- 03 FEB 2020
Prime Minister Dr the Hon Keith Rowley’s Keynote Address at the 2020 Energy Conference
The Annual Energy Conference by the Energy Chamber of Trinidad and Tobago continues to be a premier energy event in the Western Hemisphere attracting senior executives of leading energy companies and other subsets of the industry as well as senior policy makers.
I thank you for your invitation and I am honoured to, once again, deliver the feature address to such a distinguished audience. On behalf of the Government of Trinidad and Tobago, I extend a hearty welcome to all participants of the Conference and wish you successful encounters and enlightening deliberations. Permit me an opportunity on all our behalf to extend a very special welcome to my friend and colleague, the Prime Minister of Barbados, The Hon. Mia Mottley, who will most certainly be a valued participant.
The theme of this Conference – Shaping the Caribbean’s Energy Future– is very topical and timely as we are currently witnessing a change in the energy dynamics of the Caribbean. However, the Caribbean, until the current successes, has been characterized as an energy deficient region due to its perceived lack of hydrocarbon resources and its inability to exploit its huge renewable energy potential.
Prior to 2015, only three countries, Trinidad and Tobago, Barbados and Cuba were known to have reserves of oil and gas, with Trinidad and Tobago being an exporter of oil and gas. This led to a dependence by Caribbean countries on oil imports to meet their energy needs and a vulnerability to the frequent oil price fluctuations. This uncertainty and dependence on the oil imports impacted national budgets and investments and contributed to economic instability within the region.
In the face of the then energy challenges faced by Caribbean countries, mitigating initiatives, such as Petro Caribe sponsored by the Government of the Bolivarian Republic of Venezuela and the CARICOM Oil Facility Fund established by the Government of the Republic of Trinidad and Tobago, as a grant fund to provide relief to member CARICOM states experiencing economic hardship, were introduced.
Notwithstanding the support provided by Trinidad and Tobago and Venezuela, Caribbean countries continue to struggle with the energy burden. Except in Trinidad and Tobago energy cost in the Caribbean is the highest in the Western Hemisphere and amongst the highest in the world. The cost of energy in various Caribbean countries range from as low as US$0.20/kwh to as high as US$0.37/kWh. In Trinidad and Tobago, however, the average subsidized cost, is US$0.05/kWh.
In face of high energy costs and the debilitating effect of climate change, Caribbean countries have begun to embrace renewable energy and energy efficiency solutions. Renewable energy first took root in the Caribbean with distributed systems such as Barbados’ solar hot water heating industry in the 1970s. Today there is in excess of 3.1 giga watts of installed and operational renewable energy in the Caribbean, including hydroelectric power.
Despite the strides made by the Caribbean, in its penetration of sustainable energy sources, renewable energy systems account for a small fraction of the region’s untapped potential. It is estimated that the Caribbean holds 2,525 MW of potential solar energy, 800 MW of potential wind energy, and 3,770 MW of potential geothermal energy. These resources, if harnessed, would displace approximately 2.7 million barrels of oil per year and save Caribbean countries US$5.0 billion in fuel imports per annum. Given the potential savings Caribbean countries have established ambitious targets in the implementation of renewable energy systems. Financial aid from donor countries and institutions, the falling costs of renewable energy technology and improvement in the efficiency have made these targets somewhat achievable.
Trinidad and Tobago, temporarily insulated from high energy costs by virtue of its hydrocarbon resources, has been measured in its approach to renewable energy. This in part is to ensure that citizens of Trinidad and Tobago are not burdened by the transformation costs on the conversion to renewable energy systems. Having canceled our attempts at economic diversification in the form of manufacturing of aluminium products, we are left, at this time, with substantial quantity of surplus installed power which has to be paid for but for which there is no immediate market. This condition makes investment in renewables a little tricky but we have not given up on the need to join in with this future prospect.
Notwithstanding these challenges, the Government of Trinidad and Tobago is fully committed to the protection of the environment and in February 22, 2018, deposited its Instrument of Ratification to the Paris Climate Change Agreement.
As a signatory to this Agreement, Trinidad and Tobago is required to reduce cumulative greenhouse gas emissions from Power Generation, Transportation and Industrial Sectors by 15% by 2030, relative to a business as usual baseline.
Energy security has long been a challenge for Caribbean countries. However, technological advances in renewable technologies and recent hydrocarbon discoveries have brightened the prospects for the once considered elusive energy security within the region.
