By Kevin Ramnarine
Our nation’s energy sector naturally evokes interest given that it has long been our economic foundation. T&T’s energy sector is a strong global brand. PM Kamla Persad-Bissessar in speaking recently in Panama noted that T&T accounts for 17 per cent and 13 per cent of BP and BG’s global production volumes respectively.
The energy sector has three distinct components: upstream, mid-stream and downstream. In the upstream companies explore for and produce both oil and natural gas. The mid-stream sector entails liquefaction of natural gas, natural gas processing and oil refining. In the downstream sector natural gas is used in the production of ammonia, methanol and steel. Natural gas is also used to generate all of our country’s electricity.
The focus of this article is the upstream sector. Among the three sub-sectors, the upstream is the largest in terms of contribution to GDP and Government revenue.
In 2010 when the Government changed, the upstream was stagnant. The records of the Ministry of Energy show that there was one rig drilling offshore and there was little or no drilling activity on land. There was no drilling taking place in Trinmar.
The main reason for this situation was the un-competitiveness of the fiscal regime that governed the energy sector. The major players in the upstream sector, including the Energy Chamber, had lobbied the then PNM administration for changes to the fiscal regime. The then Government was being told repeatedly by industry leaders that the fiscal regime was uncompetitive but they took little action to address the concerns raised.
Further proof of this uncompetitiveness was the result of the 2006 deepwater bid round where the eight blocks put out by the Ministry of Energy received one bid. That bid was from Norway’s Statoil which subsequently withdrew the bid and deepwater exploration languished for many years.
In 2010, when the Partnership Government assumed office it was clear that the fiscal regime governing the energy sector was uncompetitive. The world of energy had changed and we too need to change. In my first speech as Minister of Energy (July 20th 2011), I noted that the fiscal regime had to be changed and that we were now in competition for capital with Colombia, Brazil and Ghana.
The result of such thinking was that in the period 2010 to 2014 there was an overhaul of the legislation governing the fiscal regime of the energy sector. This was spearheaded by the Ministries of Finance and Energy. In total there were some 15 amendments to the law in the different finance bills from 2010 to 2014. It should be noted that not a single foreign consultant was engaged in this exercise. It is also instructive that in this period there was no increase in energy sector taxes.
This gave the companies (especially those already operating here) the confidence to make investment decisions in an atmosphere of certainty. This positive signal was sent to the boardrooms in London and Houston and the companies reciprocated with investments. All metrics would show that there has been an increase in investment and drilling activity. In 2010 the country recorded 1,132 rig days. In 2014 rig days doubled to 2,443. Data for the first quarter of 2015 indicate that 2015 will eclipse 2014 in terms of rig days.
In the period 2010 to 2014, the Ministry of Energy signed 21 oil and gas production sharing contracts or licences. This is a record for a fiv-year period. The value of these twenty-one agreements is at most $US 1.8 billion and will result in the drilling of at most 50 exploration wells. In the last five years there has also been a record level of both 3D and 2D seismic surveys on land and offshore. These surveys set the foundation for exploration drilling in the near future. Importantly, the results of 3D seismic acquired by BP in 2013 have been received with optimism.
In the year 2010, energy-related foreign direct investment was US$501 million. In 2011 that increased to US$1.7 billion; in 2012 US$2.2 billion and in 2013 US$1.4 billion. Overall FDI in the energy sector has been three times more during the period 2011 to 2013 than it was for the period 2008 to 2010. The return of investor confidence is exemplified by the decision by BP to invest US$2.1 billion in the Juniper project and BHP’s plunge into the deepwater.
I have spoken about the emergence of a “new energy economy”. This consists of strategies to produce new reserves of oil and natural gas beyond what is currently exist from shallow/average depth waters and on land. The new energy economy consist of four themes: (1) deepwater oil and gas production, (2) the development of our significant reserves of heavy oil, (3) the commercialisation of cross-border reserves with Venezuela (4) and the use of enhanced oil recovery techniques such as carbon dioxide flooding. The past five years have really been an effort in holding the energy sector together in given an increasingly challenging external environment and putting it on a platform for the future. Crucial to that was right siding the upstream component of the energy sector.