An­tho­ny Paul

Dar­ri­an Paul

The Lloyd Best In­sti­tute

of the Caribbean

Be­fore we cel­e­brate a gas re­vival, T&T must ask who owns the gas, who sells the LNG, who cap­tures the up­side—and what re­mains for the coun­try.

T&T has heard this kind of promise be­fore: new gas is com­ing, the plants will run again, for­eign ex­change will im­prove, jobs will be pro­tect­ed, and the econ­o­my will breathe eas­i­er. Af­ter years of de­clin­ing pro­duc­tion and anx­ious head­lines about At­lantic LNG and Point Lisas, it is easy to un­der­stand why Venezue­lan gas now feels like a life­line. But be­fore the coun­try cel­e­brates a new gas re­nais­sance, we should ask a hard­er ques­tion: when the gas fi­nal­ly flows across the bor­der, who will ac­tu­al­ly get paid?

That is why the Min­is­ter of Fi­nance’s re­cent con­cern about rev­enue from cross-bor­der and ex­ter­nal gas should not be treat­ed as a pass­ing po­lit­i­cal ex­change. It goes to the cen­tre of the na­tion­al ques­tion: if gas pro­duced out­side T&T en­ters this coun­try for pro­cess­ing, liq­ue­fac­tion, in­dus­tri­al use or ex­port, how ex­act­ly will T&T get rev­enue and for­eign ex­change?

This is not an an­ti-in­vestor ques­tion. Nor is it an an­ti-Venezuela ques­tion. Venezuela owns the gas in its wa­ters and ab­solute­ly de­serve to ben­e­fit from its de­vel­op­ment. T&T’s chal­lenge is dif­fer­ent.

We have in­fra­struc­ture, LNG ca­pac­i­ty, petro­chem­i­cal de­mand, ports, pipelines, trained work­ers and a long gas mon­eti­sa­tion his­to­ry. Those as­sets have val­ue. The task is to con­vert that val­ue in­to a fair, durable and col­lab­o­ra­tive arrange­ment that re­mains at­trac­tive to Venezuela while pro­tect­ing T&T’s na­tion­al in­ter­est.

That re­quires more than ex­cite­ment over vol­umes. It re­quires thought about and be­yond the im­me­di­ate, ne­go­ti­at­ed fields and build­ing the strat­e­gy and re­la­tion­ships for ad­di­tion­al bor­der fields and the fu­ture.

The pub­lic of­ten as­sumes that more gas au­to­mat­i­cal­ly means more gov­ern­ment rev­enue. But the en­er­gy val­ue chain does not work that sim­ply.

The rich­est fis­cal flows to the State have his­tor­i­cal­ly come from up­stream pro­duc­tion in T&T: pe­tro­le­um prof­its tax, un­em­ploy­ment levy, roy­al­ties, pro­duc­tion-shar­ing arrange­ments and the sale or val­ue of the State’s share of pro­duc­tion. If gas is pro­duced in Venezue­lan ter­ri­to­ry, that up­stream rent be­longs first to Venezuela. T&T’s po­ten­tial ben­e­fit lies fur­ther down the chain: tar­iffs, pro­cess­ing fees, lo­cal tax­es, div­i­dends where State en­ti­ties have a re­al com­mer­cial role, ser­vice ac­tiv­i­ty, jobs and sup­ply-chain par­tic­i­pa­tion.

That is a nar­row­er rev­enue base than many peo­ple imag­ine.

There is al­so a spe­cif­ic is­sue that now needs pub­lic clar­i­fi­ca­tion. Ear­li­er Drag­on arrange­ments in­volved Shell and NGC. But the cur­rent OFAC li­cence frame­work ap­pears to au­tho­rise named in­ter­na­tion­al com­pa­nies such as Shell and BP and their sub­sidiaries, not NGC. That does not, by it­self, set­tle every com­mer­cial ques­tion. But it rais­es an im­por­tant one. If NGC is no longer a par­ty to the Drag­on com­mer­cial struc­ture, or no longer has an en­ti­tle­ment to gas or LNG val­ue from that project, then T&T may re­ceive no di­rect share of LNG pro­duced from Drag­on vol­umes. The coun­try may host the pro­cess­ing, but the up­side from the LNG car­goes could sit en­tire­ly with the com­pa­nies that own the gas, con­trol the car­goes and mar­ket the prod­uct.

