It is a challenging time to be in the natural gas business.
That challenge is exacerbated when the place is Trinidad and Tobago.
Just ask energy company bpTT's president Norman Christie.
Even as he affirmed his company's commitment to the country last week, he posits that with the Henry Hub price for natural gas hovering around US$2, the increasing cost of doing business and smaller pools of available natural gas all make it difficult on exploration and development costs for energy majors operating in the country.
His factual simplification, when he spoke to reporters last week at bpTT's offices in Port of Spain, lead him to conclude that bpTT, as well as other upstream companies in T&T, are operating in a "challenging environment".
Cognisant of the impact of shale gas and LNG production, Christie explained that the environment is impacting bpTT's investment in its upcoming Juniper development.
Christie pointed out that for previous bpTT's oil and gas exploration investments, such as Serette and Cannonball, reaching an investment decision was easier.
That's not the case for Juniper, the upcoming development off T&T's southeast coast.
What would've been a "slam dunk" a few years ago, he said, "is simply not the case now".
"It's much harder to reach investment decisions even on pool sizes we would consider relatively large. I mean Juniper is more 1.2-1.3 trillion cubic feet (tcf) range. A few years ago, you'd have considered it a slam dunk investment. But costs have escalated and where you consider where natural gas prices are, it's not as much as a few years ago. There'll be a number of fields like this, not just for us but for other upstreamers as the environment has changed," he said.
Christie also explained that, in the short term, bpTT would not be able to maintain what was described as "cushion" gas.
BPTT's "cushion" gas amounted to 400 million standard cubic feet a day, which he'd explained worked out to about 60,000 barrels of oil equivalent.
"As cost increased and prices softened, the economics of maintaining that cushion gas couldn't be maintained so intentionally, we had to lessen the amount of extra gas that we carry," he said.
He further explained that T&T's demand/supply estimates changed over time with the expectation that there would be extra supply than demand in the country.
He observed that while contracts were signed, plants weren't built and the expectation of supply led bpTT to "adjust our plans as well". "What you have is a convergence of issues here. Our intention to reduce our cushion gas, the expectation that there'd be extra supply from others because there's more supply than demand and then the fact that we engaged in (a) maintenance programme," he explained.
This led to a 15 per cent short fall of gas supply to Point Lisas and LNG producer Atlantic.
"That's what they could take versus what they're getting," he added.
He observed that bpTT made a choice to "short" Atlantic, of which it has a major interest, to ensure that there was not a disproportionate shortage of gas in the downstream.
That cushion gas, he said, is simply not around anymore.
"Most of the maintenance will end by 2013 and we expect a normal state by 2014. But a more normal state does not mean the same level of cushion has we used to have. The economics of getting back to 460,000 bpd has gotten harder," he stated.
He explained that while bpTT's been able to mitigate some of the impact of the fluctuating natural gas price by diverting cargoes, it's still subject to low prices.
T&T's energy sector has been in sharp focus in both the International Monetary Fund's (IMF) report and the Central Bank's April Monetary Policy Report.
Central Bank Governor Ewart Williams had noted that: "According to available information for the first quarter of 2012, crude oil output continued its declining trend, falling by some 13.8 per cent below first quarter 2011. Lower output by bpTT as a result of ongoing maintenance operations was the main contributing factor. Lower crude oil production also contributed to a 15 per cent decline in the output of refinery products. Output of natural gas was 15.5 per cent lower than in the first quarter of 2011."
Williams said that producers in the energy sector were complaining that the chronic imbalance in gas supply is forcing major underutilisation of plants on the Point Lisas Industrial Estate which are having serious effects on competitiveness. For instance, it led to the shut down of the Yara ammonia plant in October 2010.
For his part, Christie said the Ministry of Energy was aware of its comprehensive maintenance operations which followed the Gulf of Mexico oil spill in 2010.
"We are the biggest player. We informed them," he stated.
Observing that the energy sector accounts for 44 per cent of nominal GDP, the IMF noted that the energy sector is poised to recover but it is also facing significant risks.
"Notwithstanding a number of setbacks in recent years, natural gas output is expected to rebound in 2012 as upgrade and maintenance work in the upstream sector is completed. The petrochemical sector is also forecast to resume operating at more normal levels with a recovery in the availability of gas," it observed.
The IMF concluded: "Over the longer term, increased exploration in Trinidad and Tobago could reverse the downward trend in oil and gas reserves. However, uncertainties in the global gas market, on account of the potential of rapid growth of shale gas production worldwide, pose a challenge for the development of longer-term investment plans."
In 2012, bpTT has ramped up its investment in the energy sector.
Chiristie said bpTT intended to spend US$900 million in 2012 in T&T inclusive of a US$250 million seismic survey of its acreage to scout new opportunities. The company also hope to add 60 employees to staff.
In addition, bpTT will drill between seven to eight wells which Christie observed is a significant change from the last three years as the company was actively working on reserve replacement.
For bpTT, it will have rigs in operation throughout 2012 which hasn't happened since 2009.
Christie pointed out while T&T can be classified as a declining province by definition, there's still a chance to offset that with the new deep water exploration. At the moment, he said the company was simply evaluating the blocks which were put out for bid.
All investments, said Christie, are to maintain the level of supply as cushion gas takes a while to build up.
key facts and figures
BPTT holds exploration and production licenses covering 904,000 acres in marine areas off Trinidad and Tobago's east coast. Our average production in 2008 was 457,000 barrels of oil equivalent per day, comprised of oil, NGL (natural gas liquids), and gas production. The company's strategic intent is to be able to safely and reliably produce 500,000 boed over the long term.
Type of licence:
Exploration and Production.
Area of operation:
904,000 acres off Trinidad's east coast.
12 offshore platforms and one onshore processing facility.
457,000 barrels of oil equivalent a day
40 per cent to NGC60 per cent to Atlantic