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Grave Concerns for Natural Gas Reserves
By Kasala Kamara
October 18, 2006
INTRODUCTION
While the large majority of people of Trinidad and Tobago are of the view that the country's natural gas reserves have a life span of over twenty (20) years, experts in the energy sector have been expressing grave concern not only about the adequacy of natural gas to service the heavy industrial projects planned but also how the gas is being used or exploited.
CONCERN ABOUT NATURAL GAS USAGE
In his capacity as President of the state-owned National Gas Company (NGC), Frank Look Kin expressed serious concern about which gas-using plants the country should choose as it moves into the 21st century bearing in mind that gas is a finite resource. In a presentation which was made at the "Natural Gas in the Americas 6" conference in Tobago in June 2002, Look Kin made the point that, "The size of the gas-using plants we are looking at today is considerably bigger than before. We are therefore committing significant portions of our reserve base to support these industries, and have to be very careful how we do that."
The country's non-associated gas reserves were 32.6 trillion cubic feet (tcf) in January 2001, according to the Ryder Scott survey, with 19.7 tcf being proven.
The NGC president pointed out that the proposed Atlantic Liquefied National Gas Train 4 alone, with a gas demand of 800 mmcfd, will need 5 tcf of gas over 20 years. What this really means is that, "One LNG train is going to equal the gas demand of all the plants at the Pt Lisas estate today."
He went on to show that other potential plants would be just as gas-intensive. For example, the gas-to-liquids plant required 500 mmcfd to one billion mmcfd as well as the methanol-to-olefins plant. In fact, some of today's methanol and ammonia plants are three to four times the size of the existing plants. At the time of Look Kin's presentation the Atlas Methanol was being built and required 164 mmcfd of gas while the M3000 methanol plant needed 180 mmcfd.
The NGC chief executive noted that in the past, if we made a "...mistake in plant selection the error would have been at a low scale. But when we look down the road between 2004 and 2010, the choices that have to be are so significant we have to be sure we understand the impact of all this." (Energy Caribbean No.4 December 2002)
What makes the issue raised by Look Kin even more interesting is that figures supplied to the publishers of Energy Caribbean by bpTT, the dominant energy company of Trinidad and Tobago, in early 2002, revealed that 8.9 tcf of gas reserves were likely to be needed for current domestic consumption, i.e, Pt Lisas plants, Trinidad and Tobago Electricity Commission etc, 9.7 tcf for ALNG Trains 1, 2, and 3 and 6.5 tcf for LNG 4 – a total of 25.1 tcf, equal to almost the country's entire proven and probable gas reserve base as it stood according to 2002 figures released by consultants Ryder and Scott!
A FRIGHTENING THOUGHT
The usage of our natural gas reserves continued to be the subject of grave concern in very early 2003. Speaking at the South Trinidad Chamber of Commerce Geological Society annual petroleum conference at Hilton Trinidad, former university professor and head of the LNG Expansion Task Force, Dr. Ken Julien made his contribution to an ongoing debate on the expansion of the ALNG project.
"If you look at our gas reserves, and the Ministry of Energy has in front of it an independent study of gas reserves – what we call proven, bankable reserves which we know are there, no speculation – we could simply say, let us proceed immediately with Train IV, big, project, worth at least US $1.5 billion, let's go.
"But when you look at the reserves picture, and the country has to look at sustainable benefits both tangible and non-tangible, you will find out that you are committing 80% of gas reserves to one industry ALNG
"That's a frightening thought. Think about it; and the way I put it to some people – how much would you sell half of Trinidad for? And they say, never, there's no price to pay for half of Trinidad (The David Renwick column Business Guardian, Thursday, February 20, 2003, pg 2)"
Ironically, the fright envisaged by the former professor did not prevent him or his government from approving the agreement on June 12, 2003 for ALNG to construct its fourth train.
THE ADEQUACY OF RESERVES ISSUE
The issue of the adequacy of reserves to support long-term growth and the development of the energy industry, other than LNG has always been put on the front burner by certain experts and analysts. In fact, the adequacy of reserves was the main issue of the public fallout between the United National Congress Minister of Energy Finbar Ganga and the State Enterprises chairpersons – Steve Ferguson and Carolyn Seepersad-Bachan during the debate over the approval of ALNG Trains 2 and 3.
At the aforementioned South Chamber/Geological Society annual petroleum conference, Helena Inniss-King, senior geologist Ministry of Energy and Energy Industries, projected that with the advent of Train 4 in 2005, the proven reserves to production ratio (RP ratio) could fall below 15 years.
This issue was highlighted some two (2) years later by BP in its publication "BP Statistical Review of World Energy, 2005":
"The RP ratio is calculated by dividing the proven reserves of natural gas by the rate of production. A comparison with other LNG-exporting countries indicates that T&T's RP ratio is the lowest. This ratio will further decline in the coming years as a result of the coming on stream of several gas-based projects."
