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Trinidad gas boom under threat

Trinidad and Tobago must find more gas if it is to expand its export business and local gas-based industries

Trinidad and Tobago's proved natural gas reserves have been falling steadily for four years. The decline is threatening the continuation of the gas-monetisation programme that has enabled the Caribbean nation to become the world's biggest ammonia exporter, the world's biggest methanol exporter from a single site and the largest liquefied natural gas (LNG) exporter to the world's fastest-growing LNG market, the US.

A recent reserves audit by Ryder Scott, a US consultancy, claims proved reserves have fallen to 17.05 trillion cubic feet (cf) from a high of 20.75 trillion cf in 2002 – a decline of 3.7 trillion cf, equivalent to 20 years' supply to a 3m tonnes a year LNG train.

The audit, undertaken during 2006 and dated January 2007, but only publicly released by the energy ministry in August, also identified decreases in probable reserves (down by 0.5 trillion cf from 8.2 trillion cf in 2002 to 7.7 trillion cf). Only the least dependable category, possible reserves, was found to have risen, by a minuscule 160bn cf, from 6.06 trillion cf to 6.22 trillion cf.

Selective sanctioning

Overall, the reserves loss since 2002 amounts to 4 trillion cf. The People's National Movement (PNM) government, which was comfortably returned to office in the 5 November general election, will have to be highly selective about the gas-using projects it sanctions in the next few years.

At present consumption rates, of 1.4 trillion cf/y, 17.05 trillion cf would last for just over 12 years – almost three fewer than the normal 15-year gas-contract term for a petrochemicals plant and eight years fewer than the normal 20-year contract period for an LNG train.

BP, BG and EOG Resources, the companies that supply the gas, either directly to the Atlantic LNG complex or to gas-based industries through the domestic trader and aggregator, state-owned National Gas Company (NGC), have given firm assurances that they can comfortably cover all their existing contracts, whether it be for domestic or export purposes.

However, Todd Peterson, country manager for Suez LNG, which has a 10% share of Atlantic LNG's Train 1, is circumspect: "You have to wonder whether proved gas reserves are now enough to supply the four operating trains and the domestic projects that now exist. If you look at this as an investor, very cold, it could be worrying."

NGC, which is responsible for trading all the gas sold locally, has just signed a contract for another 0.55bn cf/d from BG, EOG and a newcomer to gas trading in Trinidad, BHP Billiton. The latter discovered about 1.7 trillion cf of gas as part of its Angostura development in block 2c, off the northeast coast, seven years ago and is ready to commercialise it, having first started to produce the field's 90m barrels of oil reserves.

This gas is reserved for a number of projects recently sanctioned by the government, including Methanol Holdings' Ammonia/Urea/UAN/Melamine complex; Essar Steel's complex; First UAN's Ammonia/Urea/UAN plant; Westlake Chemicals' ethylene complex; and Shell/BASF's methanol-to-polypropylene plant.

There are, at present, 14 proposals for large gas-based industrial developments in Trinidad, including a fifth LNG train. The energy ministry calculates that they will need about 25 trillion cf of gas, some of which will be found from the existing proved reserves base. However, it will be necessary to convert substantial amounts from the probable and possible categories to proved over the coming years.

Falling supply, rising costs

A reduction in supply will inevitably lead to an increase in costs, so even if the fall in proved reserves is arrested, the next tranche of gas for domestic industry will be more expensive than in the past. This presents the government with a second dilemma: how to stay competitive. At present, NGC establishes a reference price for gas to industrial consumers, pegged to a price for ammonia and methanol. If the latter falls below the reference price, the price of gas paid to the companies is reduced; if it rises above, the price is increased. Inevitably, however, higher gas prices will erode the competitiveness of downstream industries.

To make matters worse, the gas producers, such as BP and BG, would prefer to use new gas discoveries for LNG production and export – more lucrative than selling to the domestic market. Differentials between the two can reach $3/m Btu. Consequently, the government must decide how best to balance the needs of domestic industry against those of the export industry.

Meanwhile, BP has begun producing gas from its 100%-owned Mango field – 36 years after it was discovered. The field, in the South East Galeota Block, lies 55 km offshore in shallow water. It will supply 0.75bn cf/d to the Atlantic LNG plant and to domestic consumers.

Plans to expand through-out the gas value chain

The government plans to create a state-owned Trinidad and Tobago energy company to operate internationally. Prime minister Patrick Manning, a former oilman, plans to integrate existing state-controlled companies in the energy sector – Petrotrin (exploration and production in oil and gas, and oil refining), National Gas Company (gas trading, pipeline network management and gas exports) and National Petroleum Marketing (petroleum products wholesaling and retailing) – into a single entity with the financial resources to expand abroad.

Manning has been impressed with the performance of Malaysia's state-owned Petronas in shipping and LNG regasification and Trinidad and Tobago would be likely to start with investments in this area. BG is due to present an interim report by the end of 2007 on how it can assist the country, the source of much of the gas it trades internationally, to become involved in various segments of the gas value chain, particularly transportation, regasification and, possibly, marketing.

However, some analysts fear Manning's plan may not succeed, arguing that inefficiencies within the existing state-owned energy companies would hamper the creation of a competitive international investor.


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