil and almost 30 years of LNG) and the economy is highly dependent on the energy sector which accounts for 45.3 percent of national GDP (2011), provides 57.5 percent of government revenue, and is responsible for 83 percent of merchandise exports. But it employs only 3 percent of the overall work force. The country's strong hydrocarbon base, supported by elevated fuel prices over the last decade, translated into a period of phenomenal growth. That picture is now changing.
The outlook for natural gas is very positive. The five production wells on the Iguana field are scheduled at 45 days each over a 7½ month period, commencing in August 2017. First gas from Iguana is scheduled for March 2018. Drilling of the development wells in the Zandolie field is scheduled for the period July 2022 to February 2023, with first gas expected by June 2023. The Anole field is scheduled to be drilling between August 2027 and March 2028, with a subsequent exploration well being drilled on the Whiptail prospect in the second half of 2028. 12 There are also other active initiatives being implemented to remedy the energy situation. To increase production, T&T and major IOCs are involved in several “offshore deepwater province” explorations and in “deep horizon” exploration on land. Priorities for increased production include, continued facilitation of offshore “deep water” bloc exploration and further enhanced oil recovery (EOR) exploration projects to retrieve billions of barrels of crude “stranded” in reservoirs, and from heavy oil dormant in fields onshore and offshore.
The most urgent cross border project with Venezuela is in the Plataforma Deltana oil and gas province. Unitization treaties have been signed between both countries and of the five fields in the area the Loran-Manatee and the Cocuina-Manakin are the ones that have priority for cross border production. The Loran-Manatee field is on the cross border with Venezuela where Chevron and Conoco Phillips hold Block 2 and Chevron holds block 3. The Loran-Manatee field contains an estimated 10 trillion cubic feet (tcf) of gas. In 2016 Venezuela and T&T agreed for both countries to go ahead and produce the gas and deliver via pipeline to Trinidad for conversion. Trinidad and Venezuela reached a preliminary gas deal that would set up a joint venture to market LNG that will be produced at Trinidad's Atlantic liquefaction complex using gas from the Venezuelan side of the 10.25 trillion ft cross-border Loran-Manatee field. Venezuela and Trinidad had earlier agreed that 73.75pc of Loran-Manatee belongs to Venezuela and the other 26.25pc to Trinidad.
Separately, the Dragon field is part of Venezuela´s undeveloped Mariscal Sucre offshore gas project, and T&T's state-run gas company National Gas Company (NGC) is offering to finance the construction of a pipeline to transport the gas it plans to purchase from Venezuela's Dragon field. The proposed pipeline will be constructed and owned by the National Gas Company and may be linked up with the existing 24” pipeline from the NCMA fields in Trinidad to the Atlantic facility. Chevron is the longtime designated operator on both sides of Loran-Manatee, and for the Dragon field.
Trinidad and Tobago/Venezuela: Crossborder platforma Deltana
The Growing Importance of Natural Gas, LNG and CNG as Transition fuels
LNG and CNG to Caribbean countries from small-scale barge trades of LNG, to floating import terminals. However, with the entry of US companies such as Fortress Energy, and possibly Cheniere, in providing (more expensive) LNG to potential hub countries in the Caribbean (the Dominican Republic, Puerto Rico, Jamaica) T&T may forfeit the opportunity to establish itself as a force in the Caribbean LNG market! T&T is the only natural gas producer and exporter in the Caribbean, but the Dominican Republic (via AES Dominicana which imports its natural gas from T&T and the US) is establishing itself as an exporter of LNG to the Greater Caribbean. The AES Andres terminal used previously for importing has been re-calibrated to export LNG as well. The Caribbean region's potential as a destination for US LNG cargoes will increase over time. Floating storage and regasification technology is developing as the fastest, cheapest and most adaptable technique to import gas in place of LNG import terminals.