Let us be clear. Venezuela gas, if owned by BP and Shell, will go where they want it to go - LNG. It is well known that T&T gets more val­ue from gas go­ing to the Point Lisas In­dus­tri­al Es­tate, for petro­chem­i­cals, than gas go­ing to Point Fortin, for liq­ue­fac­tion. The multi­na­tion­als ex­tract far more val­ue from LNG than from do­mes­ti­cal­ly val­ue-added petro­chem­i­cals. It is their (and Venezuela’s) gas.

That is why the ques­tion of NGC’s role mat­ters so much. Is NGC an eq­ui­ty par­tic­i­pant? A gas buy­er? A trans­porter? A re­seller? A tolling coun­ter­par­ty? Or mere­ly a do­mes­tic in­sti­tu­tion ex­pect­ed to help ac­com­mo­date gas that oth­ers will own and mon­e­tise? Con­tin­ues on BG 9

Un­til that is made clear, the pub­lic can­not know whether T&T is gain­ing a true com­mer­cial stake or sim­ply earn­ing lim­it­ed val­ue from pro­cess­ing and as­so­ci­at­ed ac­tiv­i­ty.

TTEITI’s re­cent re­port­ing shows why this dis­tinc­tion mat­ters. Gas pro­duc­tion has de­clined sig­nif­i­cant­ly from 2015 lev­els, and rev­enue re­cov­ery de­pends not on­ly on get­ting more mol­e­cules, but on cap­tur­ing more val­ue from those mol­e­cules. Roy­al­ties and pro­duc­tion-shar­ing re­ceipts re­main ma­jor parts of the fis­cal pic­ture. But even here, head­line rates can mis­lead. The roy­al­ty rate was changed in 2018 to 12.5 per cent across the board. Yet where roy­al­ty is treat­ed as cost re­cov­er­able, its ef­fec­tive fis­cal im­pact is ma­te­ri­al­ly weak­ened. What ap­pears to be a firm sov­er­eign charge may, through cost re­cov­ery, op­er­ate more like an ad­vance that is lat­er ab­sorbed in­to project eco­nom­ics.

That is on­ly one ex­am­ple of a deep­er is­sue.

For more than 20 years, one of the au­thors has high­light­ed in pub­lic pre­sen­ta­tions and pub­li­ca­tions that T&T may be los­ing or fail­ing to re­tain val­ue through gaps in law, reg­u­la­tion, con­tract ad­min­is­tra­tion and over­sight. These in­clude trans­fer pric­ing in LNG and re­lat­ed-par­ty trans­ac­tions, the long dis­use of the Per­ma­nent Pe­tro­le­um Pric­ing Com­mit­tee, the treat­ment of roy­al­ties, bonus­es and wind­fall tax­es as re­cov­er­able costs, the han­dling of cost-re­cov­ered as­sets when li­cences are re­newed or trans­ferred, out­dat­ed con­fi­den­tial­i­ty rules over da­ta, weak co­or­di­na­tion be­tween fis­cal and tech­ni­cal au­dits, the ab­sence of a clear do­mes­tic nat­ur­al gas mar­ket and pric­ing frame­work and the fail­ure to op­er­a­tionalise pro­vi­sions for li­cens­ing con­trac­tors and agents.

Each of these is­sues de­serves de­tailed treat­ment. This short ar­ti­cle can­not do that. The point here is sim­pler: Venezue­lan gas should not dis­tract from the larg­er rev­enue-re­ten­tion agen­da. It should force the coun­try to con­front it.

Lo­cal con­tent be­longs in that same con­ver­sa­tion. In pe­tro­le­um, the largest flow of val­ue does not go to gov­ern­ment at all. It goes to third-par­ty sup­pli­ers of goods and ser­vices. That is why se­ri­ous pro­duc­ing coun­tries treat lo­cal con­tent not as a slo­gan, but as a val­ue-cap­ture strat­e­gy. If T&T can­not cap­ture the up­stream rent from Venezue­lan gas, and if NGC does not cap­ture a di­rect com­mer­cial share, then the coun­try must be even more de­lib­er­ate about cap­tur­ing val­ue through lo­cal ser­vices, en­gi­neer­ing, fab­ri­ca­tion, lo­gis­tics, main­te­nance, tech­nol­o­gy, pro­fes­sion­al sup­port and re­gion­al ex­port ca­pa­bil­i­ty.

