TT’s gas sector close to falling off cliff

While it’s not yet at crisis stage, there seemed to be consensus amongst the heads of major players in Trinidad, speaking during a panel on the “Future of the Trinidad and Tobago Gas Economy”; held during the 2017 Energy Conference hosted by the TT Energy Chamber at Hyatt Regency, Port-of- Spain, that terms and conditions of new contracts must be settled soon if the country is to avoid another shortage in gas supplies.

This was also the case made by Kjetil Solbraekke, Senior Vice-President South America, Rystad Energy during his presentation on the status of Trinidad’s competitiveness in current global gas conditions.

The following are the cases made by the participants in that panel on how best to address the local gas supply in the short-term and long-term.

SOLBRAEKKE: We feel very comfortable that gas demand is there. It’s going to increase.

However, when we looked at the balance between supply and demand on the global scale for LNG, we see LNG oversupplied for another five to maybe ten years. That depends on how many new projects are being sanctioned but already now, with the projects that have been sanctioned so far, we see this oversupply situation.

So, we think this oversupply in LNG is more serious than the oversupply we see, for instance, in the oil markets.

We are slightly more optimistic regarding a comeback of oil prices.

I think that we are already seeing a balancing of the oil market. It will take much more time before we see the balance in LNG. Consequently of course, we do expect that LNG prices will stay low and maybe for longer, for sure longer than most of you would have liked to see, but I think this is the reality and I think that it has to be part of the backdrop when you (engage in) any type of discussion. The prices are not likely to help you out of taking necessary, important, discussions.

So, I think we will find this to be, in general, the price situation in the next five to ten years and you cannot wait for five to ten years to make important decisions going forward... the signs are, there are no solutions, there is no quick fix on the market side.

However, the market is probably not the biggest challenge. I think your biggest challenge is what I call Mount Trinidad (see slide showing gas production from sanctioned gas fields in TT).

Normally mountains are tougher to go up than down but I think this mountain is actually the opposite way, you enjoyed, a lot, to go up but you don’t really like the downturn side. So, I think what we see now is of course, with Juniper, with the gas compression project and others, that we do see that something is happening and it was about time because you have dropped off, about 20 percent, over the last couple of years.

When gas fields plateau, they do so very quickly. So, the situation in Trinidad is that you cannot not take decisions.

You have to move on and make decisions in order to get the new supply in production. Otherwise then you will not be able to supply the industry you have.

I think one of the things you need to focus on now is to get new developments approved by the investors, together with NGC and the Government, and to maybe look partly to the potential and what is needed in order to increase oil and gas exploration.

(The existing infrastructure means) there’s a huge cost advantage to finding gas and developing that gas in Trinidad, compared to other places. So, I don’t think that it’s not economically viable. I think that you will probably find the answers in regulations, taxes, predictability, in the way you are organised.

Solbraekke’s presentation included a number of questions and suggestions: Is the government prepared to adjust the Fiscal framework in time to save the gas industry? Improve commerciality of projects.

Neutral taxes would lower breakeven, upstream risk and encourage investments.

A more tax-neutral system could encourage oil exploration and increase associated gas production from oil fields.

Remove royalty also for oil prospects Will NGC be prepared to grant access at reasonable costs to connect new upstream gas to the pipeline infrastructure? Ensure cost efficient access to existing upstream and downstream gas infrastructure.

Facilitate access to third party gas infrastructure to enable smaller discoveries to be developed.

Midstream service to be provided at cost to realize all profitable upstream projects.

Is NGC in a position to provide transparent gas price between the downstream and the upstream companies in order to optimize the upstream gas price? Being in an undersupplied gas environment, it is vital for Trinidad to provide predictability.

The ability to adapt to changing supply varies between the downstream consumers, and a pro-rata cut in supplies would not be optimal.

The system to allocate gas in constrained situations should be market based, to ensure that value creation is maximized.

This would mean more transparency, and an open price formation.

Transparency would enable investments both from the producers and the consumers, as risk is reduced.

Are the upstream companies doing their utmost to reduce cost and ensure more efficient operations? The upstream operators should identify all possibilities for cost reduction and more efficient operations.

Included in this should be the time and predictability of getting all necessary permits in order to develop a gas field.

Can the government establish long term strategies with neighbouring countries in order extend the life of the gas industry? New Upstream projects are being developed and there are exploration opportunities in both Guyana and Barbados.

This could play a role in the long run for Trinidad’s gas industry.

I would encourage the Government to work fast because then you would have a much wider sector of opportunities going forward, and not bring in the same position like you are now, where you have very few opportunities and very little time.

The other challenge also facing the industry is that you have to be ready to look at the ways that you can reduce your operations costs. I think that the standard answer f all companies will be, yes, of course we’re doing that but...

hopefully (we) see a process coming out of this...a process where Government, industry, NGC, all the relevant parties, sit down together and figure out what can we really do and what can we do now, in order to improve the conditions for the upstream companies to do new investments for finding and developing new gas resources. That’s all this is about. I think then we should be able to build the bridge into the future as opposed to a ladder, which I think it will become if you don’t take those decisions (soon).

Chairman of the Energy Task Force, Wendell Mottley had the following to say in response to questions by panel Moderator, Professor Avinash Persaud: Persaud: TT uses its infrastructure, in part, as part of its commercial arrangements. The allocations depend, a little bit, on your access to the infrastructure, how much you pay.

