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Deep water gas—at what price?

Thursday, June 14, 2018

The discovery of 5 trillion cubic feet of natural gas in the deep water offshore Trinidad’s east coast and the plan by Government and its industry partners BHP Billiton and Royal Dutch Shell to fast track its development is welcome news, but the questions are: at what price and can the downstream sector can afford to pay for it?

Two weeks ago, Prime Minister Dr Keith Rowley announced that Cabinet was considering ways to have the field developed as a “matter of priority.”

He said: “What we are discussing—and it’s close to conclusion—is because of the country’s need for gas at this time. We can’t follow the same template we used to before. We want to move from exploration to production as quickly as possible because we are not producing as much gas as we consume bearing in mind the number of plants we have on the ground.”

He added: “What we discussed with BHP is to change the production sharing contract arrangements that we have now and not focus solely on exploration in the area where we have already seen success, but to remodel our contracts so that BHP can move very quickly into development of the Le Clerc wells.”

Rowley further explained that he was talking about development of the Le Clerc prospects rather than immediately further exploring the block.

“So that the gas that has been found at Le Clerc can be brought to market as quickly as possible. The company has agreed to do that and so we are going to have to work out the technical details. These are very technical and legal matters and we are very advanced in those discussions. We are told in anticipation of the conclusion of those discussions with the government there are rigs on the way to delineate the Le Clerc field and to move as quickly from the Le Clerc field to go from exploration to production.”

The reality is that T&T has installed capacity of 4.3 billion cubic feet a day and only 3.6 bcf/d is available to consumers. In other words, when you add up all the users of natural gas, inclusive of electricity, LNG, methanol, ammonia, urea, melamine, other petrochemicals and manufacturing, the country needs to not just produce but have available for use more than 4.3 bcf/d. This is not the case.

This has led to shortfall, companies producing less than their name plate capacity, loss of revenue, lawsuits, plant shut downs and higher prices for natural gas.

Several executives at the Point Lisas Industrial Estate, speaking on condition of anonymity because they are in negotiations with NGC for new contracts, say they will not be able to afford the deep water gas.

The claim is that because the gas is in deep water and is more than 100 kilometres from the nearest infrastructure with the average cost per well of close to US$100 million, there are indications that such gas would be landed at Point Lisas upwards of US$5 per mmbtu. At that price the plants will have to be shut down because they cannot compete with shale producers in the US who are paying on average just above US$2 per mmbtu.

Lecturer at the Arthur Lok Jack Global School of Business Mariano Browne agreed that deep water gas is likely to be too expensive for downstream companies unless BHP and its partner can find crude oil with it in Block TDAA5.

“I would think that the cost of bringing the gas to market will be prohibitive unless they can get black oil and condensate with it. In any case we are not talking about this coming to market in any reasonable time period,” Browne said.

He pointed out that Prime Minister Rowley was sufficiently vague by talking about the earliest possible time in order to give himself room for the delays that are sure to occur. In any case, Browne is sure the gas cannot come to market before the next general elections are due.

Le Clerc is the first deep water discovery in the Caribbean and is mainly natural gas although it is thought that in the field there will be discoveries of more condensate and black crude.


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