Trinidad and Tobago’s oil and gas industry is exploring new strategies to respond to weaker hydrocarbons prices, including enhanced oil recovery (EOR) techniques and potential sources of new supply.
T&T’s hydrocarbons industry, which accounted for 42% of GDP in 2014, according to the Central Bank of T&T, continues to face headwinds on both the price and production front.
West Texas Intermediate crude oil, which is traditionally viewed as an appropriate price proxy for Trinbagonian output, fell from more than $106 per barrel in June 2014 to around $43 as of mid-November.
The concomitant decline in gas prices has also impacted the twin-island nation’s economy. US Henry Hub prices – a key component of the formulas for pricing sales contracts – were down at around $2 per million British thermal units in November, a decline of more than 65% since February last year.
Additionally, key exports based on gas feedstock, such as ammonia and methanol, have also seen double-digit price adjustments during 2015.
As most analysts expect a gradual recovery, with several years of lower commodity prices on the horizon, the new administration, which took office in September, has been working to curb public spending and improve upon the previous government’s energy strategy.
Nicole Olivierre, the new minister of energy and energy industries, highlighted the importance of boosting production in a speech in early October.
“At present, oil production is at the lowest level ever in this country, with a production of approximately 81,000 barrels per day (bpd) year-to-date and natural gas production, which peaked at 4.3bn standard cu feet per day (scfd) in 2010, currently averaging 3.86bn scfd,” she said.
As a result of the decreased gas production, gas curtailments – shortfalls on delivery contracts to processing plants – have been as high as 10-15%, according to Thackwray Driver, president and CEO of the Energy Chamber of T&T. The supply gap is likely to continue at least until BP T&T begins production at the Juniper offshore gas field in 2017, and possibly beyond, he told OBG.
As the new government reviews the previous administration’s approach to revitalising production, there are hopes that exploration on three onshore blocks awarded in February 2014 will yield results.
According to Kevin Ramnarine, the former minister of energy, the three operators that won the contracts – Canada’s Touchstone Exploration, T&T’s Lease Operators and London-based Range Resources – will drill a total of 12 wells.
In addition, the previous administration had also focused on secondary recovery from existing fields in the south of Trinidad, as well as the extraction of virtually untouched heavy oil deposits in the same area.
The costs of such strategies may give the new fiscally minded administration cause for concern. EOR techniques, such as CO2 injection, would be needed for either approach, which could necessitate construction of a CO2 pipeline from the Point Lisas oil complex to the southern basin oilfields.
With public investment likely to be circumscribed by lower energy revenues – projected to fall by 72% in FY 2015/16, according to the new budget, to TT$5.5bn ($856.5m) – private sector investment could prove to be a key alternative. Given the current price climate, however, stakeholders may require incentives to invest.
According to Driver, private sector companies could be encouraged to develop smaller gas fields if the government were to modify the existing production-sharing contract structure to make such endeavours more profitable for private players.
Additionally, reforms to the supplementary petroleum tax (SPT) would be well received by the sector. As currently structured, the SPT kicks in when the oil price hits $50, levying an 18% surcharge on company revenues. According to explorers active in the country, this makes most projects untenable.
“As the price reaches $61-62 per barrel, we earn roughly as much as we do when the SPT tax commences at $50 per barrel. Thus, we need a price of more than $65 per barrel in order to be drilling profitably,” Michael Loewen, country manager of Touchstone Exploration (Trinidad), told OBG. “If the SPT was structured differently, there is a good chance we could be drilling at $55-57 per barrel. A simple sliding scale mechanism of sorts would solve this issue, whereby a much lower SPT is imposed at $50 per barrel, and then gradually ramps up as oil prices increase to $100 or more per barrel.”
Private stakeholders are also pursuing other revenue-generating avenues to bolster earnings, including exploration and production activity in Suriname, West Africa and potentially Guyana.
Another longer-term option for sustaining sector activity could be the Loran-Manatee offshore gas field, which straddles Trinidad’s maritime border with Venezuela and contains an estimated 10trn cu feet of gas.
After more than a decade of negotiations, the Venezuelan authorities have signalled that they are close to signing an agreement to send gas to the Port Fortin liquefied natural gas plant in T&T for processing. Unlike the CO2-based EOR strategies, infrastructure is already largely in place to transport the gas, with T&T shipping a reported 2bn scfd to shore.
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