Home' Trinidad and Tobago Guardian : December 5th 2013 Contents DECEMBER 2013 • WEEK ONE www.guardian.co.tt BUSINESS GUARDIAN
ENERGY | BG9
Last week's deal between the United
States and Iran on the Islamic coun-
try's nuclear ambitions is likely to
lead to softer oil prices in 2014, but
not a slump according to energy
economist Gregory McGuire.
In an interview with the Business Guardian,
McGuire said the return of Iran will have the
effect of lower oil prices, but he did not expect
a sharp fall in the commodity.
"Once Iran comes back fully into the market,
it is definitely going to weaken prices if everyone
else continues to run flat out. However, I expect
the Saudis to cut back on production, if required,
to support a higher price. So while there is
likely to be some softening of prices in the
medium term, it will stabilise."
Under the interim deal, oil exports from the
Islamic republic will be held to about one million
barrels a day under sanctions that remain in
force. The six-month agreement, which offers
Iran about US$7 billion in relief from sanctions
in exchange for curbs on its nuclear programme,
leaves in place banking and financial measures
that have hampered the OPEC member's crude
exports. Sanctions on sales of refined products
also remain, while Iran gains access to US$4.2
billion in oil revenue frozen in foreign banks.
Buyers of Iranian crude that have reduced
purchases won't be required to make further
cuts over the next six months under the accord.
As part of the deal, the European Union will
lift a ban on insurance for tankers transporting
Iranian oil, making it easier for the Persian Gulf
nation's six remaining international customers
to take delivery. The EU will continue to prohibit
crude imports from Iran.
Brent crude prices slumped on the first day
of trading since the deal while West Texas Inter-
mediate also fell in trading in New York, but
McGuire said there is no need for the Finance
Minister Larry Howai to be particularly wor-
He said, "As indicated above, I expect the
Saudis to step in if prices dip too much. But
too much and too little are relative terms. You
must recall that, traditionally, the Saudis have
supported moderate price increases. As holders
of the largest reserves, it is in their best interest
to ensure the world continues to consume oil.
High prices improve the commercial viability
of alternative energy technologies. So expect
no intervention until prices dip somewhat. I
think US$80-US$90 will be their range."
BP's chief economist Christof Ruhl said in
an earlier interview he did not expect the freefall
of crude prices to recur as in did in the 1980s.
He said the concept of supply and demand
does not work perfectly in the oil market because
of the OPEC cartel's ability to intervene and
He pointed to the increase in US crude pro-
duction as an example where over the last two
years the US had increased its crude production
by close to 2.5 million barrels of oil per day(
bo/d) due to its success in drilling and producing
"tight oil". He predicts the US will eventually
produce in excess of ten million bod/d.
Ruhl said this would mean the world's largest
consumer of energy and energy products would
find itself being able to meet most of its needs,
which had implications for global supplies.
Ruhl said should there not be supply cur-
tailment due to geopolitical factors, he expects
the world could have as high as six million
bo/d in spare capacity, but insisted the cir-
cumstances were different now to the 1980s
and 90s and will not lead to a freefall of crude
"The normal reaction of a market to addi-
tional supplies in the order and magnitude
which we have seen with tight oil would, of
course, be that prices go down. But the oil
market is not an ordinary market. And why
not? Because it has OPEC in it and OPEC acts
as a cartel, which has its own ideas about how
to manage supplies. So in oil markets, the
question of the price impact of tight oil, when
you take out all the geopolitical factors, trans-
lates smoothly into how OPEC will react. think,
on balance, we have reasons to assume that
OPEC is capable, willing and able to cut sup-
plies to neutralise this additional supply."
McGuire explained that moderately lower
prices next year could help Petrotrin, which
imports 66 per cent of its crude for refinement.
He said the refinery business remains tough
and Petrotrin will have to improve its effi-
"The refinery business is always a low margin
business, unless you are in the top quartile of
refineries. So in a falling crude oil price envi-
ronment, where the fall is coming from the
supply side, there should be an improvement
in margins. Petrotrin's problems go beyond
the business of Iran and changes in the global
supply environment. What is really most
important is getting operating efficiency out
of an old refinery. That is really a difficult task
in the best of market conditions."