Exploration successes for oil and gas particularly in Guyana have radically changed the perception of the region. The region, with justification, is now being heralded as the next major oil and gas province. This has generated unprecedented interest by upstream companies in the region. Guyana has been the main recipient of investment in exploration and development by these companies. It is estimated that the discoveries in Guyana hold cumulative recoverable resources of approximately 6.0 billion barrels of oil equivalent. Spurred on by the Guyana success there is exploration activity along the length and breadth of the Caribbean and with some success. US Corporation, Apache Oil and Gas, recently announced a major oil find off the coast of Suriname.
With an estimated resource potential of 13.6 Billion barrels , the United States Geological Survey ranks the Guyana-Suriname Basin 2nd in the world for prospectivity among the world’s unexplored basins and 12th for oil among all the world’s basins – explored and unexplored.
Trinidad and Tobago is poised to participate in the exploitation of hydrocarbon in the marine areas off the Guyanas. Our claim to the United Nations Commission on the Limits of the Continental Shelf is expected to be presented this year and if successful would extend our maritime jurisdiction seawards to areas in close proximity to the Guyana-Suriname Basin.
Other Caribbean countries are seeking to capitalize on the interest shown by the investing energy companies. Barbados has granted licences to the Australian multinational conglomerate, BHP to explore off its South-East Coast and to the Spanish company Repsol to explore to the Northwest of the island. Tullow and its partners continue to prospect on a huge block to the South of Jamaica on the Pedro Banks, while the Bahamas Petroleum Company is conducting exploration to the South-West of Andros Island. It is reported that Global Petroleum Group has found some gas close to Grenada’s maritime border with Venezuela.
Trinidad and Tobago, with its long history in the industry, is well poised to assist the new entrants Guyana, Grenada, Barbados, Jamaica and the Bahamas in the development of their petroleum sectors. To date we have entered into Memoranda of Co-operation with Guyana, Grenada and Barbados for provision of technical assistance. Preliminary discussions are in their early stages on the development of Unitization Agreements with Grenada and Barbados for the exploitation of hydrocarbons reservoirs that extend beyond our respective maritime borders.
Trinidad and Tobago by virtue of its location has an opportunity to provide logistical and offshore support to operators in the emerging Caribbean Oil and Gas economies. This will require the expansion of our marine infrastructure on our South East Coast. In this regard, active consideration is being given to the expansion of the Galeota Port to meet the demand for services that will be generated by exploration in new marine blocks on the South East and East Coasts of Trinidad and Tobago and in offshore oil and gas developments in the Guyanas and other Caribbean countries. A Request for Proposals (RFP) was issued for the expansion of the Galeota Port and the responses are currently being evaluated. There is also continued interest in the establishment of a dry dock facility at La Brea.
The interest by upstream companies in the region augurs well not only for the region but for Trinidad and Tobago. New entrants such as Apache, Hess and Tullow bring diversity, capital and technology transfer to upstream activity in the region. Technology in particular has been instrumental in the rejuvenation of our shallow water areas and for the successes in deep water areas. Application of the Ocean Bottom Node 3D Seismic Survey by bpTT resulted in gas discoveries Savannah, Macadamia and more recently Ginger. BHP after years of evaluation has been able to unlock the resources in Block 3a and has enjoyed exploration success in deepwater blocks TTDAA 14, TTDAA 23a and TTDAA 5. Assessment plans for these blocks are being finalized. In the first quarter 2020 BHP will be drilling an exploration well in TTDAA 3 which will be targeting an oil play.
In the medium term the deep water area represents our best opportunity for the sustenance of the domestic oil and gas industry. To date only 31% of the deep-water areas has been explored. To capitalize on the interest by upstream companies for deepwater opportunities in Trinidad and Tobago, the Ministry of Energy and Energy Industries has proposed a deep-water bid-round for the period 2020/2021. To this end, the Ministry has been acquiring extensive seismic data over the deepwater area to facilitate meaningful evaluation of the deepwater blocks. The Ministry’s data base will be augmented by new seismic data available on the conclusion of BHP’s deep-water exploration programme. The new datasets will provide for more indepth evaluation of our open deep-water blocks and improve the chances for success.
At present all production of gas and oil is from land and shallow marine areas and will remain so for the immediate future. There have been challenges with respect to oil and gas production. A lack of investment by upstream companies has been a major factor in the decline in production particularly of natural gas from levels achieved in 2009/2010. We have been able to stem the decline and stabilize the production of natural gas, albeit at levels below peak historical production, as confirmed by the Ryder Scott Natural Gas Reserve Audits for 2017 and 2018.
