LNG royalties must be negotiated in public interest

Sometimes it is the questions of others that alert us to the questions we ourselves should be asking. As a tour operator, the energy industry of our country has to be a part of the Trinidad and Tobago story we tell to our clients. Having cheerfully informed a visitor of the trillions of cubic feet of gas discovered offshore, and the millions of tonnes of LNG (liquefied natural gas) we were going to export, I was a little nonplussed when asked how many cubic feet makes up a tonne.  As usual, when faced with a question I cannot answer, I researched, and I was delighted, though not enlightened, to find a mine of information scattered through the bp.com.website Natural gas reserves and well production are quoted in cubic feet (usually billions of those), which is shipped to overseas markets in cubic metres (BP’s `British Trader’ carries 138,000m?), where it is sold to the customer at a rate per British Thermal Unit (again millions of those)!

Atlantic LNG’s literature informed me that 699 cu ft of gas makes 1 cu ft of LNG, and that I US gallon of LNG delivers 86,500 Btu’s. The confusion of Imperial, American and metric measure was now complete, but the relativities of volume to weight of LNG were shrouded in mystery. And as my visitor was leaving, his question unanswered, I realised that this relationship was key to understanding the value of the new agreement between the Government of TT and Atlantic LNG over development of Train IV. Previous `royalty’ agreements were, to many eyes, poor value for TT. Recent articles in the business pages of our newspapers have indicted that oil and gas royalties have been about- percent. Without the original data on which these figures are based, their accuracy cannot be verified; almost everyone has a case to prove or disprove. However, even if the numbers are wrong by a factor of 10, the direct returns to TT, from the oil industry, are low. This view was supported by a World Bank study on TT, published in 1999, that stated that TT’s share of its own oil and gas wealth was lower than other energy producers in the Region.

The Government clearly believed this too, from the few public utterances emerging from the commercial confidentiality of the Atlantic LNG Train IV negotiations. However, in June, agreement was reached. BP’s accompanying press statement stated that once Train IV was complete, Atlantic LNG’s total production capacity would be 15 million tonnes per year. The Prime Minister announced that TT would receive free gas from bpTT for years, enabling electricity to be supplied to the nation at cheap and stable prices. After that -year period, we get a 10 percent royalty.  Apart from this broad concept, details of the agreement were subject to the normal confidentiality that one expects in very competitive businesses, where rival companies are jockeying for future market share. And that unanswered question posed by my visitor, led me to question further. What is the value of years free gas for TT, compared to years of LNG production? And years from now, what might be the value of percent?

BP’s Chief Executive of Gas, Power and Renewables (Mr Ralph Alexander) delivered an excellent speech in Norway on February 4. It is available on bp.com, has several references to Trinidad and Tobago, is well worth reading. The key is there; million tonnes of LNG is equivalent to billion cubic metres of gas. Therefore, Atlantic LNG’s projected production of   15 tonnes per annum is equivalent to 0.74 tcf of gas. Trinidad’s current usage is about 0.02 tof per year (bpTT press release of May 9, 2001). So if we got all of this free, it represents about 8 percent of Train IV out put or 2.7 percent total Atlantic LNG production. Based on the nature of my raw data and my very limited knowledge of the industry and this agreement, these numbers are certainly inaccurate, but the order of magnitude is probably about right. This is a substantial increase compared to the past.
At this stage I realised I could not work out what 10 percent in 15 years might represent: Ten percent of what? The possible variables of exploration success, extraction, production, costs and returns over the next 15 years are beyond me. The conceptual thinking behind the agreement also needs explanation. TT is trying to achieve developed nation status with the stimulus of cheap energy.

Does inexpensive electricity encourage waste at all consumer levels? Will new industries develop using cheaper old and inefficient technologies to achieve quick returns on investment? When free gas ends in 15 years, how much will be left in the ground and what will it cost us to generate electricity? If Government will have to intervene then to manage sudden changes in energy prices to consumers, why have we not simply taken a 10 percent royalty right away, and subsidised electricity production in accordance with development plans and priorities? In September 2002 bpTT announced its proven gas reserves to be 17 tof. The amazing new Cassia B platform has a throughput of 2 billion cubic feet per day (bcfpd). At this rate Cassia B alone will extract the current proven reserves in 23 years. Atlantic LNG’s ultimate capacity may also approach 2 bcfpd. Pipelines to other Caribbean Islands and even to Florida are being proposed. Total proven and probable gas reserves of over 35 tcf have been reported for Tt, and further discoveries are likely. How do these different factors tie together, and what is their environmental impact? How can we enlighten our visitors when we ourselves are in the dark?

Mr Alexander’s speech to the Energy Policy Foundation of Norway may again hold the key.  In a very interesting section on `mutuality’ he states - “we (BP) have worked closely in support of the Trinidad and Tobago government in the creation of a Gas Master Plan. That plan seeks to create a lasting legacy from the country’s enormous indigenous gas reserves for the generations who follow.” If this Gas Master Plan was more readily available in the public domain, we could determine the nature of this legacy for ourselves, and perhaps I could better answer the tourists’ questions.
The views expressed in this column are not necessarily those of Guardian Life. You re invited to send your comments toguardianlife@ghl.co.tt