Financing the future
By Asha Javeed
The Trinidad Guardian
Port Spain
Petroleumworldtt.com
08 26 07
The
Government’s 2007-2008 fiscal package
pointed to a shift in its energy policy as it sought
to prioritise its downstream initiatives and refocus
on the upstream sector.
The
expectation is that the new tax regime—which
will be introduced in 2008—will stimulate
exploration and new discoveries as the Government
seeks to finance its future.
New discoveries should improve its reserve to
production ratio now estimated at 12 years.
Of course, there are also plans for a new refinery
at Petrotrin, an energy park in San Fernando and
a State energy super company.
The energy industry continues to be the backbone
of the economy and, during his budget presentation
on Monday, Prime Minister Patrick Manning pointed
out that since the 1990s the expansion and diversification
of the energy sector has propelled the overall
growth and increased the resilience of the economy.
Throughout 2006 into 2007, the downstream sector
has been well-promoted by the Government as it
sought to plan new projects. The upstream sector
was dealt a difficult hand as the tax structure
for its deep-water exploration was not attractive
enough and elicited just one bid.
Minister
in the Ministry of Finance, Conrad Enill, at
a post budget discussion hosted by the T&T
Chamber of Industry and Commerce pointed out that
no new incentives would be given to companies presently
engaged in oil and gas exploration since the present
regime was working.
However, incentives would be considered for companies
willing to invest in exploration in deep marine
areas off the east coast, marginal fields, heavy
oil and farm in and farm out arrangements with
higher priority to the protection of the environment.
The
policy shift is based on the results of the Ryder
Scott hydrocarbon audit which put proven
reserves at 17.05 trillion cubic feet (tcf), probable
reserves at 6.23 tcf and possible reserves at 7.76
tcf. Cumulatively, it points to a decline of the
nation’s reserves from 34.87 tcf to 31.04
tcf.
Energy
policy and energy security appear to be the main
drivers in this year’s budget as
Manning noted that priority for investment of the
country’s oil and gas revenue would be directed
to such key areas as education, health, housing
and national security in the $42 billion spend.
The Government will transfer its 2007 budget surplus
of $1.3 billion to the Heritage and Stabilisation
Fund.
Manning noted during his presentation that the
reserves-to-production ratio indicator was designed
as a signal to the relevant authorities of the
need to increase exploration activity and the timing
of governmental measures to achieve this.
Indeed,
the Government has almost halved its priority
projects with the focus being the Alutrint smelter,
the Essar Steel complex, the Methanol Holdings’ AUM
complex, the gas-to-liquids plant at Petrotrin
and the methanol/propylene/polypropylene (MTP)
project for the development of a plastic industry.
Other projects which the Government had lined
up: the ANSA UAN plant, the Eastern Caribbean Gas
Pipeline, the La Brea Nitrogen plant, the Lurgi/Air
Liquide Syn Gas plant, the West Lake Ethylene Petrochemical
Project, the Alcoa Smelter and LNG Train X have
all been moved to Category B.
In
fact, Energy Minister Dr Lenny Saith had said
Train X would not become a reality until new gas
finds are made. This could push back Alcoa’s
Alumina plant in Jamaica, as it signed a memorandum
of understanding with Venezuela to have gas by
2009 from the Loran Manatee field which straddles
the Trinidad/Venezuela border.
A confident Manning had said a few months ago
that Jamaica would get its gas from Train X.
Saith
had said the country was assured of having 4.5
billion cubic feet (bcf) of gas until 2019,
which is what the audit pointed would be the “perfect
fit” daily consumption.
T&T
currently consumes 3.8 bcf a day.
Manning noted that the cost of the exploration
effort over the next three years would amount to
$3,530 million.
“By these new arrangements we confidently
expect as has happened in the past, new discoveries
of oil and gas and the preservation of T&T’s
position as an industrial centre in the region,” he
said.
Energy consultant Tony Paul had said the strategy
along the value chain calls for a re-think and
energising of efforts with respect to:
1.The exploration and production strategy including
new licensing rounds, the development of marginal/smaller
gas fields and possibly the fiscal terms for these
gas fields;
2. The rate of depletion (ie the pace of monetisation/industrial
development).
3.The choice of new downstream investments (ie
those that use less gas and/or capital investments
or have higher value-added).
4.The Venezuela border gas negotiation strategy.
“Natural gas apart, the key point of interest
to me is how T&T treats its vast heavy oil
reserves in this new audit. These have been left
out in the past, but can play a major role in T&T’s
industrialisation and perhaps even rivaling natural
gas as a mover of the economy.
“These
represent two to three times the existing (booked)
oil reserves and occur as heavy
oil and oil sands, onshore and in shallow waters
in the Gulf of Paria.
“None of this is currently captured in the
national accounts but, at today’s prices,
technology and costs, they are more than likely
to be considered economic and, hence, can be categorised
as reserves, much of which is already proven.”
The
economic perspective
Prime
Minister Patrick Manning pegged his 2007-2008
$42.2 billion Budget on an oil price of US$50,
$5 more than last year’s US$45. The price
of natural gas is US$3.55 per mmbtu compared to
US$3.50 per mmbtu last year. This would put expected
energy sector revenue at $15.4 billion in 2008.
Economist
Jwala Rambarran described Manning’s
peg as fairly conservative given that oil prices
remain over $65 and are expected to stay high for
the next year.
Rambarran said what is critical is that Manning
did not explain how much revenue would come from
oil and how much from gas but it is expected to
be $15.4 billion.
He noted that Manning was totally dismissive of
the implications of the Ryder Scott report but
it left Manning with two consequences: either he
could stimulate exploration or cut projects.
Rambarran said Manning chose the exploration route
which would call for the Government to take another
look at the taxation which it revised two years
ago.
He said to put more incentive in deep water exploration
would put more power in the hands of the private
energy companies.
Heritage and Stabilisation Fund
The fund is growing. The Government will add another
$3.3 billion to the fund, already at $10.9 billion.
Manning
pointed out that the Government’s
expenditure for 2007 was $39.3 billion while revenue
was at $40.4 billion, resulting in savings of $1.3
billion.
He
said, in addition to $2 billion allocated to
the fund, the Government’s intention is
to transfer the entire 2007 budgetary surplus
to the
HSF, once the accounts are finalised in few days.
Trinidad
Guardian
Thursday 23rd August, 2007
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©2007 Trinidad Guardian. All Rights Reserved.
