Thursday 1st March, 2007

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Big step for gas reserves

The agreement between T&T and Venezuela on the division of the natural gas reserves in the Loran block, which straddles the narrow maritime area between the two countries, is a big step in the relationship between this country and its closest neighbour.

The agreement still needs to be signed and ratified by the respective governments—a process which hopefully will not be protracted given the importance of natural gas to this country’s economy.

The road to greater cross-border collaboration between the two countries began with the signing of the Memorandum of Understanding on the “unitisation” of the natural gas reserves in August 2003.

The MOU set the procedural framework for quantifying and allocating the gas located in the cross-border fields.

A statement from Venezuela’s Ministry of Energy 12 days ago indicated that a technical committee comprising representatives from both countries determined that the Loran field has reserves of about ten trillion cubic feet of natural gas.

There was also agreement that about 25 per cent of the reserves in the Loran field would belong to T&T while Venezuela would be entitled to about 75 per cent of the reserves.

From a T&T perspective, the agreement on the allocation of the natural gas reserves in the Loran field is extremely significant. It will eventually mean the addition of an estimated 2.5 trillion cubic feet of gas to the country’s reserves.

The agreement comes at a time when T&T’s natural gas reserves are in a state of decline as a result the recent failure by foreign energy companies operating in Trinidad waters to discover the “next” big new natural gas province.

The agreement, therefore, should go a long way in allaying the fears of some energy experts about the decline in the country’s natural gas reserves.

One option for using the gas in the Loran field would be to transport it to the liquefied natural gas (LNG) complex in Point Fortin.

Despite its best efforts, Venezuela has not been able to develop an LNG industry in the last 20 years while this country already has four producing LNG facilities.

Because Venezuela and T&T have decided to divide the Loran reserves in a 75/25 split, it may be possible to replicate the Atlantic LNG Train 1 model in which the suppliers of natural gas (bpTT and British Gas) were the largest shareholders.

It should not be beyond the capability of this country’s diplomats and energy technocrats to fashion a joint-venture company which brings together Venezuelan and T&T interests along with energy companies not currently involved in the liquefaction at Point Fortin.

These companies could build a fifth liquefaction facility at the LNG complex at Point Fortin. While this facility is still being called Train X because of the uncertainty surrounding it, Prime Minister Patrick Manning and Energy Minister Lenny Saith have indicated that they want the equity in the facility to be reflective of the diversity in the country’s energy sector.

Such a joint venture would require further serious commercial negotiations between the two countries and their representative companies.

The development of a jointly-owned LNG facility would go a long way to deepening the relationship between T&T and Venezuela. Many feel this relationship is not as warm at the government-to-government level as it used to be after T&T decided to stay out of Chavez’s Petro Caribe arrangements.

But as these proposed negotiations will come against the backdrop of the threatened nationalisation of foreign oil assets in Venezuela, T&T may have to engage in some extremely delicate financial diplomacy in order to assuage foreign investors while adding to the country’s natural gas reserves.





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