But T&T's global strength in LNGstill persists. Trinidad and Tobago along with Nigeria and Qatar are leading global LNG export diversification, with an average of 20 trading partners in 2016. T&T's Atlantic Energy (ALNG) remains a very cost effective producer of LNG that remains competitive and attractive globally. T&T currently holds 6 per cent of the global LNG market, is ranked 6th in the world for LNG exports, and supplies 25 countries around the globe including Caribbean countries such as Puerto Rico and the Dominican Republic. The 4 trains are capable of producing up to 100,000 cubic meters of LNG per day. LNG is shipped on LNG tankers to various destinations including South America (Chile and Argentina), Asia and Spain. In addition to LNG, the facility produces natural gas liquids (NGLs).
The shift to Renewable Energy (RE) and other matrice
The Paris Agreement of December 2015 signals that RE will be more important globally in years to come. In tandem, the security implications of climate change have attracted increasing attention from both government and public for island and continental coastal populations in the Caribbean. The impact on human livelihoods, including the prospect of large-scale intra-regional migration of “climate refugees,” water shortages, and threats to infrastructure requires response from a variety of different policy communities: defense, foreign affairs, and environmental and developmental agencies, in order to construct integrated strategies for energy security in the Caribbean. The future of RE in the Caribbean depends in part on the extent to which it can be competitive without subsidy. Energy storage is the critical component in helping RE to achieve this outcome.
The island Caribbean is full of possibilities for RE. Islands such as Dominica are volcanic and are exploring the potential to produce geothermal energy. Other island states have set RE goals. Some examples: St Kitts & Nevis wants to become the first green country in the world by producing 100% of the country's energy needs from renewable sources by 2020. French engineering company Teranov is currently conducting exploration activities in the country. Jamaica will be producing 80 MW of energy from renewable sources in 2017 with the objective of having the use of RE outpace that of fossil fuels. It is anticipated that the country could generate more than 50 percent of its electricity demand by 2019. Canada-based Emera Inc, is nearing completion of the US$21.5m photovoltaic farm in Barbados , and is currently exploring the possibility of building another facility elsewhere in Barbados. Yet other RE targets in some other islands is even more ambitious. St. Vincent and the Grenadines has set a target of 60 percent by 2020 and Dominica a target of 25 percent by 2020.
Even oil and gas rich T&T , has for the first time set a specific target of 10% of power generation from renewable energy by 2021 starting from zero. Solar and wind energy are the two RE technologies under consideration. But since T&T currently uses 150 GW of power, and the target entails the generation of 150 MW of RE by that date, it is an ambitious target. The obstacle to solar and wind technology in T&T is economic. This is the result of the very low cost of electricity and the prevailing price structure in which the low price of natural gas is sold to the generating facilities. Moreover, natural gas has long been involved (100 per cent) in power generation in T&T and so by comparison on average the price of electricity in Barbados and Jamaica is three to six times more expensive than in T&T.
Some experts on Cuba's RE policy suggest that the shift in focus faces several obstacles including lack of private investment, limited access to international donor finance, and wide government ownership of the RE industry. But on the positive side Cuba has the human resources (a plethora of qualified scientists and experts) needed to implement an RE roadmap. Most importantly, the country has been able to develop its own technologies including the use of bagasse from the sugar industry. Recent studies project that Cuba could produce around 2 billion gallons of ethanol a year from sugar cane. Cuba has one million hectares of land on which sugar was grown, and the environmental impact is minimal since no deforestation is required. Furthermore, a new capital efficient sugar industry could produce 70,000 B/D of ethanol and contribute USD 3.5 billion per annum to the economy. The possibility of joint ventures with major Brazilian ethanol producers is being considered.
Specifically, while RE may be the path to reduction of Cuba's power generation costs and carbon emissions, the fastest way to get there is through LNG and solar energy. Conversion of the seven existing liquid-fuel plants to LNG would be a first step. Cuba is currently negotiating with foreign investors for the construction of 150 MW photovoltaic farms that will be fully owned by the foreign entity under build, own, and operate (BOO) contracts. The state company UNE will become the sole buyer of electricity at a fixed negotiated rate. The projects are a component of the government's plan to install 700 MW of photovoltaic farms by 2030. The UK firm Hive Energy has already announced it will build a 50 MW solar farm at the Mariel Special Development Zone.
