Clouds gathering over Trinidad & Tobago as gas supply shortfall bites

Island nation facing crisis by end of decade as underlying field decline rate of 14% eats away at production

Trinidad & Tobago is facing a potentially significant shortfall in natural gas production in the next two years that threatens to upend its petrochemical-based economy and could result in the liquefied natural gas exporter starting to import LNG to bridge the gap.

Natural gas production in the island nation has already fallen from a high of 4.2 billion cubic feet per day in 2013 to an estimated 3.3 Bcfd at the beginning of 2017, according to estimates from the country’s acting Energy Minister Colm Imbert.

Several upstream and midstream projects should allow the country to stem the decline, according to research from consultancy Rystad Energy, but only for a couple years.

The Sercan joint development by EOG Resources and BP’s Trinidad & Tobago subsidiary BPTT will — along with BPTT’s Juniper platform and its Trinidad Onshore Compression Project — all come on line over the course of 2017 with a combined nameplate capacity of just over 1 Bcfd.

 

Production plateau

However, those volumes will only create a production “plateau,” limiting overall production declines to 3% annually between 2016 and 2019, according to Kjetil Solbraekke, Rystad’s senior vice president for South America.

“But this just gives you a little breathing room for the next two years,” he says, explaining that production was then projected to fall off “a cliff” as an underlying field decline rate of 14% eats away at production.

Some of this decline could be arrested by fiscal changes on the part of the government and increased efficiencies on the part of industry that could enable development of marginal fields — most of which hold 300 Bcf or less.

Solbraekke estimates that cutting the royalty on natural gas to zero would enable development of 2.5 trillion cubic feet of gas that would otherwise be uneconomic, and if industry could cut development costs by 20% it would unlock another 1.5 Tcf.

However, there would remain another 1.3 Tcf of reserves that are uneconomic even with both a royalty cut and a decrease in production costs, he says.

Another option to meet demand is a proposal to connect the huge Dragon field in Venezuela’s Mariscal Sucre area to the Hibiscus platform near the maritime border between the two countries, which has an existing pipeline connection to Atlantic LNG.

The two countries have discussed the issue but have not reached agreements on key details such as volume and price.

Imbert says Dragon gas would flow by 2019, but sources with knowledge of the field say it has no current production and would require significant infrastructure to develop, all of which could easily push delivery of any material volumes of gas from Dragon out beyond the 2019 goal.

These factors have led government officials and executives at NGC to consider “some unconventional things”. These include the short-term importation of natural gas via LNG, says Gerry Brooks, chairman of the board of the NGC Group of Companies, which includes NGC and fellow state-run midstream unit Phoenix Park Gas Processors.

“We are looking at some approaches used by other territories to solve their problems, and what we have to determine is whether they could be applied to our own,” Brooks says in an interview on the sidelines of the Trinidad & Tobago Energy Conference in Port of Spain.

Trinidad currently has no significant LNG import capacity, but Brooks says a floating storage and regasification unit could be used to bring in gas if there is a short-term gap between supply and demand.

Brooks adds the US is one possible option for NGC to source LNG.

 

Hit by US shale

Such a move would be a stunning about-face for Trinidad, which largely built its Atlantic LNG facility to export gas to the US, until the advent of shale gas production depressed US natural gas prices.

The stakes of these decisions are high. Downstream users of natural gas have been facing supply shortages for more than a year and they are getting worse.

Nigel Darlowe, chief executive of Atlantic LNG, says his facility saw a 30% reduction in gas supply last year and is projecting a 35% shortfall in 2017, which he has equated to losing 75 LNG cargos each year.

He says the impact on Atlantic of new LNG import volumes from Australia and the US has been “completely overplayed” because Atlantic is among the lowest-cost LNG producers in the world.

“The new producers are not the problem,” he says. “The gas supply is the problem.” The Trinidad & Tobago government’s biggest enemy now is time. Even if fiscal reforms were fast-tracked and spurred investment on the part of industry, there is very little time to plan, fabricate and install new natural gas production facilities, whether in Trinidad or in Venezuela.

“Is the government prepared to let go of taxes to help retain the natural gas industry?” Solbraekke asks.

“I think they are, but will they do it in time? Time is of the essence — and you don’t have much time left.”