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Anthony T Bryan :
T&T and regional energy diplomacy
During the past few weeks, T&T’s development as an economy that encourages foreign investment has been praised in international circles.
The US Senate foreign relations committee on June 22, conducted hearings on “Energy Security in Latin America,” and Luis E Giusti, an internationally respected former president of Pdvsa (the Venezuelan national oil company), praised T&T for the several successful initiatives that have expanded its local gas industry as part of the government strategy to promote industrialisation.
He identified the country’s political stability, attractive geology and proximity to the US, as factors in the support of high levels of foreign direct investment. As he pointed out to the committee, T&T (together with Nigeria) dominates the Atlantic LNG market.
Also as reported on the Web site of the Financial Times, a study by the US military’s Southern Command (South COM) in Miami expressed concern about the spread of “resource nationalism” (the new buzzword) in Latin America and the extension of state control over energy production in several countries.
Current trends toward the re-emergence of state control in Bolivia, seizures of oilfields operated by multinationals in Bolivia and the doubling of the level of taxes levied on oil production units operated by multinationals, as well as the arbitrary management of the oil industry in Venezuela, have sent up red flags in the US administration about US energy security.
The report suggests that such actions may eventually deter the foreign investment essential to increasing and sustaining oil and natural gas output in the long term.
But the Southern Command also indicated that: “An exception to the trend is T&T whose policy of opening its doors to foreign investment has allowed it to become the top supplier of LNG to the US.”
The analysts warn that while the wave of resource nationalism in Latin America is allowing governments to grab a greater share of the energy price boom, tighter control will curb output in the future if, or when, oil prices fall.
Given the present course, the South COM study concludes that “the prospects for long-term energy production in Venezuela, Ecuador and Mexico are also at risk.”
The right path
Without a doubt, the most remarkable characteristics of T&T’s growth as a petroleum economy, and recently as a natural gas economy, have been the country’s democratic political stability:
n the ability of successive governments to understand, drive and orchestrate the technocratic human talent in the service of the energy sector;
n government policies that have conferred a competitive advantage to projects (while seeking a balance between the long-term benefits of a potentially successful project with the concession needed to implement the project); and
n the consistent positive attitude towards foreign investment.
T&T’s hydrocarbon resources and natural gas reserves have made it the most industrialised country in the Caribbean.
Since the 1970s the declared strategy has been to promote industrialisation by expanding the local natural gas industry. Today, most of the inward investment is directed toward the energy sector which now accounts for about 70 per cent of the country’s exports.
Unlike other oil producing nations, it is the only gas economy in the world since, in terms of barrels of oil equivalent, gas production is more than three times that of oil production.
The making of energy policy has been quite visionary and, at times, deliberate and consistent. All administrations have read from the same page.
The institutions for upholding and enforcing international commitments are strong and not politicised. Rarely has the politics of making energy policy resulted in domestic strife.
On occasion there was some political and civil disruption over ideology that favored divestment of the petroleum sector. But the transition in the 1980s from a state-centric to liberalised economy was embraced by successive administrations that saw real benefits from embracing the new ideology despite the obvious short-term social costs.
T&T is being recognised by other energy rich countries as a model for competitiveness, and the management of the balance that has to be struck between (a) the incentives for exploration and the attraction of foreign investment, and (b) the revenues that could be gained from the exploration of natural resources.
Building on energy diplomacy
Interestingly, for T&T today, the current politics of regional energy cooperation are spirited. T&T may be in the midst of an energy boom, but its geopolitical and regional influence in the Caribbean is being challenged in a manner that may at times require a pragmatic response and the consistent use of significant political and diplomatic skill.
The seismic shift in the energy world is affecting T&T. Theories of peak oil and regional energy security aside, the three immediate concerns for the country’s energy diplomacy are: the PetroCaribe agreement and T&T’s relationship with its Caricom neighbours; cross border co-operation with Venezuela and the changing energy landscape in the United States.
