The Government is expected to decide by the end of the year if it will phase out the use of Super gasoline as a fuel in T&T and only allow the use of Premium gasoline.
Energy Minister Franklin Khan has admitted that the matter has gone to the Cabinet but said no final decision has been taken.
In a wide-ranging interview with Guardian Media's Lead Editor Business Curtis Williams, Khan said, "That option has been presented to me here, as the Minister of Energy, and no decision has been taken on that as yet."
Asked if it had gone to the Cabinet already, Khan said, "Yes, it went to the Cabinet. The Cabinet has not taken a decision on it. It reserved its decision to the liberalisation of the price."
Asked if it is fair to say the Cabinet will decide once it sees how the liberalisation of the fuels market works, Khan simply added, "Yes, that is fair to say."
If the Government decides on phasing out Super gasoline it is likely to have a significant impact on motorists, the vast majority of whom use Super gasoline because it is less expensive than Premium.
It could potentially have the knock-on effect of higher taxi fares and cause inflationary pressure.
In the interview which took place at Khan's waterfront office, exactly a week after a no-confidence motion was brought against him in the Lower House of the Parliament, the minister tried to defend his performance and that of the Government.
Khan admitted that natural gas production was a major challenge facing the country and that this year would be bad. But he posited that better days are coming.
"You know, I use my favourite phrase 'walking up the down escalator'...The struggle, so to speak, has been to hold on to that plateau. And when you trying to hold on to that plateau, you have little room for error. So you have to continue to find the 1 tcf fields, and most importantly your investment profile must be constant because even though you find the field and you don't develop it in time you will be faced with a decline...So right now we hoping to average about 3.2 bcf/d for this year, with a push, and then we will ramp up in the next three to four years."
Khan admitted that the problem started during the Patrick Manning administration and is now being reflected today.
"So what had happened there was a gap from around 2007 moving on, where the investment levels weren't at the rate they were supposed to be. The UNC did in fact attempt to use fiscal incentives to arrest that."
Ironically, Chairman of the National Gas Company Conrad Enill was Energy Minister during the 2007/2010 period.
Q&A with Khan
(Editor's note: The following is an abridged version of Curtis Williams' interview with Minister Khan. More will follow in this week's Business Guardian.)
Q. Is there any thought to phasing out Super gasoline, as my sources have indicated to me, and only making Premium gasoline available?
A. Well, that option is on the table but no decision has been taken.
When is a decision to be taken?
Well, am (pause). We don't want to disrupt the market in that significant way. The first phase is a price liberalisation which will happen within a month, six weeks. I am not sure of the exact time-line for the Finance Bill, and then the taking away of the fixed retail margin, so the retail operators of the service stations could set their own margins. The wholesale margins will remain fixed for Unipet and NP and the retail margin will be market-driven. The prices will be posted once per month by the Ministry of Energy and the gas stations do not have the option to vary their prices over that month. Then the next month we post up a price and you do your mark up.
Right, but in terms of the fuel liberalisation, I understand that by the end of the year a decision has to be taken as to whether or not Super gasoline is phased out?
That option has been presented to me here, as the Minister of Energy, and no decision has been taken on that as yet.
But has it not gone to the Cabinet already? I am told it is with the Cabinet?
Yes, it went to the Cabinet. The Cabinet has not taken a decision on it. It reserved its decision to the liberalisation of the price.
So is it fair to say the Cabinet will decide once it sees how the liberalisation works?
Yes, that is fair to say.
SOLVING THE NATURAL GAS SHORTAGE
Why has the country not been able to solve the problem of the shortage of natural gas?
The core reason for that, Curtis, is a sub-surface reason. Give me five minutes for me to walk you through the historical chronology of this gas industry. In the early 70s when Pan American Oil went offshore on the East Coast, that later became Amoco, they found three oil fields, Teak, Poui and Samaan. That sent the country to the top of the pack in terms of oil production...here you were going into a new basin, find three huge oil fields. Trinidad's production peaked at 270,000 barrels of oil per day in 1977. After that they said the sky was the limit because you now into a new basin and you were seeing so many structures further offshore, you said everything else would be good news. It was good news, but the only difference was instead of oil they found, it was gas. In any basin, based on seismic, you drill the large structures first. So in the historical evolution of a basin, the large fields are found first and then you look for subtle traps and smaller fields. There was a time when this country's reserves to production ratio was 30 years. That's when we got into the monetisation of gas. We built Point Lisas and when gas was still in surplus, so to speak, we went into LNG. But there isn't an unlimited supply of geological provinces to explore. So in the Columbus Basin, I will be the first as a geologist to admit, that we are in the mature phase of the basin. So the very likelihood is we are going to continue to find more and more small fields...We go on the production side, there is something called natural decline. Gas fields decline at between 12 to 15 per cent per annum.
PROJECTED NATURAL GAS PRODUCTION FOR THE NEXT FIVE YEARS
What does the country's natural gas production profile look like for the next few years?
This is the state of play. In 2021 we have Matapal coming on stream. That is bpTT 300 mmscf/d (million standard cubic feet per day). Shell/Barracuda approximately mmscf/d and BHP Ruby which is a smaller gas field which is a bigger oil field of about 100 mmscf/d.
In 2022 the Cassia C Compression platform project will come on stream. That will be giving us around 300 mmscf/d. Now Cassia C was supposed to be a 2021 project, there was a COVID issue in Mexico. Colibri, which is the North Coast part of Shell, will be coming on in 2022 also.
