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Is T&T losing energy?

Wednesday, September 3, 2014

The gas curtailment issues impacting T&T’s downstream users of natural gas have contributed to a sharp decline in energy revenues for the first half of 2014, compared with the same period in 2013, according to statistics in the Central Bank’s May 2014 Monetary Policy Report.

Energy revenues for the period October 1, 2013 to March 31, 2014 amounted to $9.69 billion, which was 24.5 per cent less than the $12.83 billion that the Government collected during the first six months of the 2013 fiscal year.

For the first six months of the 2013 fiscal year, energy revenues contributed 52.2  per cent of the $24.56 billion that was collected during that period. But for the first half of the 2014 fiscal year, the contribution of energy revenues to T&T’s total revenue picture plunged to 39.17 per cent, according to Guardian calculations using the Central Bank numbers.

For the full 2014 fiscal year—which is from October 1, 2013 to September 30, 2014—the Government projected that energy revenues would contribute $29.096 billion to the total expected revenues of $55.040 billion. That’s 52.8 per cent. But it seems as though energy revenues for 2014 are going to fall short of the expected mark.

The problems affecting T&T’s natural gas supply to the country’s users of the commodity are important for every man, woman and child in the country because it is the monetisation of the gas in the last two decades that has caused the improvement in the nation’s standard of living as natural gas generates the single largest source of revenue for the Government and foreign exchange for the banking system.

Energy experts say there are two main reasons for the decline in energy revenues for the 2014 fiscal year: gas curtailment’s impact on petrochemical production and the impact of the fiscal incentives that the Government has granted to energy companies.

Gas supply issues

For 2014, the expected supply of natural gas from the upstream producers to the National Gas Company was interrupted because of work that BP and British Gas are doing offshore to increase the supply. On July 30, the Canadian methanol producer, complained that its production from its two methanol plants in Trinidad for the second quarter had been impacted by gas curtailment.

Methanex said: “We continue to experience some natural gas curtailments to our Trinidad facilities due to a mismatch between upstream commitments to supply the Natural Gas Company of Trinidad and Tobago (NGC) and downstream demand from NGC's customers including Atlas and Titan, which becomes apparent when an upstream supplier has a technical issue or planned maintenance that reduces gas delivery. 

“We are engaged with key stakeholders to find a solution to this issue, but in the meantime expect to continue to experience gas curtailments to the Trinidad site. Gas curtailments in Q2 2014 were slightly higher than in Q1 2014.”

Responding to questions from the Business Guardian last month, based on the Methanex comments, Energy Minister Kevin Ramnarine said: “During the second quarter natural gas supply would have been impacted by two scheduled events involving BP and British Gas. The BGTT Dolphin platform when down from June 20 to July 2, to conduct Starfish wells tie-in work and platform  jacket work and  the bpTT Savonette platform  was down from May 22 to June 8, due to rig move and heavy lift work. 

“The Savonette Rig move involved the moving of the Rowan EXL 2 rig. It must be noted that the Savonette facility is the largest gas producing platform in our country and when it has a planned outage it has a major impact on national supply. The other event involved BG and this was necessary to prepare the Dolphin platform to receive Starfish gas in October.” And the situation of gas curtailment is expected to continue for the rest of 2014.

Only last week, Methanex Corporation announced that it anticipates gas curtailments at the two methanol plants it operates on the Point Lisas Industrial Estate in central Trinidad to be higher in the second half of 2014 than in the first half.

In a statement issued on its website, Methanex said:  “The National Gas Company has advised Methanex that it should expect higher curtailments in the second half of 2014 due to upstream platform maintenance and tie‐in activities and the ongoing mismatch between upstream commitments to supply NGC and downstream demand from NGC’s customers.“Methanex now estimates curtailments to its two Trinidad facilities to be in the range of 20 per cent for the second half of 2014. 

“The company continues to work with the Trinidad government and other stakeholders with a view to resolving gas supply shortfalls to its Trinidad plants. However, the situation is dynamic and it is difficult to forecast the gas curtailments or when 100 per cent gas supply can be expected to return to the company’s Trinidad facilities.”

Methanex operates two plants Point Lisas, Titan and Atlas, owning 100 per cent of Titan and 63.1 per cent of Atlas. BP, T&T’s largest supplier of natural gas, owns the remaining 36.9 per cent. Methanex has a combined proportional share of capacity of approximately 2 million tonnes from the plants.

In a speech in February, Minister Ramnarine said last September’s maintenance work on bpTT’s BP Cassia B hub and the Dolphin Platform of British Gas—along with nine major plants at Point Lisas and Atlantic Train III—meant that, at one point, 25 per cent of the country’s natural gas production was offline. “This is now behind us and overall it went well,” Mr Ramnarine said. Clearly, given the Methanex statement last week, the gas curtailment issues are not “now behind us.”

