Energy consultant Helena Inniss has issued a warning to the government that it should learn from the failure of Trintomar before deciding to form a new company to produce small and stranded natural gas fields.
Inniss shared that view during the recent Spotlight on Energy when the Legal Affairs Minister Stewart Young revealed that the government had incorporated a company with the aim of partnering with upstream companies to produce small accumulation of natural gas.
Young said the logic was that there were small accumulations that the larger companies find uneconomic to produce and, as a result, the government would partner with smaller, nimble firms to produce the fields.
Inniss noted that the State owned the upstream assets and there are pools of gas which have already been discovered.
“I would recommend that the State associates NGC with an upstream company whose competence is proven, the company would not be given ownership of the gas but would be paid for its services and operatorship out of a share of production (risk service contract). The NGC can then take title to the gas and make itself fairly independent of the other upstream suppliers and, hopefully, make a place for itself along the entire value chain.
“Facilities and infrastructure have either been cost recovered or offset against taxes so the State has the right to ownership (the Petroleum Act allows for this), if not wholly at least partly, to a percentage necessary to claim capacity in all facilities in T&T waters. NGC can make use of this capacity,” Inniss said in an article written for the Geological Society of T&T.
Trintomar was formed in 1988 to operate the Pelican Field offshore, east coast T&T to offset a projected natural gas shortfall in 1990. The South East Coast consortium block in which the Pelican Field is located was state owned. Resources had already been found in the block so it was considered a low-risk venture so the Trintomar operation was state funded and operated. It proved to be a failure after a spectacular blow out.
Inniss wrote that in spite of the interventions over the years to make it competitive, the upstream gas sector in T&T remains uncompetitive. There are four upstream companies supplying gas, two to Atlantic LNG and the domestic market (bpTT and Shell) and two to the domestic market only (EOG and BHP).
She said in terms of growth prospects, bpTT—because of its dominant acreage position (it operates 904,000 acres (3,658 km2)—is the entity with the best growth prospects.
Inniss noted that because of its purchase of proven gas assets, Shell is also likely to grow as there are plans to revisit the Starfish development (which experienced drilling problems) and to complete other work in Block 5(d) and others.
EOG Resources has limited prospects and will not be able to compete with either bpTT or Shell unless the company gets new acreage and/or its joint venture arrangements to develop smaller accumulation in bpTT’s acreage continues.
“BHP currently has limited amounts of cheaper gas but has the potential to bring on deepwater gas. This will have its challenges unless oil is also found in abundant quantities. This, in effect, means that both bpTT and Shell will continue to have a dominant position in the T&T upstream and would likely be in a strong negotiating position vis-à-vis the State, unless the State can inject a different dimension into its upstream,” Inniss said.
Inniss is calling for competition laws to be enacted so that when companies, other than the incumbents, whose operations are successful, wish to sell their assets, laws exist which allow for an examination of the position/benefit which purchase of said company would grant the purchaser.
“Simply said, we need to discourage any monopolistic tendencies in the industry if the country is to benefit from its ownership of the resource,” Inniss wrote.
Recently, economist Gregory McGuire argued that the company would likely be a subsidiary of the National Gas Company. But economist Dr Ronald Ramkissoon warned that the government has to be extremely careful in risking taxpayers funds. He said the country has been down this road before and it has not been very successful.
“There are too many lessons around bad decision making in the energy sector and other state enterprises as well, to cause us to be extremely cautious about getting government involved in the energy sector or for that part several other sectors.
“We need much more details before one can really make that judgment, but the population must also understand what are the risks that the government will be taking because, at the end of the day, if the thing does not pan out as the government hopes, it must come back to the people and account for the loss of capital and that is not something that governments like to do,” Ramkissoon said.
He said the country needs an assessment of where we are and a vision of where the government wants to take the energy sector “and it must be commercially oriented decision. We have seen enough of state involvement that has only led to losses.”
But McGuire argued that past failures must not deter the government from moving forward saying that the solution was simple and that is to get it right this time.
He noted that the NGC has $48 billion in unleveraged assets and once the company is set up as a subsidiary it will be able to leverage the assets while, at the same time, isolating the NGC’s balance sheet so it does not necessarily impair the NGC’s regular business.
