Trinidad's oil and gas tango
By Linda Hutchinson-Jafar
Guyana Chronicle
February 25, 2007
PORT OF SPAIN – So Prime Minister Patrick Manning has found himself facing criticisms from some quarters in Jamaica over the ability of Trinidad and Tobago to supply Liquefied Natural Gas (LNG) to Kingston beginning by 2009.
Mr. Manning must, however, shoulder the blame for the pickle he has found himself.
According to a 2004 memorandum, Mr. Manning committed Trinidad towards supplying Jamaica with 1.1 million tonnes of LNG annually over a period of time and at an undisclosed preferential pricing.
A US$1.6 billion investment by Alcoa to double the capacity of the 1.5 million tonne alumina refinery it jointly owns with the Jamaican Government was predicated on an LNG project that would lower the cost of energy and help make the plant globally competitive.
So the LNG supply from Trinidad is that important to Jamaica.
The question that continues to be asked is whether Mr. Manning actually got a commitment from the shareholders of Atlantic LNG's four processing trains to sell their LNG to Jamaica.
The answer to the question gets murky as all LNG supplies from Atlantic LNG are already tied up in long term sales agreements for the export markets in the U.S. - which imports around 70 per cent of its LNG supplies from Atlantic LNG, Puerto Rico, the Dominican Republic and Spain.
And it's not that the government owns Atlantic LNG or owns any of the four processing trains. Through the state-owned National Gas Company (NBGC), it has a ten per cent stake in Train 1 and just over ten per cent in Train 4.
It is also impossible for the prime minister to tell the multi-national shareholders of the trains such as BP, BG, Repsol and Suez where to sell their supplies and at a cost less than what they can get in their traditional export markets.
So if there was no commitment on the part of Atlantic LNG to supply the Jamaican market, then Mr. Manning must have been banking on the much talked about Train X.
Problem is that there's been tons of rhetoric about the fifth train over recent years and no political action.
It was only earlier this month that Energy Minister. Dr. Lenny Saith announced that a feasibility study will be done to determine by year end whether the country should go ahead with Train X.
Even if Train X gets the go-ahead, it's not possible to meet the 2009 arrangement because of all the technical issues and feasibility studies that are involved even before any construction of the train can take place.
According to the thinking of the Trinidadian government, Train X will consist of upstream producers who are not part of the shareholding structure of Atlantic LNG, perhaps companies such as BHP Billiton, EOG Resources and others who operate in the country.
Even if there is a Train X, why would these multinational companies want to commit to selling LNG to Jamaica on a preferential pricing (as Manning committed the country) when they could go to the bigger markets and sell for higher prices and make their profit?
So it seems Mr. Manning has weaved himself a tangled web.
But the most fundamental problem facing Trinidad is whether there is available gas for processing by a fifth train and whether new sources of gas can be found over the next couple years.
Currently, gas is being guzzled as fast as it comes to the surface by the multitude of gas-based industries that are in operation in the country.
Gas supplies have already been committed to several new industrial projects that are under construction. Many more proposed projects are awaiting gas contracts before they go into the construction phase.
The country's state-owned National Gas Company has been busy negotiating with upstream producers, BHP Billiton consortium, EOG Resources and BG/Chevron Texaco for the supply of 550 million standard cubic feet of natural gas per day (mmscf/d) for the petrochemicals, metals and other industrial plants scheduled to come on stream in the time-frame 2009/2010.
Trinidad and Tobago currently has 34 gas-based plants comprising 10 Ammonia, 7 Methanol, 1 Urea, 5 iron reduction units, 1 crude oil refinery, 4 electricity, 4 LNG trains and 2 gas processing plants.
Demand for gas has been increasing rapidly from 760 mmscf/d of new gas consumption capacity from seven plants between 1995-2000, compared to 2,240 mmcfd of new consumption capacity of an additional seven new plants between 2001 and 2005.
Atlantic LNG alone processes about 60 per cent of the country's overall natural gas production.
Given the poor exploration success by the multinationals last year, the government would be putting a lot of hope into the drilling of 16 wells this year and next year by companies that are investing US$400M to find new oil and gas supplies.
The Manning regime is also eager to sign off on a Unitization Agreement with Venezuela over the sharing of natural gas reserves in the Platforma Deltana gas field which underlies the maritime border between them.
The Loran Field is part of the Platforma Deltana, which is believed to bottle an estimated ten trillion cubic feet of natural gas, about 7.3 trillion of which will go to Venezuela and the remainder for Trinidad.
On another energy issue, comments are emerging in Port of Spain about the treatment of Trinidad and Tobago by CARICOM members who quickly signed on to PetroCaribe without dialogue with the twin-island state, the longstanding petroleum supplier to Caribbean states.
Now that PetroCaribe has overtaken Trinidad's state-owned Petrotrin as the dominant oil supplier to the Caribbean, many are wondering whether Port of Spain should continue to have the multi-million dollar oil facility for CARICOM countries.
With its survival under threat and projected sizeable loss of revenue over the short to medium term, Petrotrin is now forced to explore all available options it could to stay alive as its traditional premium markets in the Caribbean are no longer secure.
Finding new markets outside CARICOM would incur significant transportation and other marketing costs for Petrotrin.
Hopefully, some middle ground can still be found where PetroCaribe and Petrotrin could exist in the Caribbean markets.