Trinidad and Tobago’s energy industry is more than a century old, and the country depends heavily on it for revenue. It will still have its place in the future economy, especially if its current constraints are addressed
by Anthony Paul, Principal Energy & Strategy Consultant,
Association of Caribbean Energy Specialists Limited
Published in CONTACT Magazine
To paraphrase Mark Twain: “The rumours of the death of oil are greatly exaggerated.”
Outlooks for the global energy mix over the next 20 to 30 years, from major international oil and gas companies like BP, Equinor (formerly Statoil), ExxonMobil, Shell and Total, as well as consultancies, research institutions and the International Energy Agency, all point to a future where energy demand grows, and the greatest increase in market share is taken by renewables.
Interestingly, in that same timeframe, while the share of oil and gas declines, actual demand for both is predicted to grow under current global policy scenarios, with gas replacing oil as an energy source to reduce harmful effects on the environment.
As technology advances rapidly on many fronts, it makes renewables more efficient and competitive, and the discovery and production of more oil and gas easier; it also reduces the impact of fossil fuels on the environment.
These factors point to a dynamic range of scenarios, none of which suggests that the global life of oil and gas will be over in the next 50 years. There is still enough time to invest and benefit.
Maximising our remaining resources
But what about Trinidad and Tobago? How long does our industry have again?
The Ministry of Energy and Energy Industries uses its annual Scott-Ryder audit to better understand the energy industry’s growth. This approach is an unnecessary public expenditure, as exploration companies are required to do the same, and the ministry has the authority to dictate how this is done so that it meets their requirements.
Further, the approach taken grossly understates the potential of our already discovered fields and geological basins, dissuading investment in exploration and indigenous research and development. The reserves audit has limited scope, relative to the potential of the basins.
That said, in October 2018 the ministry announced that, according to the most recent audit, for the first time since 2004 reserves had grown, with 154% replacement of reserves produced in 2017.
This was welcome news, but Trinidad and Tobago still needs to take urgent steps to maximise its remaining energy resources, alongside investing capital to fund economic diversification.
Aside from new exploration in deepwater acreage, Figure 1 shows other areas where oil and gas can be found including onshore, the Gulf of Paria, and shallow water off the north, east, and south coasts.
The use of new technologies, field depletion policies consistent with national interests and industry best practice, suitable investors and/or commercial models, can enable production from small fields, lower pressured reservoirs, tight reservoirs, deeper older formations and trapping types, and heavy oil.
In addition, by applying the phenomenon known as “creaming curve”, whereby oil and gas basins typically contain as much reserves in multiple small fields as they do in the few large ones, basin development would translate into over 50tcf in smaller pools, given currently producing fields.
In a mature gas market like ours, small fields can be commercialised as their development is not burdened by the need to invest in pipelines and other infrastructure, or to guarantee the long-term supply needed to satisfy financing requirements for new plants.
Given that our gas processing plants have mostly been paid off and are still relatively very efficient, they can compete with new plants in global markets, even with higher prices.
Because our resources are mostly onshore and in shallow waters, they can provide opportunities for local investors, contractors and suppliers to participate, and for the government to give incentives for investment that can be translated into benefits to the economy via increased local revenue flows, taxes and employment.
Indigenous supplies aside, development and explor-ation opportunities on the Venezuelan side of our borders can provide potential inputs for refining at Pointe-à-Pierre and Point Lisas, at costs lower than most other options – though geopolitics and uncertainty over the refinery present immediate challenges.
Implementing these initiatives can bring tens of trillions of cubic feet to market. At the government’s stated sustainable production levels of 4.2 billion cubic feet per day of gas, new reserves may be able to support existing plants for decades to come.
Positive developments taking place in Guyana and Suriname also present opportunities for the local sector to provide assistance in developing indigenous capabilities in services, skills enhancement, infrastructure and natural gas industries.
Enhancing energy services for export
How do we maximise our remaining resources, while ensuring the growth and development of domestic firms?
As local reserves become depleted, the energy services sector will take on even greater importance. Enhancing competitiveness and investing in capacity development of local firms will be fundamental to improving their export capability.
Although we have a robust local content policy and supporting regulations, foreign individuals and companies are often brought in to do work for which locals are fully capable and qualified. Other work that can and should be done here is sent overseas, thus facilitating revenue leakage, transfer pricing, and tax avoidance.