It’s safe to assume that if NGC is not supplying Methanex with all of the natural gas it is contracted to supply, that all users of natural gas at the Point Lisas Industrial Estate are being similarly impacted by the problems. To assume otherwise would indicate that Methanex is being discriminated against in the supply of natural gas.

And it is also safe to assume that if Methanex receives 20 per cent less gas that contracted for the second half of 2014 that its production of methanol will be less than estimated....and that all petrochemical suppliers at Point Lisas and the LNG production at Atlantic in Point Fortin will suffer as well. Less exports means less revenue, especially when petrochemical prices have softened.

Trade off between incentives and revenue

One of the other reasons contributing to the decline in energy revenues is that the Government has had to lowever the amount of energy revenues it gets from the energy giants in order to encourage them to invest money in searching for oil and natural gas in and around T&T.

On February 3, 2014, speaking at the Energy Conference at the Hyatt Regency, Energy Minister Kevin Ramnarine pointed out: “The fiscal incentives provided by the Government over the last four years have led to resurgence in investment in the upstream component of the energy sector. We must understand that we compete for oil and gas related capital with other countries—capital goes to where it is best treated and where it gets the best return.” 

In delivering the 2013 budget, Finance Minister Larry Howai said: We recognise that energy will remain a dominant sector for the foreseeable future. Commencing in this fiscal year, and bearing in mind that such energy investments have a five to seven year gestation period, we shall implement a number of initiatives for stimulating direct local and international investments. They will focus on upstream exploration and production activities in the oil and gas sector.”

Mr Howai also made it clear that the incentives were for new fields: “In the short term, and, to spur further investment in marine areas we intend to offer fiscal incentives which could result in enhancing oil and gas exploration and production. “The incentives will be specific to the development of new fields which are currently inactive. Increased production and generation of additional revenues are anticipated in the short-term.

“Moreover, the increased activities would spur the development of local energy service companies, several spin-off businesses and an increasing number of job opportunities. Total investment in 2013 by companies operating in the sector is expected to be US$3.016 billion.” In the 2013 budget presentation, the Finance Minister proposed the following:
1) The harmonisation of the Supplemental Petroleum Tax (SPT) rates issued Pre-1988 and Post  1988 for marine areas by removing the distinction between the Pre-1988 and Post-1988 SPT rate for marine areas. One SPT rate will be allowed for marine areas as currently pertains for land and deep-water. The SPT rate for marine areas will be set at the Post-1988 rate of 33.0 per cent for prices ranging from US$50/bbl–US$90/bbl. The formula used in determining SPT rates above US$90/bbl will continue as will the SPT provisions for land and the deepwater;

2) The introduction of a special SPT rate for new field development to enhance the economics of field development of small pools and increase the competitiveness of this country’s fiscal regime. A special SPT rate of 25 per cent is proposed for approved new field developments, at prices above US$50 and up to US$90/bbl. Thereafter for prices above US$90/bbl and up to US$200/bbl, the SPT formula as currently exists will be applicable. This new SPT rate is intended to spur development of inactive fields, not yet in production; and

(3) The introduction of an uplift of 40 per cent, for a period of five years, on exploration cost (excluding exploration dry holes) incurred in undertaking approved projects in deeper horizon.

There is no doubt renewed investment in exploration and commercialization activities, particularly upstream gas projects, to invigorate the energy sector

It’s not all doom and gloom in the energy sector. As Mr Ramnarine pointed out at the Energy Conference in February:
 • “The fiscal incentives provided by the Government over the last four years have led to resurgence in investment in the upstream component of the energy sector. We must understand that we compete for oil and gas related capital with other countries—capital goes to where it is best treated and where it gets the best return”; 
• The ministry’s onshore bid round was launched its 2013 and the St Mary’s block was awarded to Range Resources, the Rio Claro Block to Lease Operators Limited and the Ortoire Block to Primera Oil and Gas. In total there will be 12 land-based exploration wells associated with these successful bids as well as associated seismic programmes;
• This calendar year will probably be “one of the busiest years in the history of the sector as it relates to exploration, appraisal and development drilling.” In the last days 2013 the Seadrill West Freedom arrived in Chaguaramus.  The West Freedom brought to eight the number of offshore rigs in T&T;
• For this year 2014 a total of 11 exploration wells are expected to be drilled with 10 being in offshore locations and one on land;
• BP commenced work on the Juniper field with construction work on the platform expected to start in the fourth quarter of 2014, drilling expected to start in 2015 with natural gas production scheduled to begin in 2017. The investment is just over US $2 billion; 
• When Savonette 7 is brought into production later this year, the Savonette facility will have the capacity to produce close to 900 million standard cubic feet of natural gas per day;.


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