By Kevin Ramnarine
For the last two decades, the Trinidad and Tobago (T&T) economy can best be described as a “gas based economy”. When natural gas production grows, it’s likely that our economy will also grow. We produce a lot of natural gas in comparison to our oil production. We produce 7.6 times more gas than oil on an equivalency basis. I will write some more about oil later on as we have an exciting exploration drilling campaign from Lease Operators Limited in 2018 in the Rio Claro Block that was awarded in 2014. There is also the resumption of deepwater drilling by BHP Billiton in 2018 arising out of contracts signed from 2013 to 2015.
Gas as the backbone of T&T’s economy
Getting back to gas however, we acknowledge that gas remains the backbone of the economy. At a production level of 3.3 billion cubic feet of gas per day, this country produces as much gas as Argentina or the United Kingdom. We have built a large gas business over the last sixty-four years. Natural gas was first used for power generation in T&T as far back as 1953. In the year 2010 we attained what I like to call “peak gas”, in that year gas production averaged 4.3 billion cubic feet per day. Could we have sustained that level of production forever? The answer of course is no. In 2015 production levels fell to 3.8 billion cubic feet per day or an 11.6% decline in five years. There has been a lot of debate on what accounted for the decline from 2010 to 2015. I have written extensively about that in the past. I would say that factors that contributed to that decline were in place well before 2010 and the then Government had been warned repeatedly by the industry. That is now history.
Looking at 2018 beyond
In 2018 natural gas production will increase compared to 2017. We should close 2017 at an average of 3.3 billion cubic feet per day. In 2018 that figure should be about 3.5 billion cubic feet per day or an increase of 6%. This is due mainly to the incremental impact of the BP Juniper project which commenced production in August 2017. There are other projects that contributed such as TROC, Sercan and Angostura III but it was Juniper that turned the national gas curve upward. Is Juniper important? If we didn’t have Juniper we would be producing less than 3.0 billion cubic feet per day and that would be calamitous.
Shell’s seven-year decline
What about Shell (formerly BG)? From 2010 to 2017, their production plunged by almost 50%. That’s a big drop in seven years and one I am sure they are eager to start reversing in 2018 as they commence a two-rig drilling campaign. One of these two rigs will be drilling in the Starfish field. In 2015 BG’s attempt to develop the Starfish field was unsuccessful and expensively so. I’m sure Shell has learned from that 2015 failure and will have success with Starfish in 2018. Even with Starfish fully on production by the end of 2018, Shell would have only arrested their decline. Turning Shell’s production curve upward will require further drilling in 2019 and 2020 in Blocks 5C and 5D. Another project that warrants mention is De Novo’s drilling in the Iguana field in the Gulf of Paria. This project when completed would bring on 80 million cubic feet per day of natural gas by the second quarter of 2018. While this is a small volume, in a shortage situation every bit helps. The De Novo model of developing small deposits of natural gas in shallow water depths is one that we will need more of as we move forward.
Growth and Revenue in 2018
Given that 2018’s gas production will be only marginally better than what obtained in 2017, the IMF’s forecast for 1.9% growth is optimistic. I expect that there will also be growth in the fourth quarter of 2017 due to Juniper and that growth trend will continue into 2018. So, in a nutshell, the economy will return to growth after two years of decline. What about revenue from the energy sector? The Central Bank’s November 27, 2017 Monetary Policy report (page 16) reports that we will collect TT$ 10.1 billion from the energy sector in 2018. While this is much less than the TT$ 28.1 billion collected in 2014, its still not the “not one cent” that we were told about in the 2017/2018 budget. It is however much better than the TT$ 6.6 billion collected in 2016. A modest recovery in GDP and revenue in 2018 does not mean we can celebrate. In fact, no one has seen a light at the end of the tunnel.
While Juniper is a life raft for the economy we must now think beyond it. Angelin will deliver gas in 2019 but not on the scale of Juniper. Starfish will keep Shell from further declines. Angelin and Starfish are important. The reality is we will never get back to 2010 production levels of 4.3 billion cubic feet per day. We must accept that we have to live with a production level of (3.2 to 3.5) billion cubic feet per day. This has long term consequences for the economy going forward.