Gas
reserves TT's biggest secret
By Raffique Shah
Trinidad Express
Port
Spain
Petroleumworldtt.com
03 18 07
IF
IRAN is hell-bent on keeping its nuclear programme
a state secret, government and energy institutions
in Trinidad and Tobago must have deemed data surrounding
our natural gas reserves an even bigger secret.
Several numbers have been bandied about as our proved
(or proven) and probable reserves. In mid-2006,
NGC's Frank Look Kin, the man whose company virtually
oversees all of this country's natural gas exploration,
production and sales, put both at 33 trillion cubic
feet (tcf). Back in 2004, ALNG chairman John Andrews
estimated that we had 35tcf with an exploration
potential of 65tcf. Meanwhile, BP, the biggest player
in our oil and natural gas exploration and production,
pegged TT's proved at 19.2tcf, a mere .3 per cent
of global gas.
What
is undisputed is our production and consumption
or export of this vital hydrocarbon resource-four
billion cubic feet a day (4bcf/d). Of that volume,
ALNG's four trains use approximately 50 per cent.
All of ALNG's end product is exported, mainly to
the US market. The remaining 2bcf/d is utilized
by a host of downstream plants, from power generation
to methanol, steel to ammonia. Another indisputable
fact is that the NGC has thus far been unable to
sign gas supply contracts with several planned mega-projects,
among them CL's urea/ammonia/melamine plant, Gerry
Hadeed's TEIL, India's Essar Steel and the La Brea
Nitrogen Company, among others.
Experts
in the field suggest that if these plants do come
on stream, along with the proposed two aluminum
smelters, we shall need another 2bcf/d in gas. That
will take our production and usage up to 6bcf/d.
The Government and the NGC are banking on several
new sources of supply to enhance our reserves, production
and consumption. Last month the NGC announced an
agreement with three of big companies-BHP Billiton,
EOG and BG/Chevron-to supply 550 million cubic feet
a day (MMcf/d) starting in 2009. Several new "blocks"
were recently auctioned to these and other big oil
and gas companies for exploration. And Prime Minister
Patrick Manning is scheduled to journey to Caracas
soon to seal a joint exploration agreement in the
Loran field with Venezuela's Hugo Chavez. That will
add 27 per cent of an estimated 14tcf to our reserves,
or 3.7tcf.
The
big fear is that we are producing and utilising
too much of our reserves, with a "run out date"
varying from 15 years to 20 years. Manning, a geologist,
has argued vociferously against this notion. Speaking
at a BG luncheon last year, he said: "Trinidad
and Tobago located squarely in the proto Orinoco
delta at the time of formation, it leads to very
complex geology. And it is the complexity of geology
that incidentally is complicated further by faulting
that has led to relatively low production rates
for oil and gas, but oil and gas production lasting
for a much longer time. I take this opportunity
to say it is my view that the oil and gas will not
run out in my time, and certainly it will not run
out in the time of Professor (Ken) Julien."
Manning is 60 years-old while Julien is in his 70s.
That
statement is of little comfort to future generations,
since the PM allows, at best, another 20 years of
gas production. In 2003, Julien, the downstream-energy
sector's principal architect, said at a South Chamber
forum: "If you look at our 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, a big
project, worth at least US $1.5 billion. 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 per cent of gas reserves to one industry,
ALNG. That's a frightening thought."
In
fact, the elusive "Train X" that was planned
for ALNG (in which the NGC holds significant shares),
and from which commitments were made to supply Jamaica
and other Caribbean islands with LNG, may now be
a "dead deal". At the very least, like
Train IV, it would consume 800mcf/d, a whopping
increase for a single plant that sells most of its
LNG to the USA at the Henry Hub price, which currently
stands at around US$8.50 per Mcf. While demand for
LNG worldwide is rising, prices are unpredictable
what with big gas producers like Qatar (910tcf in
reserves), the UAE (213tcf) and Russia (1688tcf)
getting more involved in the LNG aspect of natural
gas.
