Dwight Mahabir, Outgoing Chairman, Energy Chamber of Trinidad and Tobago address at the Conversations on Energy and the Economy networking event hosted by the Energy Chamber.
As the outgoing Chair of the Energy Chamber it gives me great pleasure to bring a few remarks and to reflect on where the industry stands today and the pathway ahead.
The energy industry in Trinidad & Tobago faces an interesting dual challenge – firstly to reverse the downward trend in oil and gas production, while secondly also investing in decarbonizing our energy systems. These two challenges might seem a bit contradictory, but they are actually closely intertwined and complimentary: if we do not have clearly identified decarbonization pathways it will be difficult to attract long term investment into our energy sector, and without investment production will decline.
Over the past few years, we have seen many global companies place greenhouse gas emissions reduction as a key strategic consideration. Like countries, many companies now have “net zero” targets. This has had profound impacts on the global energy system and how companies are assessing investment opportunities.
The Russian invasion of Ukraine has added a new focus on energy security, especially for countries in Europe. This had led to higher prices in the short-term, and a renewed focus on investment in oil, gas and even coal, but this does not mean that the drive for “net-zero” has gone away.
Europe is now focusing even more investment on domestic energy sources, including solar and wind and, in some cases, nuclear energy. In the United States there is now a renewed focus on low carbon energy at both federal and state levels. The same is true of China. The electrification of transport is accelerating fast, and this has obvious implications for long-term demand for oil.
As the cleanest of the fossil fuels, natural gas plays a crucial role in helping reduce the emissions from coal-fired electricity generation and integrates well with intermittent renewables. It is also a key feedstock for many of the petrochemicals that are set to play a key role in the energy transition.
Sanctions imposed on pipeline natural gas out of Russia has forced the EU to seek supplies of natural gas and LNG from other nations. This increased demand has led to record high prices for natural gas in both Europe and Asia. High prices have in turn led to many industrial customers shutting down production, including petrochemical producers. This has in turn led to rapid increases in the prices of key petrochemicals, including both ammonia and methanol.
This unfortunate situation in Europe and the high price environment it has created offers a key opportunity for Trinidad & Tobago. However, the declines in natural gas production over the past decade mean that we have not been able to fully take advantage of this opportunity. At the end of 2021, the production of natural gas fell to just 2.5bcf/d a long way below the peak production of 4.1 bcf/d.
Over the past few months, we have seen some positive increase in production, with new developments coming online.
However, the stark reality is that even with these new developments, it is going to be a struggle to just maintain current production levels over the next few years. This is something that the Government is acutely aware of and has clear implications for how we manage the economy – as I am sure the Minister of Finance will underline.
So despite today’s high prices the sector faces a challenging environment. As someone coming from the contracting sector, I want to reiterate the point that continued investment and ongoing operations is vital for all of our members. There is no future in Trinidad & Tobago for the service and contracting sector companies without investment from the major operators and the Energy Chamber must therefore continue to focus on that issue.
The positive news is that there are some new major potential projects that should come on stream towards the second half of the decade – but we have to always remember that these are not certainties, and we must not count any chickens before they are hatched.
Despite these challenges the Energy Chamber strongly believes that there is still a bright future to our oil, gas and petrochemical industry. When we expand our focus to the wider region the future looks even more promising, and we also see significant opportunities in renewables and in the energy transition in the Caribbean.
But grasping those opportunities requires action. Earlier this year we published a six-point plan that we believe will enable the securing of additional gas supplies and ensure that our commodity exports can continue to reach international markets. Let me just reiterate those key recommendations:
Firstly, we need to fast-track bid rounds and the approval processes. The only way exploration and development is going to take place is if acreage is in the hands of competent and motivated companies.
Trinidad & Tobago needs to be efficient in getting projects off the ground as quickly as possible. Lengthy approval processes often delay projects and reduce the NPV (or net present value) of the projects. Fast approvals improve the NPV – which is value that can be shared by both the operator and the Government on behalf of the people. This needs to be a major focus.
The second major area for action is the issue of the reform of the upstream tax system to incentivize investment.
Minister Imbert - the changes that you introduced in the 2022 national budget have been warmly welcomed by the industry and they mark a significant step forward. Thank-you.
The major changes are to the Supplemental Petroleum Tax (SPT) regime - which will be a boost for investment in oil production. We do however need some additional measures to incentivize investment in natural gas. So, we were very heartened by your commitment to further dialogue with the industry.
We do appreciate the challenge you face in maintaining current revenue in the short-term, but the tax system also needs to incentivize investment and future production in the long-term.
The third major area where we think action is necessary is in respect of investment to reduce the carbon intensity of both operations and products.
Cross border adjustment mechanisms (or CBAMs) for carbon prices are almost certainly going to be introduced in various markets in the next few years, particularly in Europe. This means that accessing foreign markets in the future will be dependent on the ability of operators to deliver a lower carbon product.
This poses a real threat to our exports. If we are to be able to compete internationally, we will need to be able to compete on carbon intensity. We need to continue investing in reducing CO2 emissions from operations and continue investing in reducing methane emissions. We also need to invest in projects to bring new low carbon molecules into the product mix from either green or blue hydrogen and we need mechanisms to access offsets.
Fourthly, action is needed in diverting natural gas from domestic electricity generation through enhanced energy efficiency and power generation from renewables. This will aid the country in two ways. Firstly, this will be the first move to decarbonizing the electricity sector, but secondly it also frees up natural gas which can be used in foreign exchange generating sectors like LNG and petrochemicals.
The fifth major area where we recommend action is in encouraging innovative approaches to small field development. We need to find innovative ways of bringing gas from small fields to market, making the best use of existing infrastructure.
The sixth area where we think action is needed is to secure cross and across border gas supplies to be imported via pipeline.
There are significant gas resources in neighbouring, territories, especially Venezuela. In addition to significant untapped offshore gas fields there are large volumes of associated gas produced onshore Venezuela that is currently flared. On the North Monagas oilfields in eastern Venezuela alone, there is more natural gas that is flared than the current demand shortfall in Trinidad & Tobago.
Securing these resources for export to Trinidad & Tobago is politically challenging but has significant potential economic and social benefits. We know that the Minister of Energy has been pursuing this objective intently over recent months and we hope that these efforts will shortly bear fruit.
Despite the challenges, we believe that Trinidad & Tobago can position itself strategically in the energy transition and make the most of opportunities that are presented as the world shifts to a low carbon future. But we need to act now.
This speech represents my last formal role as the Chair of the Energy Chamber. I would like to take this opportunity to express my sincere thanks to my fellow Board members over the past two years and indeed over the many years I have been a member of the Board. We are fortunate to have a very strong Board, comprising the leaders of the industry from across the value chain and the supply chain for the industry. The strength of the Board gives me confidence in the future of the Energy Chamber and of the industry. I thank-you.
I leave with final thought that resources left in the ground have no value if not brought to market – we need to get after the investment needed to produce our resources urgently.