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    Trinidad LNG: caught in the middle [NGW Magazine]

Summary

Falling reserves and stiff competition from other LNG sellers point to difficult times ahead for Trinidad & Tobago, despite the gains made since 2017.

[NGW Magazine Volume 4, Issue 3]

by: Pietro Pitts

Posted in:

Featured Articles, Americas, Premium, NGW Magazine Articles, Volume 4, Issue 3, LNG

Trinidad LNG: caught in the middle [NGW Magazine]

The twin-Caribbean-island nation Trinidad & Tobago continues to fight a three-pronged battle at home to stop declines in natural gas reserves, production and LNG export movements.

It is caught between the ongoing shale revolution to the north in the US and another in its early stages and gearing up to really blast off further to the south in Argentina. 

The combination of these elements, related among other things to fiscal policy and waning investment in the gas sector, is threatening the livelihood of the country’s 1.4mn inhabitants, who depend heavily on gas supply and LNG exports for prosperity.

The private sector and the government have seen some of this coming and been talking about ways to keep the industry going strong, but so far without a plan.

Trinidad ranked seventh worldwide in terms of nominal liquefaction capacity in 2015, at about 15.3mn metric tons/year (mt/yr), and maintains the largest capacity in the Latin America and Caribbean region, followed only by Peru with capacity of 4.5mn mt/yr, according to the International Gas Union.

Despite its liquefaction capacity, Trinidad’s gas reserves are modest in comparison to other neighbours in the region, trailing Venezuela, Peru, Brazil, Argentina and Bolivia in that order, and ahead of only Mexico and Colombia, which produce mainly crude oil.

Trinidad’s gas reserves reached 9.2 trillion ft³ in 2017, according to BP’s Statistical Review of World Energy. The last time the country’s gas reserves were this low was in 1993 when they stood at 7.9 trillion ft³. This compares to 10.3 trillion ft³ in 2016 and 16.5 trillion ft³ in 2007. Trinidad’s gas reserves peaked at 20.8 trillion ft³ in 1999, according to BP. 

“Trinidad had a high level of exploration success from 1996 to 2006, with 1.2 trillion ft³ of gas discovered on average each year. During the same period, average gas production was 0.7 trillion ft³/year, which gives a replacement ratio of 175%,” Schreiner Parker, Rystad Energy’s vice president for Latin America, told NGW. “From 2009 to 2015, exploration success has been limited, which has resulted in a very low replacement rate. However, recent exploration successes by BP and BHP in the 2016 to 2018 period has dramatically improved the  replacement ratio ”

Trinidad’s gas production has followed a similar downward trajectory, reaching 3.3bn ft³/day in 2017, compared with 3.7bn ft³/day in 2015, and a peak of 4.2bn ft³/day in 2010, according to BP. Trinidad’s gas production was just 1.1bn ft³/day in 1999, the year its gas reserves peaked. Falling gas reserves and production has pulled down Trinidad’s reserves-to-production ratio, a parameter used to gauge the remaining lifespan of reserves given the current production rate, to 7.7 years.

“Trinidad’s gas production has declined by about 25% since 2013 and is likely to continue to decline. However, the outlook has improved since 2017, with Juniper, Trinidad Onshore Compression and Iguana coming on stream. In addition, the sanctioning of Angelin, Cassia compression and Matapal will further partially offset decline in the near term,” according to Parker. “The underlying decline of already producing fields is 12% over the period 2016-2030, and there is not sufficient resources currently being developed to offset this drop.”

Trinidad’s ministry of energy and energy industries (MEEI) did not reply to requests for comments, but recent comments from the Energy Chamber, a trade association representing the energy industry in Trinidad & Tobago, are somewhat optimistic.

Trinidad’s gas production trended upwards in 2018, after years of falling after the 2010 peak. The energy sector is predicted to make a modest recovery in 2019, on the back of increased gas production and increased LNG and petrochemical exports, Energy Chamber CEO Thackwray (Dax) Driver wrote in an opinion article published on January 6.

“Current gas production projections indicate continued growth through 2021, when it is expected to reach 4.14bn ft³/day, meeting expected demand from existing plants,” Driver wrote. “With existing wells showing average annual declines in production of approximately 12% to 15%/year, the increase in gas production is expected to come from new fields, in addition to compression projects and additional development drilling from existing platforms.”

Despite a more optimistic outlook compared to 2017, Trinidad should seek opportunities to boost additional gas supply to meet demand. Such opportunities could exist through the development of marginal fields; infrastructure lead exploration; and deepwater exploration. The last of which houses the largest resource potential, said Parker.

US shale threat

Atlantic LNG Company of Trinidad & Tobago operates and manages a four-train liquefaction facility located at Point Fortin on the southwest coast of Trinidad. The facility is capable of producing up to 100,000 m³/day of LNG and also produces natural gas liquids (NGLs).