It
was not accidental that an agreement on the establishment
of Train IV, pricing being the most important element,
took a long time in coming. At the time, sources
said the sale price of gas from the NGC to ALNG
in Trains I to III, conducted when the UNC was in
government, was unacceptable to the Manning government.
In fact, the government's Energy Task Force, of
which Professor Julien is a driving force, was said
to be holding out for a high price because Julien
is a firm believer in using our gas for value-added,
downstream projects. Among these are the two smelters
(Alcoa's, the bigger, is expected to use little
more than 200MMcf/d) and several new plants projected
to come on stream over the next four-to-five years.
Manning
himself underscored Julien's position when, regarding
usage of gas, he said at the BG-organised forum,
"A point is being reached where we are going
to have to decide whether we wish to place all our
eggs in one basket in the way that they are placed
now. Too much of our LNG goes to one destination.
And incidentally at prices that are not by any means
the best prices that are available in the market.
Recently the Minister of Energy returned from Mexico
and the Mexican authorities, constructing a re-gasification
terminal.
"Mexico
finds itself in a situation where it is now a net
importer of gas. (They are) igas from the United
States but they have to pay US prices for it, that
is to say Henry Hub plus a transportation charge
of a little more than that 30 cents. So it is Henry
Hub plus 30. If Trinidad and Tobago decides to sell
into the Mexican market we will start with a price
of Henry Hub plus 30 cents. At the moment when we
export to the US the only terminal that gives us
a price like that is the terminal in Everet in Boston
where we get Henry Hub plus 35 cents. But at Cove
Point it is Henry Hub plus 10 to 15 cents at Elba
Island it is Henry Hub plus 5 to 10 cents and at
Lake Charles it is Henry Hub minus 10 cents. A shift
of markets will have immediately for us a significant
increase in revenue. Brazil is not to be scoffed
at: remember the comment that was recently made
by the Brazilian official presentation about gas
coming from Trinidad and Tobago."
Speaking
about the focus on downstream energy-based plants,
The PM added: "There will be no Alcoa smelter
unless Alcoa commits to significant downstream production.
The day of primary production by itself in Trinidad
and Tobago is gone forever. We have one train we
have one pot line of aluminum at Alutrint and we
talking about a second one, we will see how it works,
but all of it so far is on the domestic market."
Tracing our gas development from back in 1953 through
the establishment in 1959 of an ammonia plant here,
and the massive expansion in downstream plants from
the 1980s, Manning said: "We are now in a fourth
phase of gas development, of downstream industries
in aluminum, iron, steel, ethylene, polyethylene,
propylene and polypropylene. Those are the new items."
Of
course the big question everyone with knowledge
of the industry asks is whether we have the reserves
to meet these commitments. More than that, if we
utilise the gas for all these industries, how long
will our reserves last? Manning insists that our
gas utilisation-what is called proven reserve to
production ratio (RP ratio)-while tight, is sustainable.
He said: "Domestic commentators spend a lot
of time on what appears to them to be the low reserves
to production ratio for gas. They argue that at
this time we have a reserves to production ratio
of over 16 years which means to say as they interpret
it, quite improperly and incorrectly, that in 16
years time the gas will run out. Having arrived
at a false conclusion based on a false premise they
take it one step further and ask why does the Government
therefore now proceed helter skelter on a development
programme whose revenues are based on the availability
of revenues from the oil and gas sector?"
He
then provided his interpretation of how we intend
to make what we have work for us. "It has always
been so-the low reserves to production ratio. What
it really tells you is the level of exploration
activity that needs to take place in the country
to ensure that we maintain a proper reserves to
production ratio. That is what it tells you. It
does not tell you the gas will run out."
He
also referred to fiscal means of extracting more
from our limited reserves: "The Government
of Trinidad and Tobago looks so closely at our tax
structure and reviews our tax structure so often
because we have always to ensure that there is a
fiscal environment existing in the country that
stimulates exploration activity in the oil and gas
sector. Because that is where the future lies, that
is what maintains the production, that is what ensures
that with a low reserves to production ratio we
can still embark on ambitious projects utilising
natural gas and oil but never run the risk of the
oil running out."
