The decline in global oil prices, increased competition and an inability to attract new investment continue to weigh on the outlook for oil and natural gas reserve growth in Trinidad and Tobago. Readers will remember that in February 2015, Venezuela and Trinidad and Tobago agreed to jointly develop the shared Loran-Manatee field, which has proven reserves of 287bcm, of which some 26 per cent belong to us.
Development of the field was expected to dramatically improve the supply picture for both countries. However, several earlier agreements have failed to see the project progress, and there is continued uncertainty about how the gas will be monetised. In July 2017, both countries assured that their bilateral gas sales agreement was still on track for completion by the end of the month. However, that did not materialise and the deal is still pending.
Ultimately, new investment is critical to helping offset high rates of decline at the country's oil fields. To boost investment and offset the impact of lower global oil prices, State-owned Petrotrin confirmed it had reduced royalty rates levied against oil companies involved in farm-out and work-over exploration programmes.
The start of a long delayed 40,000b/d Ultra Low Sulphur Diesel (ULSD) unit in 2015 allowed the country to produce cleaner diesel with lower sulphur content. This US$503 million project, two years behind schedule, enabled the country to meet more stringent fuel standards in the US and Europe. This formed part of the country's Clean Fuels Upgrade programme, which, though long delayed, also saw the implementation of the Gasoline Optimisation Programme (GOP) which aims to replace aged equipment, improve plant reliability, produce more value-added products and meet stringent gasoline specifications.
The country’s desire to move into high-value-added refining was likely prompted by the expansion of the Caracas-backed PetroCaribe oil trading scheme. PetroCaribe provides crude and oil products to participating Central American and Caribbean countries on barter and low credit terms. This scheme has had a negative impact on Trinidad and Tobago, which saw our oil product market share in the Caribbean market drop under a deluge of heavily-subsidised Venezuelan oil as late as 2015.
Trinidad and Tobago sells gas on contracts indexed to the price of oil, which has declined since late 2014; and the government has signaled that it has concerns over the structure of existing exports contracts, which were arranged under the assumption that LNG would be sold to the US market. The latter once purchased around four-fifths of our total gas output. Now the US is becoming a major LNG exporter. Trinidad and Tobago will not only lose that market, but may also come into direct competition with the US for Caribbean and Latin American markets. US LNG, linked to the weakened Henry Hub index, can be expected to be competitively priced which can be expected to challenge this country’s dominant position in the Latin American market, where it accounted for 40 per cent of all seaborne imports in 2014.
As a response, the government should consider building on its relationships with other CARICOM countries and expand aggressively into new markets to capture market share. With the reopening of the expanded Panama Canal, which will be able to accommodate 90 per cent of the worlds' LNG carriers compared to four per cent currently, transport constraints to Pacific markets will be virtually eliminated, and Trinidad and Tobago can focus on expanding exports to higher-priced Asian markets where global demand growth will be concentrated over the coming decade. Cargo from this country will be able to reach East Asia more economically with a 30 per cent reduction in sailing times to Japan. Exports to regional customers such as Chile will also be facilitated by the expansion.
We face increased competition and the challenges attracting foreign investment in the energy sector, we need to determine what our competitive advantage is and create profitable opportunities for ourselves. Where is our economic plan?