The bet­ter crit­i­cism is not that T&T lacks every le­gal tool. It is that we have too of­ten failed to en­force and op­er­a­tionalise the Pe­tro­le­um Act frame­work and the in­stru­ments made un­der it. Ex­ist­ing arrange­ments al­ready point to­ward lo­cal par­tic­i­pa­tion, records, re­port­ing, train­ing, na­tion­al ca­pac­i­ty and use of lo­cal ser­vices. The gap is not on­ly in law. It is in im­ple­men­ta­tion.

The way for­ward should there­fore be col­lab­o­ra­tive and prac­ti­cal. T&T should make it­self the best and most re­li­able mon­eti­sa­tion route for Venezue­lan gas. Venezuela must see con­tin­u­ing val­ue in send­ing gas here. In­vestors must see com­mer­cial log­ic. But T&T’s peo­ple must al­so see how the coun­try is be­ing paid.

That means clar­i­ty on tar­iffs, pro­cess­ing fees, gas al­lo­ca­tion, NGC’s role, lo­cal con­tent, ef­fec­tive tax­a­tion, div­i­dends and sup­ply-chain par­tic­i­pa­tion. It al­so means ac­knowl­edg­ing that the knowl­edge re­quired to de­sign and mon­i­tor these arrange­ments is spe­cialised. No min­istry, reg­u­la­tor or min­is­ter should be ex­pect­ed to car­ry that bur­den with­out deep strate­gic, tech­ni­cal, com­mer­cial, fis­cal and le­gal sup­port.

The coun­try does not need an­oth­er an­nounce­ment. It needs a val­ue-cap­ture frame­work.

Venezue­lan gas may help keep the sys­tem alive. Whether it helps re­build the econ­o­my de­pends on if T&T un­der­stands the deal be­neath the head­line - and has the courage and com­pe­tence to close the gaps be­fore the val­ue flows past us.

This short ar­ti­cle can on­ly point to some of those gaps. Each de­serves fuller treat­ment: NGC’s role, the fis­cal terms for cross-bor­der gas, the al­lo­ca­tion of gas be­tween LNG and Point Lisas, the treat­ment of tolling and LNG price up­side, the re­cov­er­abil­i­ty of roy­al­ties and bonus­es, trans­fer pric­ing, con­trac­tor li­cens­ing, lo­cal con­tent, da­ta ac­cess, cost-re­cov­ered as­sets, and the long-un­used mech­a­nisms al­ready present in law, chief among which are those de­signed to pre­vent trans­fer pric­ing on both cost and rev­enue sides of the equa­tion.

These are not mi­nor tech­ni­cal de­tails. They are the dif­fer­ence be­tween host­ing ac­tiv­i­ty and cap­tur­ing val­ue.

The next stage of the na­tion­al con­ver­sa­tion should there­fore move be­yond head­lines about gas vol­umes. It should re­quire dis­clo­sure, ex­pla­na­tion and se­ri­ous pub­lic analy­sis of how Trinidad and To­ba­go will ac­tu­al­ly earn rev­enue, re­tain for­eign ex­change, build lo­cal ca­pac­i­ty and se­cure a fair share from the use of its in­fra­struc­ture and in­dus­tri­al base.

The pipelines may flow to Trinidad. The hard­er ques­tion is how do we en­sure that more of the cash stays. Our laws and con­tracts pro­vide mech­a­nisms.

About the Au­thors

An­tho­ny E. Paul is an en­er­gy ad­vis­er with decades of ex­pe­ri­ence across the oil and gas val­ue chain, work­ing on tech­ni­cal, com­mer­cial, pol­i­cy and gov­er­nance is­sues in Trinidad and To­ba­go and in­ter­na­tion­al­ly. His work has long fo­cused on how re­source-rich coun­tries can con­vert en­er­gy wealth in­to last­ing na­tion­al de­vel­op­ment.

Dar­ri­an M. Paul stud­ied biotech­nol­o­gy and con­duct­ed post­grad­u­ate re­search in syn­thet­ic bi­ol­o­gy, with a fo­cus on third-gen­er­a­tion bio­fu­els from al­gae. His work ex­plores the in­ter­sec­tion of agri­cul­ture, re­new­able en­er­gy and emerg­ing bio-based tech­nolo­gies, with a strong in­ter­est in prac­ti­cal pol­i­cy de­sign and eco­nom­ic di­ver­si­fi­ca­tion.

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Tony Paul can be con­tact­ed at: tony1paul@gmail.com