But there can be a downside to RE for the current and potential hydrocarbon producers in the Caribbean . RE may be a slow development, but it can pose a significant threat in that extensive fossil fuel resources may eventually become “unburnable” and redundant. This issue of “stranded assets” (defined in financial circles as assets that have suffered from unanticipated or premature write-downs, devaluations or conversion to liabilities) because of climate risk challenge is looming larger as a real economic challenge for hydrocarbon economies.
Progress toward regional energy cooperation and integration
Ten years ago when CSIS studied the possibilities for energy cooperation in the Western Hemisphere there was not much ground for optimism.13 Today the outlook is much better. Vibrant US oil and gas production from shale has helped to signal the importance of regional energy integration. Natural gas trade between the United States and Mexico has more than doubled since 2005 and will double again by the end of the decade. At the same time, natural gas via LNG from the US Gulf Coast is imminent and will surely plug into the import markets of Chile, Central America and the Caribbean. The United States government has embarked on a long list of energy diplomacy efforts aimed at the hemisphere's energy market and integration. Programs such as Connecting the Americas 2022, the Caribbean Energy Security Initiative and the Energy Task Force all seek to promote regional energy integration as well as energy transition, and argue for the diversification of energy matrices in Central America and the Caribbean. In addition, significant financial resources are being made available for the programs, including a $20 million clean energy fund being managed by OPIC. But the future of these initiatives is still unclear with the new US administration.
Trinidad and Tobago is well located to function as a base to service deepwater programs in the wider region. Trinidad energy service companies are ubiquitous in the “Three Guianas” (French Guiana, Guyana and Surinam). Trinidad has been named as a “logistics base” for the Zaedyus well, while MOUs have been signed between the Energy Chamber of Trinidad and Tobago for cooperation and exchange and building capacity in private companies in French Guiana, Suriname and Guyana . Some energy experts now envision that regional energy cooperation and integration will no longer be limited by geography, geopolitics or physical separation.
Conclusion: A Roadmap
As the Caribbean moves toward a potential wealth future from hydrocarbons (in the first instance), the geopolitical conditions throughout the life cycle of energy investments and above ground, (i.e. non-technical risks such as political, financial, social, and environmental) issues, are often just as critical and constitute key success factors for sustainable development and investment. Beyond the uncontrollable element of future international export prices for oil and gas some of these specific “above ground” issues are: border and territorial disputes, (Venezuela and Guyana /and Guyana and Surinam), environmental degradation, and biofuels mitigation against climate change. Similarly non-technical risks that stem from environmental and community concerns and institutional weaknesses such as the possible marginalization or displacement of indigenous peoples whose tribal land is being exploited. In the case of Guyana and Surinam onshore discoveries or building of hydropower dams ignore the tribal and territorial rights of Amerindians and Maroons.
4 USGS, Assessment of undiscovered oil and gas resources in Central and South America , May 2001, available at http://pubs.usgs.gov/fs/fs-0037-01/fs-0037-01.pdf
5 Clifford Krauss, “With a Major Oil Discovery, Guyana is Poised to Become Top Producer,” The New York Times, January 13, 2017, https://www.nytimes.com/2017/01/13/business/energy-environment/major-oil-find-guyana-exxonmobile-hess.html
7 Ed Crooks and Andres Schipani, “Guyana oil prospects stir friction between Venezuela and Exxon Mobile,” The Financial Times, March 20, 2017, https://www.ft.com/content/013bfd26-0a8e-11e7-ac5a-903b21361b43.
10 A look at Cuba's energy potential is provided in several chapters of the book: Cuba's Energy Future:Strategic Approaches to Cooperation , by Johnathon Benjamin-Alvarado (ed.), Washington, D.C.: The Brookings Institution, 2010.
Anthony T. Bryan, PhD. is currently a Senior Fellow at the Institute of International Relations, The University of the West Indies at St. Augustine, Trinidad and Tobago. He is a leading scholar on regional security issues in Central America and the Caribbean, and a scholar and independent consultant on energy development (oil and natural gas), energy security, and energy geopolitics in the region. Petroleumworld does not necessarily share these views.
This commentary was originally published by The Relevance of U.S.-Caribbean Relations-Three Views Center for Strategic and International Studies (CSIS), JUNE 30, 2017.
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