The upstream companies have committed to capital investment which will result in an improvement of gas production. Shell Trinidad and Tobago plans to execute two development projects (Barracuda on the East Coast & Colibri on the North Coast) for a total of investment of approximately US$1.2 billion. This will offset natural gas production decline and grow current levels from approximately 600 million standard cubic feet per day to approximately 800 million standard cubic feet per day by 2023.
In addition Shell plans to drill up to three exploration wells on the East Coast, with one well in 2020 and two wells in 2021, to identify more gas resources. Shell also proposes to partner with Heritage for oil exploration in the Gulf of Paria. The intention is to acquire state of the art Ocean Bottom Node (OBN) 3D seismic in the Gulf of Paria in 2021 subject to concluding definitive farm-out agreements with Heritage in 2020.
The country’s major gas producer, bpTT, continues to undertake significant activity to support production as well as manage decline on its existing fields while continuing to progress future exploration activity and complete execution of projects underway. The total spend of bpTT is projected to be in the range of US$1.2 billion in 2020 and US$1.4 billion in 2021. In 2022 the Cassia C compression projects, Matapal and Cypre are due to come on stream, with Ginger in 2023 and Jasmine in 2024.
BHP’s major activity will be completing and commissioning the Ruby field with first production targeted for 2021. This is a USD $500 million investment which is at platform construction commencement stage.
When the Ruby field comes on stream BHP expects to see an increase in oil production of about 16,000 barrels of oil per day. This is to be the single largest oil development project in Trinidad since Teak, Samaan and Poui in the 1970’s and Angostura in the 1990’s.
In 2020, EOG is continuing with the drilling programme, which resulted in the successful Osprey East Well in 2019, and will drill three exploration wells. EOG is currently drilling the 2nd exploration well, Mento, in partnership with BPTT. This well is expected to be completed in the first quarter 2020. In 2021, EOG is planning to drill seven wells, consisting of five development wells and two exploration wells.
Consequent on the number of new fields/projects coming on stream, gas production is expected to increase from the current 3.6 bcf per day to 4.0 bcf per day by 2024.
In 2024/2025, there will be a major game change that will provide greater certainty and predictability in gas supply.
Gas production is projected to come on stream from Manatee field, which forms a part of the Loran- Manatee cross-border field and is located in the marine area of Trinidad and Tobago. The Loran-Manatee is a shallow-water field that straddles the maritime boundary between Trinidad and Tobago and Venezuela.
Exploration activity, initially by state owned Petroleos de Venezuela (PDVSA) and later by US Corporation Chevron, which held a 60% interest, encountered a substantial amount of gas in the Loran field. In 2005 Chevron/BG, which held a joint interest of 50% each in the Block 6 comprising Sub-Block 6b and Sub-Block 6d, discovered the Manatee field in Block 6d. Chevron subsequently sold its interest in Block 6 to Shell which now has 100% interest in the block. Shell has sanctioned this development and is currently gearing up to build the infrastructure to produce from this cross-border field in keeping with the schedule as just mentioned.
In 2007, the Government of the Republic of Trinidad and Tobago and the Government of the Bolivarian Republic of Venezuela executed a Framework Treaty relating to the unitization of hydrocarbon reservoirs that extend across the delimitation line between the countries. The Treaty established the general framework under which any cross-border reservoir would be exploited. On August 16, 2010, the Government of the Republic of Trinidad and Tobago and the Government of the Bolivarian Republic of Venezuela exchanged instruments of ratification in respect of the Framework Treaty which action officially brought the Treaty into force. This facilitated the execution of the field specific Loran- Manatee Unitization Agreement on August 16, 2010. In accordance with the provisions of the Treaty, a Ministerial Committee and a Steering Committee were established in order to facilitate the implementation and execution of the Treaty and related agreements. Under the direction of the Committees a Unitization and Unit Operating Agreement was developed for the exploitation and development of the Loran-Manatee field.
Progress in the development of the unitised Loran- Manatee field has been impeded by the sanctions imposed by the US Government, which inhibits US companies from doing business with Venezuelan Oil Company, PDVSA .This impacts on the ability of US company Chevron, which has a 60% interest in the Loran field, to participate in the development of the Loran-Manatee Field. As a consequence the Government of the Republic of Trinidad and Tobago and the Bolivarian Government of Venezuela have agreed to the independent development by each Government of the field within the Loran-Manatee cross-border that falls within its marine area.