The Trinidad and Tobago Local Content Policy of 2004 identified areas in the oil and gas sector that had significant projected demand and could support the competitiveness of local companies, encouraging them to export their services, while contributing to diversification efforts.
Areas such as big data management, seismic processing, design engineering and fabrication were identified as opportunities, and were pursued to the extent that several international firms set up operations locally, some serving foreign-based clients while partnering with locals.
Unfortunately, this initiative found itself on a collision course with the decision to engage Chinese contractors at the expense of local industry. The oil and gas local content policy was quarantined as a consequence, and the affected companies folded up.
Policy decisions favouring mega-projects and foreign investment, preventing access to natural gas and gas-derived products, resulted in the door being shut on locals wanting to invest downstream in small plants to convert methanol and syngas by manufacturing, and small-scale LNG for export to regional markets.
Figure 2 demonstrates how investment in high sustainability and high impact energy services can contribute to job creation and knowledge transfer.
Improving administration and tax collection
Aside from the direct impact on the economy and business, the energy sector traditionally provided the biggest share of government revenue and foreign exchange, until recent times. As highlighted at the Ministry of Energy and Energy Industries March 2018 “Spotlight on Energy”, failures in government taxation policy and tax collection resulted in over TT$120 billion of uncollected taxes.
This tax avoidance was facilitated by weak regulatory capacity and governance systems. Recent assurances by the government that they are going after this, supported by bold, if long overdue, measures to institute a transparent and consistent royalty regime, will result in much more foreign exchange being available to the domestic economy.
While these developments are encouraging, they do not do nearly enough to address the core issue that has plagued the industry and led to its slide. A woefully under-resourced and opaque Ministry of Energy and Energy Industries, lacking in self-confidence, denuded of authority and perpetually avoiding the legal strictures in place to ensure it conducts its role in a transparent manner, must be fixed.
With 100% excess power generating capacity fired by natural gas, the road to renewables is a policy minefield. Unless we are willing to think differently, make bold decisions and act decisively, we shall lose that battle. Ideas like selling electricity to industries in eastern Venezuela, or limiting CNG to just fleet vehicles and focusing instead on electric and hybrid vehicles for most other forms of private transport, should be explored.
Fig. 3: Recommended measures to increase activities, production and revenue in the T&T oil and gas sector.
• Clear, consistently applied policies
• Enhanced institutional capacity
ii. Commercial (incl. negotiating)
• Transparency & accountability, as prescribed by the Petroleum Act & Regulations
• Enlightened tax regime – close loopholes
• Industry standard procurement processes
– Simple, predictable, transparent
– Easy analysis and decision-making
– Quick response
Clear exploration & depletion strategies
• Resource management
• Contract/licence management
• Improved data availability
(T&T Ministry of Energy & Energy Industries has an R&D Fund in excess of TT$100 Million, that has not been used!)
Clear and consistently applied national priorities
Well defined expectations
Local Content & value addition
Access to product for value addition
Clear and transparent investor selection & partnering strategies
Rule of law
Source: Association of Caribbean Energy Specialists Limited
The way forward
Implementation of the key measures in Figure 3 will ensure that Trinidad and Tobago’s oil and gas sector gets back onto a healthy growth path, and will provide the stimulus to diversifying the rest of the economy which we so desperately need.
Ongoing negotiations for contract extensions locally will allow government to leverage beneficiary clauses in existing agreements, such as the return of all assets to the state at the end of a contract’s life.
We can also learn from Azerbaijan, where BP, ExxonMobil and partners recently paid US$3.2 billion into the Sovereign Wealth Fund in order to be allowed to continue exploiting producing fields.
Service companies are required to be licensed and registered, and to pay taxes in Trinidad and Tobago. That is not happening reliably, so billions of dollars in profits have been untaxed. We need a stronger rule of law which enforces these regulations more effectively.
The Petrotrin situation brought the energy sector into the sharp glare of public scrutiny as nothing else has done for a long time. Decision-making without public consultation, when dealing with state assets, involves risk, if any lessons are to be learnt here.
For further reading
Oil to Gas and Beyond – A Review of the Trinidad and Tobago Model and Analysis of Future Challenges. Editors Trevor M. Boopsingh and Gregory McGuire. University Press of America, 2014. See Chapter 7 (“Future Hydrocarbon Resources”) and Chapter 13 (“Taking Trinidad & Tobago Forward & Abroad – The Technical Challenges”).