BP's input had been preceded by two very important developments in the year 2004
Firstly the President of the South Trinidad Chamber of Commerce, Dr Jim Lee Young, speaking at the annual petroleum conference in February, 2004, expressed grave concern at the state of natural gas reserves.
"The decline is worrisome...In the recent past graphs of the reservoir illustrated upward trends for 15-20 years before falling away. New we're seeing a descent into a plateau configuration. The descent is visible after 10 productive years, and then a slump begins to take shape. It means there must be new gas discoveries, or a reduction in our production levels."
Lee Young was critical pf government's energy policy and stated that there might be no gas boom and that talk of LNG Trains V and VI seemed premature. He said observers were asking where the gas supplies are going to come from.
The South Chamber head was severely criticised by both Prime Minster Patrick Manning and Energy Minister Eric Williams for the statements. In fact, Williams remarked that Lee Young himself was himself premature in making the statements. He reiterated that TT's proven gas reserves were 20.8 tcf
By the month of October, 2004, the Energy Minister officially declared a downgrading of the country's proven natural gas reserves by 1.95 tcf. One leading energy specialist responded this way:
"This disturbing revelation was mentioned so casually that you would think Williams was talking about how much sugar he wanted in his cup of tea during the break. Equally surprising, at least from the newspaper reports of the debate, is that no one on the opposite side of Parliament appears to have picked it up, with the sole exception of Independent Senator Basharat Ali, a distinguished member of the energy profession.
"Up until Williams' declaration, the officially accepted figures of our natural gas reserves were as follows
- Proven reserves – 20.76 tcf
- Probable reserves – 8.28 tcf
- Possible reserves – 6.06 tcf
Source: Energy Caribbean, October 2004 issue
"But the minister has now downgraded the proven reserves to 18.8 tcf and the probable reserves to 5.89 tcf, while hiking the possible – the least dependable of the three categories – to 8.63 tcf.
"The new total of 3 reserves, as they are called, is now 33.33 tcf, compared with 33.10 tcf previously.
"The biggest loss has been in probable gas reserves which the Society of Petroleum Engineers (SPE) defines as, "...those improved reserves, which analysis of geological and engineering data suggests, are more likely than not to be recoverable.
"Possible reserves, on the other hand, are those, "...less likely to be recoverable.
"The reserves that really matter and which commercial banks study carefully when asked to provide financial support for a particular gas-based investment, are proven reserves, which the SPE describes as, "Those quantities of petroleum (oil or gas) which, by analysis of geological and engineering data, can be estimated with reasonable certainty to be commercially recoverable under current economic conditions, operating methods and government regulations.
"According to the Minster, we have "lost" 1.95 tcf of those
"The presumed reason for that, which Williams chose not to dilate upon, is that those reserves were "used up" in production last year and not replaced. Worse, the reserves that would normally be shifted over to proven following drilling and reservoir analysis – probable reserves – themselves went down by 2.39 tcf.
"For a government that is depending on natural gas to 'increase value added at every stage of the natural gas chain' (Manning) and 'to enhance the diversification thrust in the downstream gas sub-sector' (Williams), these reserve losses should be setting off loud alarm bells in the corridors of both Whitehall and Riverside Plaza
"Before the minister's reference to gas reserves in the budget debate, bpTT had produced estimates to show that even the 20.76 tcf of proven gas would have been used up by the committed projects though to Train 4 and "near term" domestic growth.
"....so, taking Williams's statement at face value, even some investments already signed off might be gas challenged at a much earlier stage than had previously seemed likely." (The David Renwick Column Thursday, October 28, 2004, Business Guardian, pg 19)
By December of 2005 the natural gas challenge became headline news. In a front page article entitled, Gas Reserves: does Trinidad Really Have Enough Gas for all its Projects? Energy Caribbean issue number 22 reported:
"Is a gas shortage looming in Trinidad and Tobago that could have the effect of temporarily halting petrochemical development in particular and further possible expansion into liquefied natural gas?
"Many informed analysts think this is certainly the case and the ministry of energy may be keeping the matter low-key, in order to avoid drawing too much attention to it
"The most recent gas reserves figures, released just before this issue of Energy Caribbean went to press, show that gas reserves have fallen by 0.040 tcf and possible reserves by 1.57 tcf. Probable reserves however, have been marked up by 3.13 tcf. These figures are based on the 2005 gas audit conducted by Ministry of Energy Consultations, Ryder Scott
"But as knowledgeable an authority as Keith Awong, chairman of state-owned gas trader and transporter the National Gas Company (NGC), has been prepared to tell Energy Caribbean in an exclusive interview that NGC "...has been unable at this point in time, to enter into new agreements with upstream producers, who seem reluctant to give terms for gas supply, particularly since there may be a deficiency of some kind in reserves required for future LNG trains
"Awong detects 'some strategy in place by producers to avoid entering into long-term agreements.