Some
experts concur with the PM's view while others disagree.
Last November, Claude Mandil, Executive Director
of the International Energy Agency (IEA), speaking
at the London launch of "The World Energy Outlook
2006" (WEO), said: "It (the study) reveals
that the energy future we are facing today, based
on projections of current trends, is dirty, insecure
and expensive. But it also shows how new government
policies can create an alternative energy future
which is clean, clever and competitive." The
WEO shows that global primary energy demand would
increase by 53 per cent between now and 2030. Over
70 per cent of this increase will come from "emerging
economies" like China and India. World oil
demand will rise to 116 million barrels per day
(mmbpd) in 2030, up from 84mmbpd in 2005. But most
of these demands will be met by Middle East producers,
as well as giants like Russia, which are closer
to the markets.
It
continued: "There has been an apparent surge
in oil and gas investment in recent years, but it
is, to a large extent, illusory. Drilling, material
and personnel costs have soared, so in real terms
investments in 2005 were barely higher than in 2000.
It said, too: "Nuclear power remains a potentially
attractive option for enhancing the security of
electricity supply and mitigating CO2 emissions.
Biofuels can make a
significant
contribution to meeting future road transport needs.
New biofuels technologies being developed today,
notably ligno-cellulosic ethanol, could allow biofuels
to play a much bigger role-if major technological
and commercial challenges can be overcome."
But the study pointed out that rising food demand,
which competes with biofuels for existing arable
lands, will constrain the long-term potential for
biofuels.
On
the future of natural gas, the IEA said: "Although
the world's proved reserves of natural gas contain
only 80 per cent as much energy as the total proved
reserves of liquid hydrocarbons, there is reason
to believe potential gas reserves are currently
understated. In many parts of the world, hydrocarbon
exploration is 'gas prone'. However, if gas markets
were to develop, there is little doubt substantial
additional gas could be found from increased exploration
activities." The IEA noted that "existing
gas reserves are less well developed than those
of oil". "Although gas reserves contain
45 per cent (of proved hydrocarbons reserves), gas
accounts for only 35 per cent of total hydrocarbon
consumption."
But
it warned: "The high cost of gas transportation
sets it apart from oil as an energy commodity, making
the commercial value of gas discoveries very dependent
on how far they are from markets. Over the past
decade the world has added three and a half times
as much gas to its proved reserves as it has consumed."
In this context, Iran has signed an agreement with
Pakistan and India for a gas pipeline that will
supply both countries. Qatar has all but cornered
the Far East market in addition to investing in
downstream plants (it won the Norsk Hydro aluminium
plant that, under the UNC government, was planned
for Savonetta).
As
it stands now, with estimates of TT's proved and
probable reserves estimated at between 20tcf and
35tcf, and given our current and planned usage,
it seems that we shall have this vital hydrocarbon
for at least another 20 years. If exploration currently
underway yields 50 per cent of what they are expected
to, we may be able to add another 10 years supply.
The better option for future-gas, though, seems
to lie with Venezuela, which has proved reserves
of 150tcf. That country has not yet begun to exploit
this resource the way Trinidad and Tobago has. Its
proximity to our well developed downstream gas industries
makes it a potential partner for ensuring the longevity
of these plants. Which is why Mr Manning's planned
visit to Caracas, and his talks with President Chavez
are almost as important to the future of our gas
investments as exploration for new fields.
From BP:
*Proved
reserves of natural gas: Generally taken to be those
quantities that geological and engineering information
indicates with reasonable certainty can be recovered
in the future from known reservoirs under existing
economic and operating conditions.
*Reserves-to-production
(R/P) ratio: If the reserves remaining at the end
of any year are divided by the production that year,
the result if the length of time that those reserves
would last if production were to continue at that
level.
Trinidad
Express
Thursday, March 15th 2007
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