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The Venezuela gas gambit
It has been reported that our gas shortages and the resulting energy crisis is over. This is not true. LNG, the petrochemical and power generation plants need a production volume of four billion standard cubic feet a day (scf/d) to satisfy all contracts (including the plants currently closed). However, even with the Juniper field operating at full capacity, the Pt Lisas estate is still short by 200 to 300 million cubic scf/d and Atlantic, though running at its highest rate in three years, is still short. A target of 4.4 billion cubic scf/d, T&T’s highest production volume, satisfies the daily contracted quantity and some. But that leaves no room for new plants and would mean that we would have come to the maximum installed production capacity.
This in part explains the ongoing discussion between GORTT and Venezuela about accessing the gas fields in which we have a mutual interest. In broad terms, there are cross border gas fields or gas which straddles our common marine border with Venezuela and gas which lies across the border in Venezuelan waters. The Loran Manatee field is an example of a cross border field (it is the largest of three fields), whilst the Dragon field is an example of across the border gas. Given our gas shortages we clearly have an interest.
These discussions have been ongoing for more than 15 years at governmental level and several agreements have been signed by Kamla Persad-Bissesar and Keith Rowley in their capacity as Prime Minister.
The GORTT has said that we will soon be seeing gas from Dragon, but significantly, the new Minister of Oil and head of PDVSA, in one of his earliest public statements, mentioned 2022 as the likely year in which this gas can be expected.
More concrete steps are needed to settle the many technical and business issues if any field is to be monetised. What will be the price and the basis for its calculation? Where and who will process the gas?
More importantly who will make the required investments? How are the proceeds to be shared? What are the mechanisms for dispute resolution or for investor substitution and exit? With the economic risk there is also significant political and geopolitical risk in the form of US sanctions on Venezuela. How will these be mitigated?
These are difficult questions in the best of circumstances and the current economic climate of depressed energy prices is not the best. Neither the NGC nor Petrotrin has the capacity (financial, technical, managerial) to take on these offshore developments on their own. Neither does the Venezuelan state oil company, Petróleos de Venezuela (PDVSA), described in Forbes (March 6, 2017) as “the worst oil company in the world”.
Production volumes have diminished considerably since 1997, so much so that “it is exploiting reserves so slowly as to render them, on average, worthless. If that’s not bad enough, PDVSA is generating negative cash flows and piling up a mountain of debt.” That leaves only one option—the oil major, Shell, with Chevron in the case of Loran Manatee.
But the current political climate in Venezuela is not conducive to investment. Several private sector companies have been nationalised; national income has fallen in the process. This is a warning to any investor, T&T included. Conoco’s experience in the joint venture with PDVSA, Petrozuata, in the Orinoco delta is instructive. The “national interest” overruled the agreements on which the joint venture was founded.
To illustrate, Venezuela carries a country risk rating by Global Edge of “E”, signifying the highest political and economic risk and the most difficult business environment with an unreliable legal system. It is rated 151 out of 159 countries. And the political situation in Venezuela will not be settled in the short run; Venezuela is also close to default. Financing from the international financial sector is therefore highly unlikely.
Venezuela increasingly relies on “oil sales” to Russia and China. This raises the geopolitical stakes considerably; the Munroe doctrine is not dead! At the OAS, most of Latin American countries have been critical of the political situation and have uninvited Venezuela from the April 2018 Summit of the Americas. In contrast, T&T positions have supported Venezuela, an altogether unwise development.
Rex Tillerson, US Secretary of state visited four Latin American countries and Jamaica in his “Union and Dignity” tour earlier this month. Contemporaneously, Venezuelan officials, including the Foreign Minister, were visiting T&T. These delegations did not include technical personnel and are likely to be related to Venezuela’s growing isolation. T&T take note.
Our priorities in the energy sector remain. And that means a more intelligent approach to developing T&T-based resources. Venezuela may be important in the long run but may not be a feasible alternative now.
We need to manage our resources better and create credible alternatives. As ever, astute, informed leadership and management remain critical.
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