Home' Trinidad and Tobago Guardian : June 13th 2013 Contents JUNE 2013 • WEEK TWO www.guardian.co.tt BUSINESS GUARDIAN
ENERGY | BG9
BPTT should be required to
show to what extent its oper-
ational cost has increased in
T&T that warrants it having
higher prices for its natural
gas in the domestic market.
This is the view of Helena Inniss-King, for-
mer director of resources at the Ministry of
Energy and Energy Affairs.
In a telephone interview with the Business
Guardian, Inniss-King, now a consultant, said
while bpTT and the National Gas Company
(NGC) will have to negotiate prices that both
parties can live with, she is not sure the cost
of producing the gas has increased so dra-
matically that it warrants a major increase in
domestic natural gas prices
"It is true that rig costs have increased
astronomically, but the reality is that it is still
a lot cheaper to explore on the continental
shelf, which is where bpTT is located. It is
also true that BP has old platforms that need
costly maintenance, but you know what a lot
of that cost will be written off and the taxpayers
will pick up the bill. So I believe that if the
largest supplier of natural gas wants higher
prices, then it should demonstrate to the NGC
why this is warranted since there are impli-
cations for the downstream, the NGC and the
Changing the conversation
In a luncheon with journalists last week
Monday, bpTT s chief executive Norman
Christie said the Government needs to provide
incentives to upstream producers to encourage
them to undertake the expense of exploring
for energy reserves in T&T.
Christie said: "Not just the fiscal conver-
sation, there is a margin conversation which
I was alluding to which will relate to contracts
where it makes sense."
He added, "What we are looking at, to be
fair, is if this conversation was reported the
wrong way, people may think that we are say-
ing to the Government go and lower your taxes
so we can invest.
"We are not saying that. What we are saying
is that there is this pie with different parts,
fiscal being a piece, the margins we get being
another. So the same way we will have con-
versations with the Government about the
fiscal regime, we will have conversations with
those players about competitiveness and mar-
gins. We will say if you want to remain a com-
petitive industry, the upstream needs to be
incentivised to continue to deliver the gas you
need. How do you go about this?"
Upstream refers to the companies that
explore for and produce oil and natural gas,
while downstream refers to the companies
that use the natural gas.
Asked if this meant that NGC should get
a smaller take of the profits from natural gas,
Christie said the establishment of the down-
stream companies using natural gas initially
led to the NGC taking a great deal of the risks,
but that changed.
"This is the way we think about it: The
returns should be commensurate with the risk
that people are engaging in. In our estimation,
right now there is an imbalance and it is not
by anybody s fault. When they (NGC) were
initially established, it actually made sense
then. If you think about the risk then, when
peole thought gas was a by-product,the risk
profile for the upsteam player is radically dif-
ferent from what it is now. We had this gas
which we did not know what to do with and
the person arguably taking the greatest risk
at this time was those in the offtake."
Responding to changing
Ian Welch, managing director of PCS Nitrogen
Trinidad, said the most important thing in
ensuring that the NGC, the Government, the
upstreamers and downstreamers all benefit and
T&T remains competitive, was a willingness
by all parties to be responsive to the changing
"I think responsiveness is the key word in
all of this. We will also have to be prepared to
respond to the shifting global environment if
it is going to be a win-win situation. It is the
only way to move forward, in my view. I am
not saying we are not responsive now, but what
I am saying is that we will have to be able to
deal with changes as they come along."
Asked if he was suggesting moving away
from fixed contracts and was suggesting a
system of commodity linked natural gas pricing,
Welch said that was only one way to deal with
the matter, but stressed there were many alter-
Return to shareholders
The president of one of the largest gas users
in the country told BG he did not want to go
on the record, but said there is widespread
concern about what higher gas prices from
bpTT could mean for the wider industry.
He said every company in the sector was
in the business to make a margin and if the
margin was not high enough, then there is no
business. He said the concern is made worst
when there are businesses whose margins
make it difficult to meet its capital and oper-
ational expenditure while, at the same time,
ensuring there is a return to shareholders.
