Chairman’s Address
Trinidad & Tobago Energy Conference 2018
Maximising Value Through Collaboration
Mr Eugene Tiah
Chairman, Energy Chamber of Trinidad & Tobago
It gives me great pleasure to welcome you all to the Trinidad & Tobago Energy Conference 2018, and especially to welcome all of our regional and international visitors. Over the past thirty years this conference has grown to become the premier event in the regional energy sector calendar. It is the one time when the whole industry comes together to discuss the challenges and the opportunities for the sector.
The past three years have been very difficult ones for the oil, gas and petrochemical sector. We all know the oil price story, with the spectacular drop in prices in 2014 and 2015 and some more recent recovery.
With gas prices, we have likewise seen significant decreases in Asian, European and Latin American gas prices since 2014, while North American prices were already low since 2008.
These are the international prices. They do not necessarily correlate directly with wellhead prices in Trinidad & Tobago. Available data from Trinidad and Tobago shows wellhead prices at levels lower than Henry Hub in recent years for both EOG Resources, who sell gas exclusively to the domestic market via NGC, and for bpTT, who sell gas to both NGC and international markets.
As domestic gas prices are linked to ammonia and methanol prices and because these two commodities are very important forex earners in their own right, it is important for the country to also monitor these commodity prices on international markets. Both ammonia and methanol prices saw significant declines over the 2014 – 2016 period. Methanol prices have shown some good recovery and are projected to remain in the US$ 400 per tonne range over the next few years. Ammonia prices have, however, remained lower and are projected to be in the US$ 300 range over the next few years.
The generally more positive trend in commodity prices has been mirrored by a more positive picture in terms of gas supply. Over the past few Energy Conferences the shortfall in gas production has been the major topic of discussion. The good news is that gas production looks set to increase between 2017 and 2018. Later today, we will have an update presentation from Rystad, one year on from their very sobering presentation on the gas production outlook – which came to be dubbed as “falling off Mount Trinidad”, and we anticipate that they will show a more positive outlook compared to this time last year.
This more positive outlook has been driven by both the announcements around major investment commitments and new exploration success. Approximately US$ 10 billion will be invested by the four major players in the Trinidad upstream gas sector over the next four or five years. There will be significant drilling activity taking place over the next few years. By the middle of 2018 there will be seven offshore rigs operating in Trinidad & Tobago, equalling our highest historical offshore rig count.
It is not just in Trinidad & Tobago that we have seen exploration success but also in the wider Caribbean region. Guyana is leading the way with continued major finds, but we have also have heard news of a gas discovery offshore Grenada and exploration activity is continuing in Suriname, Barbados and in Jamaica. We will hear more about exploration in those three countries tomorrow morning.
In the Trinidad & Tobago deepwater province, we have had a major exploration success with LeCerc and later this year BHP will venture back into the deep to further test the potential development. In the Energy Chamber we will continue to watch this potentially game-changing exploration campaign with close interest and anticipation.
The other major gamechanger for the Trinidad & Tobago gas industry is the importation of gas from Venezuela and the development of cross border gas fields. Notwithstanding the obvious economic, social and political challenges in Venezuela, the Energy Chamber remains very excited about the progress that has been made and we are looking forward to the day when the first gas flows into the Trinidad network. The integration of the Trinidad & Tobago and Venezuela gas industries makes economic sense for both countries and we believe that the economics will drive forward this integration, whatever obstacles we might encounter along the way.
In addition to these very significant efforts to increase the supply of gas, we have also seen some very significant new policy directions aimed at decreasing demand for gas through greater energy efficiency and the introduction of renewables. We believe that these efforts could free up valuable molecules of gas from power generation and instead make them available to export as high-value petrochemicals or LNG. There are obvious foreign exchange benefits.
Trinidad & Tobago has at last announced that we will ratify the Paris Climate Change Convention and there are important commitments that we must achieve. The current gas supply situation coupled with the rapidly decreasing costs associated with renewable energy projects, means that the economics of renewables makes sense now and we need to move fast to implementation. Minister Robert le Hunte will be delivering a feature presentation tomorrow morning addressing this issue.
All of this is the good news for the sector and there is certainly a positive future, but we must also be aware of the continued challenges that remain for many of our companies and many of our people.
Energy sector revenue remains extremely important for the government of Trinidad & Tobago, even with the significant falls in profit taxes over the past few years. Royalty payments, shares of production from PSCs, dividends from NGC, and corporation tax payments from the downstream all remain very significant sources of revenue for the government. In 2017, energy sector revenue accounted for one quarter of all revenue, according to Ministry of Finance data.
Nevertheless, the reality is that some companies will be able to carry forward significant losses from previous years and this means that profit taxes may remain low despite higher prices. Our major oil producer, Petrotrin, has been challenged to pay any revenue, including royalties, to the government.
Despite the more positive outlook for gas, downstream plants are still struggling with gas curtailments. Significant shortfalls in supply are continuing, negatively affecting the profitability of plants and causing operational inefficiencies. With the new higher priced contracts between the upstream and the NGC, downstream plants could also face upward price pressure when they are seeking to renew their gas supply contracts, in an era of low prices in the USA. This all creates continued uncertainty for the downstream, notwithstanding the significant efforts being made to create greater stability and increase confidence.
Service companies and contractors, the majority of our membership, are also facing a lot of uncertainty. Operator companies have been relentless in reducing costs over the past few years and contractors have had to respond by deep cuts in their own costs and their profit margins. With Trinidad & Tobago’s almost fifty-year-old industrial relations laws making efficiency and labour productivity gains hard to implement, this has placed significant pressure on many of our members.
The Energy Chamber has worked closely with the other major Chambers to propose a fundamental and progressive reform to our industrial relations system. We remain hopeful that the government and the labour movement will come to recognise that a new modern legislative framework is in the interest of all citizens.
Many of our service company members’ confidence is also dented by the continued uncertainty over the future direction of Petrotrin. Business with Petrotrin has been the life blood of many of our member companies, especially the smaller locally-owned companies, and in turn many communities across south Trinidad. Contractors and contractor employees are an extremely important stakeholder of the company.
The problems facing Petrotrin are well known. The Energy Chamber shares the government’s very evident concerns for the future of the company. I would like to publicly state that the Chamber would like to be active partners as we collectively seek to find the best solutions to return the company to profitability and maximise returns from the company’s assets for all the people of Trinidad & Tobago. We want to collaborate to maximise value.
While the service sector faces significant challenges, there are also very exciting opportunities ahead both here in Trinidad and in the wider region. Our local services sector needs support to fully take advantage of these opportunities. At this conference last year, operator companies publicly signed up to a Local Content Charter to express their commitment to maximising the value retained in Trinidad & Tobago from their spend in country.
The Energy Chamber has commissioned a major research study, to be presented later today, that has sought to accurately measure the current value of local content to our economy and to identify areas where further value can still be captured. This study is very important to both assess where we are today, and identify where further progress can be made. The Energy Chamber always promotes data driven policy processes based on careful analysis, rather than emotion.
This conference offers an important opportunity for that detailed policy dialogue and to forge even closer collaboration for the collective good. It gives me great pleasure to open this exciting event and I am looking forward to two days of stimulating presentations, discussion and debate.
Note:
Part of this speech dealing with commodity prices was inadvertently omitted during the delivery of the speech at the Energy Conference on 22nd January 2018.