Pursuant to this decision, the Government of the Republic of Trinidad and Tobago and the Bolivarian Republic of Venezuela rescinded the Unitization Agreement for the exploitation and development of hydrocarbon reservoirs of the Loran- Manatee Field that extends across the delimitation line between the countries dated August 16, 2010 and executed the Agreement for the independent development of the cross-border field, Loran- Manatee.
The Loran-Manatee has an estimated resource of 10.04 tcf, with 2.712 tcf within the Manatee field. Shell Trinidad and Tobago Limited holds 100% interest in the Manatee field and has projected that gas production could start in the 2024/2025 period at rates ranging from 270 to 400 million standard cubic feet per day. Shell is in conversation with the Government and is working on various development scenarios to determine the best option. This major policy shift which frees up investment and development of Manatee gas also provides easy access to market for all gas from these fields if the circumstances permit and the owners so desire.
Loran-Manatee Field is a landmark decision in the countries’ cross-border relationship. This has implications for development for other cross-border fields such as the Manakin- Cocuina and the Kapok-Dorado which collectively have an estimated 850 billion cubic feet of natural gas within the Trinidad and Tobago maritime area. The achievement of this Agreement is a reflection of positive initiatives being undertaken by Government to meet domestic gas requirements for competitive energy and our retention of a place in the petrochemical and LNG business for some considerable time to come.
It is regrettable that we cannot move ahead with the Dragon Project which is on hold, at this time, due to US sanctions on Venezuela. At a moment notice, we are ready to move ahead with the project on the lifting of such restrictions since virtually all the preparatory work has been done. Notwithstanding, we are proceeding with the Manatee initiative which is the single most significant development in the energy sector in recent times.
The domestic energy sector is due for a further lift as oil production is set to rise. It is estimated that production will increase to in excess of 90,000 barrels a day by 2022. The production is driven by developmental drilling activity, workovers and enhanced oil recovery projects undertaken by Heritage, its resumption of offshore exploration, new oil from Rio Claro and Ortoire Blocks and significantly BHP Ruby Delaware field in block 3a.
The turnaround in the domestic energy sector is no mean achievement. When this Government assumed office in 2016 there was an energy sector in which production of oil and gas was in decline, substantially reduced energy sector revenue and a state energy sector that was in urgent need of restructuring and resuscitation. As a responsible Government we took urgent and definitive steps to address these matters.
High on our agenda was the restructuring of Petrotrin. The once profitable state company was on a severe downward spiral and, unless there was positive intervention, was heading to bankruptcy. The decision to restructure was difficult but unavoidable given the financial state and need for streamlining the operations of the company. I am pleased to inform that the newly created Petrotrin subsidiary, operating companies, Heritage Petroleum Company Limited and Paria Trading Company Limited have been profitable.
The unaudited results show that for the first year of operations, ended September 30, 2019 Heritage Petroleum realized a profit, after tax, of $884 million. For the same period Paria Trading, achieved a profit, after tax, of $172 million. That is a turnaround in the state oil business from a projected loss of $2 billion per year to a profit of just over a billion dollars in the first year of transition. Ladies and gentlemen please do not express any surprise that such good results make some people very disappointed and uncomfortable but there exists in the region, especially in Trinidad and Tobago, a government which believes that the oil industry still has a major role to play in the economy of this nation and the region.
As regards, the Guaracara Refining Company Limited, negotiations are ongoing with the preferred bidder Patriotic Energies and Technologies Company limited and subject to a satisfactory outcome, the refinery should be operational within twelve to eighteen months.
A principal entity in the energy landscape is the National Gas Company Group of Companies comprising the parent, The National Gas Company of Trinidad and Tobago Limited (NGC); its main operating companies, National Energy Corporation of Trinidad and Tobago Limited, and Phoenix Park Gas Processors Limited. The NGC Group of companies contributes significantly to the Government’s income by means of taxes and dividends and is Trinidad and Tobago’s major avenue to lay claim to some of the wealth derived from the exploitation of our main natural, depleting resource.
For its part, NGC has been primarily a mid-stream operator with responsibility for transportation, distribution and aggregation. Given its role in the securing of the requisite gas supplies to meet the needs of the gas-based industry, NGC as an instrument of national policy has been mandated to align its core activities as aggregator with current upstream developments, including Venezuelan across border initiatives to enable the on-time delivery of gas from these sources.
