Facilitate progress in TrinidadJune 4, 2018
David Small, an independent senator in Trinidad and Tobago, talks to TOGY about the government’s role in the oil and gas industry, upstream and downstream challenges, opportunities for growth related to the Guyanese and Venezuelan markets, and areas where productivity and efficiency can be improved.
• On GTL prospects: “Rather than sell diesel to markets where you have to accept a lower price because of the quality of the diesel, you could take the GTL, add it to your diesel and go to a higher-priced market.”
• On opportunities in Guyana: “There is a huge opportunity for the service-level industry in Trinidad and Tobago to get business in Guyana. That country has no history of oil production, so it understands there are structures with which it will need to become familiar to manage the industry.”
• On competitiveness: “Employee productivity is a national issue. Workforce productivity is not what we would like it to be. We need to figure out a way or strategy to improve that, as it has a direct impact on efficiency and competitiveness.”
Most TOGY interviews are published exclusively on our business intelligence platform, TOGYiN, but you can find the full interview with David Small below.
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What has impeded local companies from entering the oil and gas industry?
It’s always been government policy to approach E&P investments as a facilitator and allow the bigger players with the deeper pockets to enter. We are very small globally. Even at the height of our production in the 1970s, we produced 250,000 bopd. Even if you had one company in Trinidad doing all of that, it would have been small.
Moreover, because of the fact that the oil and gas industry is speculative and you need to spend money in the hopes of making money, government policy has been to manage a contracting structure that allows these companies to take the risk. The government gains its shares based on the producers’ revenues. That has been the accepted policy and approach of successive administrations for the longest time.
Petrotrin is an amalgam of all Shell and Texaco assets, acquired when those companies left Trinidad and Tobago. Managing those assets is becoming a real challenge for Petrotrin, which is strapped for resources.
What are the biggest challenges to making the domestic upstream sector more efficient?
The Trinidad and Tobago government doesn’t have any significant ownership over production assets in the upstream. We have a share in production-sharing contracts, but the government tends to take its share of production in cash, as opposed to actively taking a product and marketing it.
Once a block is awarded, if the contractor does not find anything commercial after a period of time, they will have to give up bits and pieces of the block going forward for the term of the contract. BP sits on a contracted E&P area of around 400,000 hectares [4,000 square kilometres] of acreage, with perhaps 20% under active use. On the other hand, you get a PSA for a period of time and if it’s not successful, you give it back and allow other parties that may find it interesting to have a go. Under the E&P contract, you can keep a block for the whole life of the contract. Those are just the two basic differences.
For the government, that may not be an ideal structure that it has been working under. We should constantly look at the models used to make sure they are the most efficient going forward.
How can the downstream sector become more competitive?
Natural gas is used downstream for ammonia, methanol and urea. Those products are sold in highly competitive international markets.
NiQuan is going to build the GTL project that will produce GTL diesel, which is a relatively unique product in the world. A small number of companies produce it. That diesel is so clean that it will allow for blending with low-quality diesel to be able to meet environmental standards in North America and Europe. The GTL product will allow for NiQuan to improve their buyers’ product and access those markets. There’s an opportunity for that, and it will make the diesel product from Petrotrin more competitive.
Rather than sell diesel to markets where you have to accept a lower price because of the quality of the diesel, you could take the GTL, add it to your diesel and go to a higher-priced market.
Can Trinidad and Tobago compete with the USA in ammonia production?
There is no competition with the US. Trinidad is the number one exporter, not producer, of ammonia in the world. There’s a big difference.
We are a small island nation. We happen to have a good competitive advantage in producing petrochemicals such as ammonia and methanol. Ammonia gas has done very well, to the extent that if there’s any growth opportunity and someone wants to expand current production or new investors come in, the government will make the decision because it’s not just that somebody wanted to build a plant. If you want it, you have to go through the process and get the government approval.
If we add additional product from Trinidad to the market, will it depress market prices? Does that hurt the industry? Those are the types of questions that will have to be asked and answered before the government will approve a new project. Maintaining market share is about making sure that you are producing ammonia you can sell at a price that covers your costs and delivers a return.
How are current relations between Trinidad and Tobago and Guyana?
Trinidad and Tobago has always had a very good relationship with Guyana. The ministers of energy from both countries visit each other. Guyana has become a fantastic opportunity for productive fields discovered by ExxonMobil.
There is a huge opportunity for the service-level industry in Trinidad and Tobago to get business in Guyana. That country has no history of oil production, so it understands there are structures with which it will need to become familiar to manage the industry. It will take Guyana some time to come up with that.
I’m sure the Trinidadian government will offer Guyana some type of technical advice and expertise. The Guyanese government may not even need that much from Trinidad. If Guyana needs Trinidad, then Trinidad will step up to the plate.
Will cross-border projects involving Venezuela and Trinidad and Tobago advance?
Venezuela is our neighbour. We understand Venezuela has economic challenges, but so do a lot of other countries. We have to try and see if we can make something happen; that’s the approach of our government. We think there’s an opportunity that could work for both of us. Venezuela has the gas, and the infrastructure is on our side. If it works, you’ve got a new stream of revenue available to their government. I see that as a win-win.
Whether it will be easy to get over the humps in terms of administrative and legal work, we need the assessment of the technical teams working on it. The engineering is the easiest part.
Where can Trinidad improve efficiency in its energy industry?
Employee productivity is a national issue. Workforce productivity is not what we would like it to be. We need to figure out a way or strategy to improve that, as it has a direct impact on efficiency and competitiveness.
Another challenge is in terms of people getting the right set of skills and matching skills to the market. Thousands of Trinidadian citizens are trained in engineering, geophysics and geosciences. Are we properly using the talent at home and understanding the needs of the industry? What do they need going forward to continue to keep these operations going and provide growth? There needs to be some type of comprehensive survey or strategy to understand the needs of the industry.
We don’t know where the gaps are, or the overflow, because we don’t have the data. We have a huge data gap in understanding our own industry, which I think is an indictment of how we have developed. We have not focused on some of those details. Now that we’re getting to a stage where the industry is focusing on managing its workforce better, we can dive into this.
What opportunities will become available to Trinidad and Tobago in the next couple of years?
For Trinidad, the opportunities in the marketplace exist all around, but it is a small island state. We have institutional challenges within the country and the way in which we do business. We have more than 100 state enterprises. Do we need the state enterprises now? Could these activities not be transferred to the private sector?
The big problem is job losses, because the government is the largest employer. These are tough decisions that are going to have to be made. This current status harms taxpayers and doesn’t deliver real results. We need to have public conversations about the role of the state in the economy.
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