Petrotrin made a loss in its 2012/2013 oper-
ations mainly based on the performance of
Iran and US
nuclear pact to
soften oil prices
Crude oil production is likely to hold in the vicinity of 80,000
barrels of oil per day (bo/d), according to leading experts in the
local energy sector.
Petroleum consultant Dr Krishna Persad and energy consultant
Helena Inniss- King told the Business Guardian it appears that
the decline in oil production has been halted.
As of September, oil production has averaged 81,172 bo/d with
58,256/bo/d coming from offshore, while 22,916 bo/d coming
from onshore. Of the onshore production, 7,020 bo/d being pro-
duced by lease operators and farm out operators.
Inniss-King said, "I see production holding at around that
number or increasing slightly, given a number of scenarios. You
need to look at bpTT's platforms; are they all back on production?
You need to look at Trinmar. Does Trinmar have a comprehensive
development programme to address the southwest Soldado field.
Repsol is undertaking some development drilling, which would
affect production, if successful."
For Persad, it is the independents and lease operators who
have been keeping the oil production from falling further. He
claimed that Petrotrin is holding on the acreage that can, at best,
be considered marginal fields.
"We have already seen that these smaller companies have been
the ones that have taken over the mantle of leadership in land
and near-shore oil production within the last twenty years,"
It is a view shared in part by the Energy Chamber, which noted
that the smaller operators have been successful in maximising
In an e-mailed response to a number of questions from the
Business Guardian, the Energy Chamber wrote: "It is notable
that the smaller independent oil companies have had the greatest
success in increasing oil production, mainly from old marginal
oil fields. This increase in production is the result of significant
new investment from these companies and aggressive drilling
and work-over campaigns. Independent oil companies hold the
key to increasing oil production from the mature acreage."
Persad added that enhanced oil recovery could lead to significant
amounts of oil still in the ground being economically brought
to the surface.
"There is, however, potential for as much as three billion barrels
of oil which are known to exist in the more or less depleted
oilfields that have been on production for many years, some more
than 100 years. The vast majority of these oilfields have seen no
enhanced oil recovery and yet they have together produced almost
four billion barrels of oil to date. Reservoir engineers advise us
this means about 12 billion barrels have been left behind in the
ground, with all of the infrastructure still in place and that perhaps
another three billion barrels are economically recoverable at
Persad said this is the quickest way to increase crude produc-
However, Inniss-King, who is president of the Geological
Society of T&T, said what is really required are new discover-
ies.She explained, "There are no quick fixes for T&T's oil industry.
What we need are new reserves and we have not had any significant
discoveries since BHP's Angostura field. To explore, appraise,
and develop take from six to ten years in the offshore area, if
there are no facilities and two to three years onshore. So given
that we have had no recent discoveries, do the math."
She said Petrotrin had acquired a 3D seismic survey on land
that is being interpreted.
Inniss-King added that Petrotrin was mobilising to acquire
3D seismic in the Trinmar acreage, but it is just the beginning
of the process.
She said talk about the use of the country's billion barrels of
heavy oil will take time and while there are companies interested,
it will also take time to develop properly as Petrotrin will not
have the resources to do so.
The Energy Chamber has praised the fiscal measures adopted
within the last couple of years and said continued reform will
lead to increased drilling which has the potential to increas pro-
"The current high levels of drilling and related activity in the
T&T upstream sector bodes well for the continued stabilisation
and eventual increase in overall oil production. The increase in
upstream activity has come about as a direct result of the significant
fiscal reforms introduced in the past three successive national
budgets and is a good leading indicator of future increases in oil
production. However, to further increase oil production, continued
reform is needed and acreage must be made available to the
companies best able to invest in new production," the Energy
The chamber said Colombia provides an excellent model for
T&T and indicates how structural reforms to the oil sector can
result in significant increases in oil production, even in mature
Energy experts say oil production decline has halted
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