Shouldn’t the infrastructure be neutral? Should the infrastructure be a profit centre or should it just facilitate the industry and not actually be a decisionmaker in itself? MOTTLEY: I think the infrastructure should be more neutral than it is now and that’s a critical point. There should also be transparency. The government looked at a report on the whole gas industry and saw that as a result, the NGC was, at times, conflicted and that we had, as a matter of policy, to try to separate areas of conflict and the NGC as a transporter of gas, provides a very efficient function. We have to make sure there’s greater transparency assigned to that but then we have also realised that the NGC is an aggregate and it provides a very useful function to the downstream industry, as an aggregator of gas.

Gerry Brooks, Chairman of the NGC Group of Companies spoke with Business Day after the panel discussion.

He said, “We have advanced a number of solutions, initiatives (re gas supply).

Last year we spoke about TROC (Trinidad Region Onshore Compression project) in the first quarter of 2017 and we have done the work with BP, it’s BP-led. We were part of the bilateral and multilateral discussions which will see us bringing TROC onstream in Q1 - April 2017.

The other initiative that we talked about is Juniper, that brings 590 million scuffs in Q3 of 2017.

The Prime Minister led the delegation in Venezuela (December 2016) on the case of cross-border gas and that’s progressing (negotiations). That will give us some certainty around 2019.

We have to take a look at other options as well. Other options include, how do we select the right plateau and duration to ensure that there is a consistent supply of gas over an agreed period, say ten years? A supply which would allow downstreamers; both Atlantic and the petrochemicals sector, to be able to make investment decisions, plant turnarounds, plant efficiency improvements and to also go into longterm contracts.

A significant part of our objective, an important objective of ours, is working with the upstreamers to ensure that we do that. Now, the question was asked by the moderator, is consideration being given to other options, like gas swaps? A gas swap is where we arrange to buy gas at an external destination, through an external provider, and we replace cargoes locally with cargoes at a destination point that you want and on terms and conditions that you deem appropriate.

So, what I’m doing (in a swap) is that I’m using local gas and I’m providing you with the equivalent gas from a jurisdiction and on terms and conditions acceptable to you. This is a mechanism used by jurisdictions, by providers, and it is something which is available to us as part of our arsenal, and that we want to look at.

Remember we’re trying to resolve the gas situation in a way that’s thoughtful, innovative and creative.

The other question that was raised was about importing gas. I pointed to other jurisdictions that were importing gas and the improvements in technology in that area. So, you have a host of providers who are doing that, the technology is becoming cheaper and then you have abundant sources of gas in the US.

It’s something that other jurisdictions have looked at and certainly in our position, we would want to take a careful look at. So, we are opening up our minds to solutions which could help with the gas availability problem in a way that’s professional, economically feasible and that’s also operationally acceptable.

NORMAN CHRISTIE, Regional President of BP Trinidad and Tobago: We have a cliff that (we reach) in two years, that’s what the (Rystad Energy) data showed. It means that decisions have to be made now because as was pointed out, it’s at least two years before that gas is going to show up.

That’s not subject to speculation, it’s data.

The immediate decisions that are required to not fall off that (gas supply) cliff. And for that to happen, the issues related to the solving of commercial arrangements will not allow for all the things in the vision (hub etc) being sorted before moving on.

When asked, if you could change one commercial arrangement, which one would it be, Christie responded: “It would be the pricing arrangement between the upstream and gas to be sold to NGC, where the contracts expire in 2018. That speaks to the cliff (which) occurs in 2019. Solving the commercial arrangements so that those contracts are renewed and incentive the gas.

“It’s a renewal of the contracts, to be precise. The contracts expire in 2018, so you have to negotiate new contracts, for which you need to have commercial terms, including price and if that’s not known, what I’m saying is, the gas that’s required (for TT) to come off the cliff will not be there. So, vision, yes.

Absolutely required but if we lose sight of this urgent matter within that, we will fall off the cliff.” Subhas Ramkhelawan, Managing Director of Bourse Securities Limited told Business Day, “I thought that day one of the conference saw negotiations start on the open floor. You had statements from Shell, BHP as well as from BP and those set the tone for the rest of the day and for that panel discussion (on gas) which involved peers on the one hand at Atlantic and bpTT, and on the other side, Gerry Brooks from NGC and Wendell Mottley from the Energy Task Force.

“Several gas contracts downstream have already expired in the methanol and ammonia sector. In 2018, I believe Atlantic’s Train 1 LNG contract is going to expire from the downstream side but also, very importantly, is that one of the gas supply contracts with BP would expire in 2018. These are very immediate concerns, being that it is already 2017.

At the end of the day, what is the right balance in terms of the fiscal incentives and the take to the Government to run its business operations, especially since we have seen the oil and gas tax take has fallen precipitously over the past year, year and a half? That gap is something that will hurt us as a nation if we cannot make it up in terms of recurrent expenditure and recurrent income. So, it’s an important issue but it’s all tied up with gas contracts, the expiration of those contracts and fiscal incentives.

When asked if there is a tricky balance between incentives and Government’s revenue share, Ramkhelawan said, “I would say it is a tenuous balance but I have every confidence that it can be arrived at because right now, to put it bluntly, there is some level of sabre-rattling that is taking place because of the anxieties that in a business that is long-term in nature, the contracts are not being renewed at the speed or the expectation of the upstreamers as well as the downstreamers.

That having been said, we of course need to do that (sign new contracts) reasonably quickly but the outcome must be one that is a fair and reasonable partnership.”