Whatever the outcome of the September 7 general election, the government is going to have to make some tough decisions to ensure the sustainability of Trinidad and Tobago’s energy sector.
With oil prices likely to stay low for the foreseeable future, structural changes to the energy sector are imperative. Such changes will set the stage to help us reach the capital investment levels required to maintain our existing industry.
As Minister of Energy Kevin Ramnarine stated in his interview in the June 2015 edition of EnergyNow, “Very hard decisions have to be made in the next five years.”
Over the past five years, a number of significant reforms have been made in the oil and gas industry, specifically with the introduction of various tax measures to incentivise exploration and production.
These measures have encouraged new activity, and we have seen high levels of drilling being maintained even in amid current low oil prices.
We need to be realistic, however, that much of the current drilling was planned at a time when oil and gas prices were still at historic highs prior to mid-2014.
If we are to maintain momentum, we need to see new projects continue to be planned even in this low-price environment. This is going to need further reform.
Changing the fiscal terms for companies operating under exploration and production licenses is not going to be enough.
Decisions must also be made on how to incentivise investment into potential reserves held under production sharing contracts (PSCs), especially smaller, geologically complex or inaccessible gas fields.
We must remember that there are gas fields discovered many years ago which nobody has found ways to economically exploit, such as the gas reservoir in block 22 off Tobago’s north coast, first drilled by Petro Canada back in 2008 with the Cassra-1 well.
Incentivising development of new reserves under existing PSCs is going to require one-to-one negotiations with the companies holding the contracts. This will require significant inputs of time and expertise from the senior public servants in the Ministry of Energy, at a time when many observers believe that the ministry is understaffed and has lost some of its former technical strength. This is a challenge that any new government is going to have to address and address quickly.
But it is not just the fiscal or contractual terms of the upstream operators that need to be reformed. Across the industry, there is near-consensus that the current structure of the gas value chain also needs to be reformed and that new marketing relationships are required if new gas reserves are to be developed.
There is much less agreement, however, about the details of this restructured gas value chain.
The new gas master plan, due to be completed by the end of July 2015, will certainly make some specific recommendations about how the gas value chain should be restructured.
However, there must be significant dialogue between the government and a wide variety of stakeholders in the industry if we are to successfully move from consultants’ recommendations to an implementable energy policy.
While the details of the new policy are far from certain, what is clear is that tough decisions must be made and that business as usual is not an option.