Thursday 28th February, 2008

 

Future of energy

 
 
 
 
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The South Trinidad Chamber of Industry and Commerce hosted the annual T&T Petroleum Conference 2008 on Monday and Tuesday this week at the Hilton Trinidad and Conference Centre, St Ann’s.

Highlights of the welcome address by STCIC president Dr Rampersad Motilal.

The relatively high prices of energy combined with an increased focus on the environment have reopened the international debate on the future of energy.

This conference is taking place in the year that we are celebrating 100 years of commercial oil production here in T&T. This is a significant milestone in our long history and demonstrates that we have a long history in this sector and reinforces our conviction that we possess a huge amount of knowledge and expertise to draw on as we chart our path forward.

Policy

As a small country we have been quite successful in developing our energy-based industries. This can be attributed to several favourable factors including our oil and gas resources, supportive government policies, respect for contracts and property rights, an emphasis on training and development of our workforce within the sector, and established expertise in energy services.

There is also very broad support for the policy of moving further downstream and for trying to facilitate and encourage the production of higher value-added goods within T&T. Much emphasis has been placed in the past on the monetisation of gas and the maximisation of direct government revenues.

Lately we can detect a shift to deepening economic activity within T&T particularly through projects with linkages to other sectors of the economy. If we are to fully benefit from our energy sector it is important that we move further downstream and secure further value from each molecule of natural gas.

Primary petrochemicals

T&T has benefited immensely from the primary petrochemical sector. The sector has created thousands of well-paying permanent jobs and a wide range of opportunities for entrepreneurs in all of the support services required by the industries. This includes world-class services associated with plant construction, on-going maintenance and plant operational activities.

We recognise, however, that in the context of a balanced portfolio we may wish to target for our relatively small energy sector in T&T, the share of primary petrochemicals may already be approaching its proportional limit.

The local petrochemical industries have contributed significantly to government revenues especially since the year 2000 as they have enjoyed high prices over that period. With their commodity-linked gas pricing structure, these products have yielded revenues per unit of gas consumed which are comparable to those from the export gas industries.

LNG

The rapid development of LNG exports from T&T has brought many benefits to the economy, not least the high levels of government revenue that it has generated. The development of LNG spurred on the extremely successful gas exploration and development programmes of the past two decades and has resulted in a world-class LNG industry here in T&T. Given our limited proven natural gas resource pool, and over 54 per cent of gas produced being utilised by this sector, we must now examine whether LNG in our current portfolio has also reached or exceeded its proportional limit.

Downstream

As we move further downstream the investment dollars per unit of gas utilised increases. The number of jobs created by each unit of gas used also increases. This underscores the value of going further downstream.

Our success in developing our gas-based industries has, however, raised important questions about sustainability, given our limited gas reserves. In addition, with industrialisation comes other concerns such as environmental and social issues. The challenge for all stakeholders will be to find the appropriate balance.

In 2007, the gas-based industries consumed an average of 3.9 billion cubic feet (bcf) of gas a day, of which 1.6 bcfd were utilised by the domestic market with 2.3 bcfd going to LNG. This year, demand is expected to rise marginally to 4.1 bcfd. By the end of 2010 the demand will rise to 4.7 bcfd as the four new projects which are currently under construction come on stream (MHTL’s AUM Complex, Essar Steel, Alutrint and Petrotrin’s GTL plant). The existing stock of petrochemical plants is relatively new or well-maintained and one can only assume that the owners will look forward to stable operations over the next 20 years. When LNG is included, we will require approximately 34 trillion cubic feet (tcf) of gas for stable operations over the next 20 years. If a lesser horizon of 15 years is considered we will still require approximately 25 tcf of gas to satisfy industry.

Viewed from this perspective, one can well understand the urgency to stimulate exploration activities with a view to shoring-up our current gas reserves.

In this regard we are pleased to note that the Government is currently re-examining the fiscal regime governing the energy sector so as to ensure that the taxation legislation remains relevant to the needs of the sector and promote the necessary exploration activities. This cannot come too soon given our limited proven reserves and the changing characteristics of the sector which now includes maturing assets, smaller gas fields and deep water interests.

Reserves to production ratio

Recently, the reserves to production ratio has been the subject of considerable attention and discussion from the wider public. Such discussion is a positive sign that issues affecting this most critical sector are today capturing the interest of the average citizen.

With all the discussion of the R/P ratio for gas, we must not forget about our oil production. This has been declining fairly rapidly over the past couple of years and urgent action is needed to reverse this trend.

Farm-out wells

Some 31 per cent of local land-based oil production comes from the various lease and farm-out operators, joint ventures and independent oil companies. These companies are mainly locally owned and are collectively referred to as the independent sector. This sector has produced an impressive 21 million barrels of oil from mature oilfields mainly in the South since its inception some 16 years ago.

It is roughly ten times more labour intensive than the overall national oil and gas exploration and production sector but today faces rising costs, royalties and payment of bonuses to the Ministry of Energy such that it is under threat of becoming uneconomic.

This would be very unfortunate and we would like to encourage the Government to take this small but nevertheless important sector into account as they consider their revised fiscal regime for oil and gas production.

n Continued next week

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