"In other words, producers like bpTT, BGTT and EOG Resources Trinidad clearly prefer to "hoard" their gas for the LNG market, where Awong predicts prices between US$ 7 and US $10 per million British thermal units (mmbtu) will prevail for the foreseeable future, rather than commit it to domestic petrochemical demand.
"The NGC chairman admits that gas contracts for five petrochemical plants, for which MOUs have been signed, have not yet been concluded.
"The investors in those plants are naturally becoming increasingly concerned. What exactly is the situation with gas in the country?" asks Kristine Thompson, senior vice-president for business development at Guardian Holdings Ltd. (CHL) whose Prometheus fund is making 5% of the equity in the Aurora ammonia/urea project promoted by Trinidad Energy Investments Ltd (TEIL)
"Thompson says some analysts to whom she has talked, "...feel there could be a crisis in terms of gas supply. Do we have the reserves or don't we?" (Energy Caribbean No 22 December 2005 pg 1)
The year 2006 began with the adequacy of reserves issue staying on the front burner. The Business Guardian of Thursday, January 19 2006 carried an article by energy journalist Curtis Williams entitled, "No Gas contracts". He more or less confirmed what Energy Caribbean had revealed and went on to identify the 5 state projects which were natural gas challenged.
"...there have been no gas supply contracts forthcoming affecting the following projects:
- The Caribbean Petrochemical Manufacturing Company which is partly owned by CL Financial and wants to build an urea/ammonia/melamine plant
- Coffeeville Nitrogen Company which is also proposing an ammonia/ammonium/nitrate plant at Union Estate
- La Brea Nitrogen Company which is also proposing an ammonia/VAN plant at Union Estate
- Trinidad Energy Investments Ltd which was launched with greater fanfare and is proposing an ammonia/urea complex at Pt Lisas
- Essar Steel Holdings first integrated steel complex at Pt Lisas
The article agreed with the position put forward by the Energy Caribbean December 2005 issue and went on to point out that, "NGC has for months been in negotiations with the major suppliers of natural gas including bpTT, BGTT and EOG resources for additional supplies.
"The NGC does not of its own have significant amounts of natural gas nor does state-owned PETROTRIN." (pg 3)
In other words, our natural gas essentially remains under the ownership and control of foreign transnational corporations whose primary goal is to extract as much as possible and fetch the best market price to facilitate achieving the goal of profit maximisation and business growth and expansion. Our long-term growth and development is not a priority.
The situation of natural gas supply for non-LNG projects is so critical that both the present Energy Minister and the President of NGC have been forced to break their silence. The Business Guardian issue of Thursday May 11, 2006 reported:
"By the end of the year, the government will implement new gas-use policy that will clearly define what percentage of natural gas will be used for export and what will be channeled into the domestic sector.
"Energy Minister Dr Lenny Saith said the new policy will decide on how much gas will be converted to liquefied natural gas with the rest being kept for local industries including petrochemicals, metals, iron and steel and electricity generation..."
"The minister admitted that government's decision to have a policy was based in part on the present challenges confronting the Manning administration in which already approved projects are yet to get gas contracts due to lack of non-committed gas and companies trying to hold onto their gas for the higher returns of LNG
"The issue of gas prices to the local service sector is a function of what export gas is selling but also a question of availability..."
While the president of NGC Frank Look Kin is reported to have said that there is a problem of availability as well as the price that producers want for their gas.
"I have no intention of negotiating a natural gas agreement in the media but I will confirm that there are two things which have proven challenging, those are availability and price."
What is most disturbing to NJAC is the length of time it took government to devise a national policy of gas use. What NJAC and the people of Trinidad and Tobago would like to know are clear answers to the following questions:
- What is the current estimate of proven natural gas reserves?
- What is the reserves-to-production ratio (RTP) currently?
- How will the RTP be affected by the high gas demands of the many non-LNG projects to come on stream especially the aluminium smelter project in Chatam?
- Is the Caribbean Energy Pipeline Project still on the cards?
- What is the status of negotiations between the government of Trinidad and Tobago and the government of Venezuela for access to and exploitation of cross-border reserves on the Venezuelan side? NJAC understands that Venezuela has the largest natural gas reserves in the Americas followed by Bolivia.
- Will the transnational corporations, powerful as they are, be willing to give up natural gas the price of which is rising on the international market at a time of rapidly rising international demand and increasing and bold efforts by both Venezuela and Bolivia to increase national ownership and control of their national natural gas resources?
- Or is the issue also one of the role which Trinidad and Tobago plays in the top priority issue of US foreign policy, energy security?
It is the true and frank answers to these questions which will assist the clarification of the burning issues confronting our local energy sector in particular and the nation in general.
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