"At the moment, the value chain is divided
upstream, downstream and the NGC in the
middle. If you jack up the price of natural gas
too high and the downstreamers can t sell into
a captive market, then they, too, will drop out
the system. It must be transparent enough
and competitive enough that no one party is
getting more out of the system than the other
and it is fair to all concerned."
The president said at present, there is a
model in which the NGC is the middle man
who also has to earn a margin. He said what
is required is a system in which the entire
value chain can be maintained.
Dr Thackwray Driver, president of the Energy
Chamber, said while there are a number of
different contracts in place between upstream
producers and the NGC and between the NGC
and the petrochemical producers downstream,
each contract has different pricing formulas.
He said the industry has to find the right for-
mula across all of the various contracts if the
entire industry is to remain sustainable.
"No one part of the value chain can survive
without the other parts of the value chain.
Finding the right marketing arrangement is a
difficult, but not impossible, task."
He said there were different types of risk
that effect different parts of the value chain.
He said the upstream sector faces some risks
which other parts of the value chain do not
face, in particular, geological risk, and currently
the upstream sector has found itself in a posi-
tion when potential investments cannot be
sanctioned as they do not meet their company s
internal hurdles for adequate projected returns
at specific risk profiles
"The structure of the T&T gas market has
evolved in the past and will continue to evolve
in the future. That process of evolution and
adaptation in the past allowed us to build a
world-class gas industry.
"To sustain that success, we will have to
continue to change and adapt to ensure that
the gas industry is globally competitive. There
is no one model that will solve all of the issues
facing the industry."
bpTT must prove cost hike to
justify higher price demand
Canada's crude output will more than double to
6.7 million barrels a day by 2030, with almost all
the growth coming from Alberta's oil sands, an in-
dustry group representing the country's petro-
leum producers said.
Oil sands production will rise to 5.2 million bar-
rels a day by 2030 from 1.8 million currently, the
Canadian Association of Oil Producers said in its
2013 annual forecast. More transportation such
as pipelines and rail is needed to move the rising
output, the group said.
"Given the growing production outlook, the
need to reach new markets is a top priority for
Canadian oil producers," CAPP said in the report.
"Western Canadian supplies are essentially land-
locked and will need additional transportation in-
frastructure to bring this growing oil supply to
Canada holds the world's third-largest oil re-
serves, behind Saudi Arabia and Venezuela, and is
the sixth-largest oil producer in the world, accord-
ing to the BP Statistical Review of World Energy.
The majority of the reserves are held in the oil
sands in northern Alberta.
The CAPP forecast for 2030 increased by
500,000 barrels a day from last year's, due to
projections of more growth from oil sands and
shale oil. More production from oil-sands steam-
injection projects offset a decline in mining proj-
Markets for Canada's growing heavy oil pro-
duction will primarily be found in the US Midwest
and Gulf Coast, with the opportunity for new
markets in Asia, CAPP said. Some output can
also displace overseas oil imports at refineries in
Quebec and on the US West Coast, the organisa-
By 2020, Canadian producers could potentially
supply an extra one million barrels a day to the
US Gulf Coast and an additional 460,000 barrels
a day to the US Midwest due to crude conversion
projects at refineries there, CAPP said.
Some 700,000 barrels a day of crude imports
at plants in Quebec and Atlantic Canada could
also be displaced by growing domestic supplies,
CAPP said, and declining overseas sources cur-
rently supplying Washington state and California
could also be replaced by Canadian supplies.
Canada could also tap into increasing oil de-
mand in Asia, including China and India, CAPP
said. Canadian regulators are reviewing plans for
Enbridge Inc's Northern Gateway pipeline and
Kinder Morgan Inc's Trans Mountain expansion,
both of which would send Alberta crude to British
Columbia for shipment to Asia. (Bloomberg)
output to double
by 2030 on oil
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