With the support of Government NGC has finalized gas supply agreements with all of the upstream gas suppliers. As a consequence, the company is in a position to offer term gas supply contracts to its downstream customers. To date gas supply contracts have been executed with Nutrien, N2000, CNC and interim agreements with MHTL, Methanex and Tringen. The international gas supply and markets have undergone and are undergoing revolutionary shifts requiring fair trading cooperation and frequent adjustments to keep pace and preserve our space in this billion dollar maelstrom. To this end the Government of Trinidad and Tobago has for the last two years opened and encouraged discussions among all the stakeholders in the LNG business with the aim of protecting the future of the industry for all investors in it, not the least of whom are the people of Trinidad and Tobago.
Oil and gas production is now on the increase and is approaching levels experienced ten years ago. However, the key to sustainability is continued exploration by upstream companies. The major upstream companies have all committed to development and exploration programmes over the term of their licences or contracts. Government recently executed with Shell extensions to their existing East Coast and North Coast Marine Blocks and with bpTT with respect to its South East Galeota licence. Negotiations are also continuing with bpTT on extensions to its remaining licences. EOG has indicated that it would be seeking extensions to its licences. The request for extensions of licences and contracts is a further indication of the commitment of upstream companies to the development of resources within their licensed or contract acreages.
As regards revenue, we adopted the principle that the state must have a fair share of revenue earned from the exploitation of our non-renewable hydro-carbon resources. As a first step we introduced across the board a royalty rate of 12.5%. This was followed by a loss relief restriction to 75% of taxable income and a limit of capital allowances to 20% per annum on a straight line basis.
We entered into dialogue with the major upstream companies, bpTT and Shell Trinidad and Tobago Limited particularly with what was considered our greatest revenue leakage, LNG. I am pleased to state that the companies have been receptive to our concerns.
On December 14, 2018 the Government executed with bpTT an Agreement for Phase 1a which dealt with certain legacy issues; extension to its South East Galeota and the ALNG Train 1 life extension, which provide for a superior LNG pricing arrangement than previously obtained. The ALNG Train 1 extension was put on hold pending the evaluation by the gas supplier, bpTT, of its gas portfolio. In the interim ALNG Train 1 has been operating and subject to a safety inspection in April 2020 will continue in operation until year end, at which time a decision will be made on the ALNG Train 1 Life Extension. Any such extension would make planned downtime on other trains to be carried out without much disruption in the overall sustained output.
Government also executed agreements with Shell on gas related issues, commencing with a Heads of Agreement on May 29, 2019 and Definitive Agreements on August 19, 2019 which have provided improved economic and financial benefits to the country.
At present the Government is in active discussions with ALNG shareholders on an initiative that will revolutionize the LNG industry in Trinidad and Tobago. It is proposed to restructure Atlantic LNG by bringing the four LNG Trains under the umbrella of a unified entity. The proposed structure will be a more efficient arrangement for management and operations of the Trains. Government through NGC currently holds 10% equity in Train 1 and 11% equity in Train 4 and is seeking to attain an increased shareholding across the proposed unitized facility.
In parallel with these discussions, the Ministry of Energy and Energy Industries is currently engaged in negotiations with bpTT on outstanding gas related issues, inclusive of bpTT’s application for the extension of licences. It is anticipated that both sets of negotiations will be substantially completed by the end of first quarter of this year.
The energy sector of Trinidad and Tobago is on a solid foundation, as are the emerging oil driven economies of Guyana and Suriname. The story is still unfolding as other Caribbean Countries are in the early stages of exploration for oil and gas. This coupled with the improvement in renewable energy technologies present the region with an opportunity to attain the previously elusive energy security. However, this will require a shift in the policy, which previously centered on exploitation of our abundant renewable energy resources, which is an effective tool in combatting climate change and its deleterious effects on the Caribbean. Given the complexities in the matter there needs to be a collective approach in addressing this matter. It therefore needs to be placed on the Agenda on Heads of Government of CARICOM States. I am prepared to advocate the same.
In closing, I wish to thank the Energy Chamber for the opportunity to address this distinguished audience and to provide Government’s take on the energy sector transformation that is taking place in the Caribbean as well as energy developments in Trinidad and Tobago. Please have a rewarding and enriching Conference.
Ladies and gentlemen,
I thank you for your attention.