There are a number of questions arising from the statement by the Minister of Energy to the Parliament on Monday. The statement sought to give details on the Prime Minister’s recent ten-day trip to meet energy players. There are also issues that need to be clarified lest the public be misled.
The first issue is with the statement, “Poten and Partners estimated that the country lost up to US$6 billion annually from transfer pricing practices during the period of 2010 to 2014.” This demonstrates a serious misunderstanding of the Gas Master Plan (GMP). Poten arrived at that number by assuming that all the LNG produced at Point Fortin was sold to a hypothetical market where realised prices were 12 per cent of Brent oil prices.
Additionally, in the period under review (2011-2014) Brent prices were regularly over $US100 per barrel, meaning Poten’s gas price was about US$11 per mmbtu to US$12 per mmbtu. This number is at the very least representative of a hypothetical state. However, the current government, ran with it as if were the gospel. It would be beneficial if they actually read the GMP instead listening to presentations. For ease of reference they can check the section Downstream: Commercial Arrangements & Value pages
10-4 to 10-20.
The minister went on to add that, based on a new formula for Train I they had secured more value for TT. He added that the new marketing arrangement would see TT get additional revenues of US$118 million per year. That is all lovely and nice. However, what about the natural gas supply to Train 1? Only last month, BPTT said that due to two failed infill drilling programmes (Cannonball and Cashima), they have no gas to put into Train 1 come 2020; as a result that train could be mothballed. Therefore, any new discussion about a new formula is moot. That matter has conveniently been downplayed by the minister.
Then we heard there was an agreement with Shell that would enhance the revenue to the government to the tune of approximately US$944.7 million over ten years, from 2018 to 2027. This equates to US$94.5 million per year on average or TT$643 million per year, just about about five per cent of 2019 energy revenue. We were not told what the price and production assumptions are on which this figure was predicated. Whether you’re selling mangoes or natural gas, price and production are not static and can change over time.
He also said that to facilitate continued production Shell requested an extension of its production sharing contracts (PSCs) for blocks E, 5a, 6b and NCMA 1. This constitutes the majority of Shell’s producing acreage in TT. We are told that the government eventually agreed to the extension of the PSCs to 2030. What were the terms of these extended PSCs? Were they extended with the same terms that prevailed before the extension? The minister was noticeably silent on that detail. One would hope that the Energy Ministry would have insisted on a larger share of revenue for the country from the extended PSCs considering that Shell would have long recovered its original capital expenditure.
Sticking with Shell, the minister was pleased to announce that approximately US$3.3 billion will accrue to the government from the Barracuda and Colibri projects over the period 2020 to 2029. This is par for the course in the natural gas industry. We have been producing and selling natural gas for decades. Nothing out of the ordinary here. Once again, however, we have a figure (US$3.3 billion) with no price assumption.
Finally, and most importantly, the minister said Shell would pay the country US$397 million. This, he said, came out of negotiations that involved claims and the principle of “zero settlement.” What does this mean? What is Shell paying for?
Multi-national corporations are not charities. They seek the interest of their shareholders first, foremost and above all else. Some of them have awful track records. One of them, for example, has recently found itself in hot water related to questionable dealings in Nigeria. These companies just don’t pick up US$397 million and hand it to a government because they like the country. Is this payment an admission by Shell that it was short-changing the country? Or was there some quid pro quo involved? If so, what did it entail? The devil is indeed in the details.
The statement by the minster raises very serious questions that should be answered. We live in the age of transparency and easy access to information. The Guyanese have shown the way and have made their production sharing agreement with ExxonMobil public. In TT we are walking backward fast when it comes to transparency and access to information.
* Kevin Ramnarine is a former minister of energy and an international energy consultant.