PetroCaribe
There is a diplomatic challenge posed by PetroCaribe. No doubt it will continue to be an off-the-agenda item of discussion at Caricom Heads of Government meetings including the current one in St Kitts/Nevis this week.
The initial response of the Government to PetroCaribe was negative. Subsequently, it has become accommodative.
To his full credit, Prime Minister Manning at all times has been concerned about T&T’s national interest, and also of the serious economic circumstance of Caricom neighbours. But it is obvious that T&T and its Caricom partners do not have as yet a clear vision of regional energy cooperation or integration, though such a plan is at present being drafted.
The high profile of the Venezuelan initiatives, in which politics has trumped economics, provides a lesson for T&T. Despite its strong commitment to regional economic integration, the danger is that T&T’s regional influence in diplomacy will wane considerably in the face of Venezuela’s financial power and perceived largesse.
Similarly, despite the attraction of PetroCaribe, Caricom leaders should look beyond the immediate at a larger template for the region’s place in international affairs.
The Opposition leader in Jamaica has already warned the Prime Minister of that country about “selling out the foreign policy interest of this country (Jamaica) because of a few barrels of oil.”
And the Venezuelan president has, on several occasions, characterised oil as a political weapon. But would not a common approach by Caricom, as envisioned in the formulation of a Caribbean energy policy, transform PetroCaribe and the region’s relations with Venezuela, into items that have less potential for politics to trump economics?
T&T/Venezuela cross border co-operation
Given Venezuela’s proximity to a well established LNG infrastructure in T&T it may one day make sense for Plataforma Deltana gas to be monetised in T&T.
The MOU for unifying of cross border reserves indicates the willingness of the two governments to work together to get the best out of their respective oil and gas industries. However, there is a very long distance between a government-to-government MOU and actual contractual terms to supply gas across a border to an LNG project.
As the Venezuelan LNG experience indicates, government-private company negotiations can become protracted and agreements can be years in the making.
Nevertheless, if T&T is to expand its LNG business to include a fifth and sixth trains, gas from Plataforma Deltana may play a critical role in making this happen.
T&T has enough natural gas for a fifth train but a sixth would require some imports. However, if strained relations between the US and Venezuela continue, such a supply using Venezuelan gas may be in doubt. Will Venezuelan politics once more trump economics?
T&T and the United States
With just 0.3 per cent of the world’s proven natural gas reserves, T&T has emerged at the head of the LNG export industry to the US and is poised to play an even greater role in the global natural gas industry in the coming years. Recent data suggests that US LNG prices are very sensitive to large volume imports.
As LNG imports grow, prices can be expected to decrease. The T&T partners are aware of the downside risks associated with further expansion in the LNG business. But what matters is getting the gas to market before the competition, and T&T’s corporate partners have so far led the way.
At the moment T&T continues to negotiate with the United States and LNG stakeholders from a position of strength as a key supplier, but that could change as new national players emerge. Absent severe declines in the market and prices, or catastrophic geopolitical events, can T&T will be a player in the LNG game until at least 2020?
The future path?
As reported in the Business Guardian last week, Prime Minister Manning stated that “we are indeed moving into a very exciting stage in this country’s oil and gas development and in the country’s social development.”
The country has done very well so far in the global energy geopolitical game. In order to stay the course, and to ensure continued long term success, T&T should also embark on a structured regional, hemispheric and global energy diplomacy that reflects constantly changing geopolitical realities. There are roadmaps but no easy solutions.
Dr Anthony T Bryan, a Trinidadian scholar, is a senior associate of the Centre for Strategic and International Studies (CSIS) in Washington, DC and Professor Emeritus at the University of Miami. He is a member of the project group at CSIS that is studying regional energy co-operation in the western hemisphere. Petroleumworld not necessarily share these views.
Editor's Note: This commentary was published by Trinidad Guardian, on
Thursday, July 6, 2006 , Petroleumworld reprint this article in the interest of our readers.
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Petroleumworld 07 09 06
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