A major contract has been awarded in Trinidad & Tobago, which will act as a roadmap for the exploitation of gas reserves in deeper waters and boost output over the next 10 years. The award comes amid concern that existing reserves are dwindling and government revenue from its key export commodity is declining.
UK-based energy and transport consultancy Poten & Partners won the $1.4m contract in November to develop a 10-year master plan for gas exploration works within a six-month period, replacing the previous industry blueprint commissioned in 2002.
Industry experts say some 15 open blocks in deep and ultra-deep waters, yet to be fully explored, could represent vast new potential for gas reserves at a time when the existing reserves located in relatively easy-to-reach shallow waters have been steadily falling.
Finding new gas reserves is crucial for this southern Caribbean island, which is currently the third largest producer of natural gas in the Americas. Despite efforts to diversify the economy in recent years, the country remains heavily dependent on energy exports, which account for around half of its GDP and more than 60% of exports.
Since the 1990s, the gas sector has brought in more export dollars than oil – producing roughly nine times as much natural gas as oil − which makes Trinidad the sixth largest exporter of liquefied natural gas (LNG) in the world. However, earnings from oil and gas now represent just 35% of the country’s anticipated revenue compared with nearly 53% in 2006, according to official data.
Proven reserves have also been falling consistently since 2002. Houston-based Ryder Scott Co., which conducts an annual survey of Trinidad & Tobago’s gas production and reserves, said in its report published in August that the figure fell by 7% in 2013 to 12.24trn tcf.
Unveiling the new contract, Energy Minister Kevin Ramnarine said the time was ripe to review the country’s roadmap, given that a major contract with BG Group expires in 2015 and other contracts with BP and Atlantic LNG Train One will end in 2018.
Alongside its assessment of major contracts, Poten will look at other issues such as gas allocation. “We’ve been challenged in the last four years with a supply/demand imbalance in the natural gas sector,” said Ramnarine.
“Poten will be looking at the entire commercial structure of the gas value chain; the optimal ratio for gas export versus domestic (use); further incentivisation of upstream (players),” he added.
According to experts, a new exploration plan is necessary to boost output. Effuah Alleyne, senior analyst at London-based consultancy GlobalData, said that the oil and gas industry will see about $6.2bn worth of investment over the next two years.
"As deep and ultra-deepwater is yet to be fully explored in T&T, these areas could represent vast potential...these lie in the Columbus basin, an extension of the prolific Eastern Venezuelan basin, where one of the world’s largest reserves of 1trn barrels of heavy oil-in-place is located,” said Alleyne.
In November, Ramnarine licensed 12.5% of T&T’s total landmass for oil and gas exploration in three blocks, and said further onshore and offshore rounds were being planned for 2015.
This followed an announcement in August that BG Group and BHP Billiton had been awarded blocks in the most recent offshore deepwater bid round with a planned investment of $250m. BHP Billiton’s country manager, Vincent Pereira, told OBG that seismic data will be processed in the first quarter of 2015, with drilling operations planned for late 2016.
A key issue for the economy, however, is how international gas prices will evolve, particularly in light of the US shale gas boom. Dominic Rampersad, acting president of gas processing facility Phoenix Park Gas Processors, said that the Trinidad mid-stream sector is performing well as supply disruptions have decreased between 2013 and 2014. However the shale revolution will be a game changer in the industry, particularly as potentially new suppliers of natural gas products enter the market place.
"The main exogenous challenge to the mid and downstream industry comes from the ongoing shale revolution and its potential depressive effect on prices, especially for ethane and propane," Rampersad told OBG. “This would mean that Trinidad & Tobago will have to compete more aggressively to attract investment in the downstream gas sector” he added.
A widely held view is that as US gas prices fall, it will become increasingly difficult for T&T gas exports to compete in the North American market. As a result, more shipments are being diverted to Latin America, Europe and Asia. The Asian market, where gas prices are usually at a premium to North America, will become more accessible after the enlargement of the Panama Canal in 2016 and allow passage by larger tankers carrying LNG.
However the Asian market brings with it prices that are more vulnerable to a drop in oil prices.
For now, the LNG remaining contracts with the US are proving to be more stable against the backdrop of falling oil prices. “In spite of the shale revolution and the reduction of cargoes to the US, some of the LNG contracts are still exposed to the US market, where gas prices have fallen less than crude prices,” Norman Christie, regional president of BP Trinidad & Tobago (BPTT) told OBG.
He added that BPTT has submitted its thoughts on the master plan to the energy ministry and it is planning for “multiple price scenarios”.
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