Why we have a natural gas shortage

By Kevin Ramnarine

Image Courtesy: Trinidad Guardian

In my four years as Minister of Energy, the biggest problem I faced was the shortage of natural gas. The Prime Minister has said we failed to deal with it. This is not correct. In fact, had we not taken the action we took, the country would be in a far worse position. To say we failed to deal with it is also a condemnation of the four upstream natural gas producers.

This problem first reared its head in late 2010. It continued over the years and is still with us today. In 2010, the country recorded its highest ever natural gas production of 4.3 billion cubic feet per day. Not coincidentally, in 2010 BP recorded its highest ever production and its lowest level of investment.

In 2015, gas production had fallen to 3.8 billion cubic feet per day or a decline of 11.6% compared to 2010. In 2016, natural gas production collapsed to 3.3 billion cubic feet per day or a 13% decline. A 13% decline in one year is huge.

If I were a typical politician I would blame the PNM for the 13% decline from 2015 to 2016. I could for example say, “When I left office gas production was 3.8 billion cubic feet per day and now it is 3.3 billion cubic feet per day – the PNM is to blame.” I would never do that. I respect the intelligence of the population too much to arrive at such superficial conclusions.

Last week, in response to a statement in Parliament by the Prime Minister, I issued a press release in which I outlined three reasons why we have a natural gas shortage.

These reasons were:

1. A collapse in upstream related foreign direct investment from 2008 to 2010.

2. Maintenance by BP and to a lesser extent other companies from 2010 to 2014.

3. The NGC’s over contracting of supply from 2007 to 2008.

There is also the argument that when we committed to build a fourth LNG train we committed the country to an unsustainable level of gas demand.

A few days ago, while on i95.5 FM, the Prime Minister responded to my release and the related story. He appealed to the country not to listen to me. He took issue with the first and third points above.

On the first point, he said this was due to the global recession of 2008 to 2009. I have proffered a different thesis.

Records of the Ministry of Energy show that during that time, the Government had threatened to increase taxation on natural gas. This has been corroborated by industry sources. It was counter to what the industry was telling the then Manning government – the oil and gas business was already heavily taxed. The result was a withdrawal of enthusiasm and movement of investments to other countries. Such a threat was an error with grave consequences.

The second point is maintenance. In recent social gatherings with energy sector professionals I have heard from them the following statements, “They really don’t know that when you have maintenance work on platforms we must shut in gas production?”

Listening to the Government in Parliament, they believe that platform maintenance and the natural gas curtailments are mutually exclusive events. The maintenance programme by BP happened mainly from 2011 to 2014 and it severely interrupted natural gas supply. These are incontrovertible facts that can be overwhelmingly substantiated.

The third point has to do with the NGC’s over contracting of natural gas supply during 2007 to 2008. The PM seemed not to understand what I meant by that. He related it to the Mitsubishi project which had to do with contracting demand not supply.

Let me explain. From 2007 to 2008, the NGC signed three gas supply contracts with BG, BHP and EOG Resources for approximately 550 million cubic feet per day of natural gas.

This new gas was contracted to supply new customers including Alutrint and Essar. These customers never materialized and the NGC was left holding the wrong end of the stick.

By mid-2010 when the Government changed the then President of the NGC advised the Ministry of Energy that the biggest threat to the NGC was this oversupply situation which resulted in a take or pay liability for the company. That meant that NGC had to either take gas from the upstream companies or pay.

As a result of its over supply and take or pay conundrum, in 2010, the NGC told BP that it would require a reduced supply of natural gas. As a consequence, by the third quarter of 2010, BP had no rig drilling offshore. At around the same time the oil spill in the Gulf of Mexico happened and BP faced an existential threat. That oil spill caused the company to go into maintenance mode not only in T&T but all over the world.

The maintenance programme lasted over three years and caused the disruption of the supply of natural gas.

All three events converged around the same time to create the perfect storm.

If the Prime Minister and his Ministers don’t want to believe me for whatever reason – politics, denial, self-imposed ignorance they are welcomed to read the verbatim of Frank Look Kin at the Joint Select Committee on State Enterprises (May 9th 2016).

Kevin Ramnarine is a former Minister of Energy of Trinidad and Tobago