Touchstone we hope could give us about 150 mmscf/d on land, now the on-land gas is good because it comes into production much faster than offshore and then, all things being equal, we could get gas to buy at a cheaper price onshore because the development costs are less.
And then coming to 2025 we have Manatee, and as I speak we are finalising the Production Sharing Contract with Shell and Shell is working on a development model as to the type of infrastructure they have to put down. I'm telling you this for the first time probably, we are also looking at probably building some capacity that in the event, when the Venezuelans decide to develop Loran, probably post 2025, they may look at the option of monetising that gas across the border in T&T.
These are projects that are sanctioned, there is very little risk outside of economic, price and market risks. But in terms of geological risk, the risks are very limited and all the technical work is in place."
ATLANTIC LNG AND ITS FUTURE
LNG has proven to be a challenge. How is the Government dealing with that?
The answer to that is in the restructuring of Atlantic. Because Atlantic's issue is you have four trains with differences in shareholding in each train and different commercial arrangements in each train, so Atlantic as a plant cannot operate efficiently. So if you have a shutdown on Train 2, it is not an easy exercise to just re-route gas into trains three and four, you know. So when we unitise the plant, the discussions that are currently taking place, is that there will be a unitised shareholding so there will be no differences now in Trains 1, 2, 3 and 4. In fact, that terminology will come out of the market completely and the plant will be running at 50 per cent to 80 per cent efficiency. What I am told is that in terms of the efficiency of an LNG plant, either it runs at 50 per cent or 100 per cent. In other words, if the plant is running at 70 per cent it is just as inefficient as if it is running at 30 per cent...So the shareholders of Atlantic have agreed to that, so we think the unitisation of Atlantic, even though there will still be a deficit in nameplate capacity, the plant could be run efficiently and profitably.
Is Train 1 operating now?
No, the TAR (turnaround) has finished and there are certain engineering issues to sort out.
When do you expect Train 1 to be back up?
Train 1 should be back in the middle of April.
What will the shareholding of Train 1 look like?
We haven't crossed that bridge as yet. But during the time of the TAR, if NGC has an arrangement that if they can source surplus gas they can run it through the plant and offtake it.
Who paid for the TAR?
The NGC. By extension the Government. We took a strategic decision, we consider it risk capital because we want to have the option of having a train 1. Because if we did not do this TAR we could have kissed Train 1 goodbye forever.
What is the cost of the TAR?
I am not sure but the figure could be made available. I am not sure. It's about...Look, let me not quote a figure.
People in the industry estimate it at about US $50 million.
I don't think it's that amount.
You think it is less?
Yes, it is less.
Even if you have more gas by 2026, the issue is the price. Look at how many negotiations you are involved in that can't seem to come to an end. I understand, for example, the M5000 plant that you talk about, that negotiation is yet to be completed. What's the state of those things and the issue of high gas prices?
We are at the core of the negotiations now and just wait and see.
Does that mean an agreement is imminent in the M5000 negotiations?
Yes, but you still have not answered my question about the price for natural gas in T&T. It's one thing to have deep-water gas, the price is another thing, won't you say? Can the downstreamers get a competitive gas price?
I am very optimistic and I will tell you why. It is deep-water yes, the development cost will be much more expensive than shallow water, but the volumes are significantly higher. So it boils down to your unit cost. And I am cautiously optimistic that the unit cost to develop deep-water could be competitive.
But again, it has to do with the market, how the value chain looks, what type of commercial arrangement BHP wants to get into and all these discussions are on the verge of commencing or some have already commenced.
DON'T KILL THE GOOSE THAT LAYS THE GOLDEN EGG
There is also an issue of the Government's take. For example, its increase in royalties on natural gas to 12.5 per cent. Do you think a downward adjustment in royalties could make upstream gas more competitive and allow the State to recover the lost revenue in taxes on profits?
Yes and no. The PPT on deep-water is not 50 per cent. It's 35 per cent. That is a concession that was made when the Blocks went out. So it gives the deep-water a fair chance of becoming commercial. We have to understand something as a government, molecules in the ground are of no value to the country. So you can't play hardball. However, because it is a depleting asset you cannot give it away either. So the two parties have to come together and see. You are an investor, you need a fair rate of return on your investment. A government could say all right, if you don't invest your money the gas cannot come out of the ground and the Government has no money to go and bring it out. So both parties have to adjust because you cannot come here and get exorbitant profits at the extent of the state. But the state cannot kill the goose that lays the golden egg either. So it is a balancing act and these last round of negotiations over the last two to three years that we have been involved in, that is the template under which we work.
So you are saying the Government has been more flexible?
Yes, we have been more flexible and when we look at the numbers we will know what decisions to make and that is the point I want to make now. During the negotiations, we had Poten as our consultants. We have a new generation of technocrats in the ministry here. We had White and Case as our consultant. We now have Gas Strategies. Because when you sit around the table with these multinationals they come armed and well prepared. You know that, Curtis. So I am saying for the first time in the history of this country we have a government team that is going in almost monos/manos with them you know. Because we have the backing. We have financial models now that we running. Gas strategies are building numeric models for us to know what will be the outcomes. Because in the past we were making subjective judgments. Now we making model judgments based on numerics. I always tell them in these negotiations, we went to the same universities as you all did and some of our people here went to the best oil and gas institutions globally.
If the Government has to make a concession for the industry to be profitable and survive we will so do.