Train 1, which had an initial capacity of 3mn mt/yr (since increased to 3.3mn mt/yr, according to the IGU), started commercial operation in 1999, and was the first LNG facility to operate in the Atlantic Basin, and the second in the western hemisphere. Trains 2 and 3 had identical initial capacity of 3.3mn mt/yr (now 3.4mn mt/yr), and started commercial operation in 2002 and 2003, respectively. Train 4, which had an initial capacity of 5.2mn mt/yr, started commercial operation in 2007.

According to the US Energy Information Administration (EIA), US imports of LNG from Trinidad started in 1999, at about 1.435bn m³. Trinidad’s LNG exports to the US peaked at 13.085bn m³ in 2004, before falling to 2.193bn m³ in 2017. In the first ten months of 2018, Trinidad’s LNG exports to the US were close to 1.451bn m³, and extrapolating the data, exports could potentially reach 1.791bn m³ for the full year. 

If the figure holds, it would represent a year-over-year decline of around 18% and a decline of 86% from the 2004 peak. Furthermore, US imports of LNG from Trinidad are also on track to reach the third lowest level on record since 1999.

“The shale revolution has virtually eliminated our need for gas imports, and we have begun to export some of our gas,” the American Petroleum Institute (API) says. 

In essence, the shale revolution has allowed the US to quickly transition from being an important LNG customer for Trinidad to a LNG supply competitor. 

Initial exports of LNG from the Lower 48 US states started in February 2016, and since have grown to shipments to 29 countries in Europe, Asia and South America, according to cumulative data compiled by the US Department of Energy (DOE) through October 2018. South Korea, Mexico, China and Japan have been the four biggest buyers, collectively receiving 301 cargos with 1,030.9bn ft³ of US gas or 59.1% of the US’ total LNG exports, according to DOE data.

The reduction in Trinidad’s LNG movements to the US market is big enough to cause concern, but when coupled with similar downward movements to other once-key markets, the erosion of Trinidad’s LNG market share is massive.

“Trinidad’s LNG developments will compete head-to-head for gas supply with the country’s petrochemical developments as large oil and gas companies in the country continue to push for its use for export, while politicians push for its use by the industrial sector,” Gas Energy Latin America’s managing partner, Antero Alvaro, told NGW

Of particular concern for Trinidad are US LNG shipments to Spain, Chile, Brazil and Argentina, since the latter three countries have in the past represented almost guaranteed end markets for Trinidad’s LNG in South America.

According to BP data, Trinidad’s movements of LNG to Spain were down 86% to 0.6bn m³ in 2017 from a peak of 4.32bn m³ in 2009, amid the European country’s declining demand.

In South America, the construction of renewable energy capacity in Chile helped cut imports of LNG from Trinidad to 3.5bn m³ in 2017 from a peak of 3.8bn m³ in 2015; in Brazil, developments related to increased output from pre-salt fields reduced LNG imports to nil in 2017 from 2.5bn m³ in 2013; while in Argentina, gas production from the Vaca Muerta shale formation and more pipeline imports from Bolivia and LNG imports from other countries, reduced imports from Trinidad to 0.7bn m³ in 2017 from a peak of 3.7bn m³ in 2012. 

Based on these data trends, Trinidad’s reign as the largest and unchallenged LNG exporter in the Latin American and Caribbean region is tottering. Furthermore, ongoing development of Argentina’s shale resources allows the possibility for it to compete directly with Trinidad’s LNG supply market in the Southern Cone region, putting additional pressure on the island nation’s market share.

Falling off Mt Trinidad

Argentina is one of only four countries – the others being US, Canada and China – that commercially produce natural gas from shale. While Argentina holds the world’s second largest recoverable shale gas resource, at 802 trillion ft³, the South American country’s shale boom is still in its early years. 

Continued development of Argentina’s shale resources, primarily in Vaca Muerta, will allow the country to multiply its gas reserves and fulfill its energy demand for 150 years, according to Argentina’s industry ministry.

Argentina, which restarted gas exports to Chile in 2018, also expects to be a net exporter of gas by 2021 (see separate feature). These plans will not only jeopardise Trinidad’s LNG market share in Chile, but will likely put pressure on Bolivia, which now pipes gas down to Brazil.

Venezuela, which is home to the world’s eighth largest natural gas reserves, holds significant gas reserves offshore which could supply neighbouring Trinidad and assist the country with meeting domestic demand and boosting LNG exports.

However, the multiple crises crippling Venezuela, coupled with a near complete collapse of its oil sector, oil production and investor confidence, could complicate free flowing Venezuelan gas supply to Trinidad, despite a gas sector that operates somewhat differently in terms of laws. 

“Trinidad must improve the commerciality of its projects. Neutral taxes would lower breakeven, upstream risk and encourage investments. A more tax neutral system could encourage oil exploration and increase associated gas production from oil fields,” concluded Rystad’s Parker.

Significant challenges continue to confront Trinidad from under-investment in its upstream gas sector to declining production post 2019, unless significant new gas fields are sanctioned for immediate development. The end effect has already produced lower utilisations at Atlantic LNG and a strangling effect on the nation’s petrochemical sector and its methanol plants.

These combined threats, characterised a few years ago by Rystad Energy’s former regional head Kjetil Solbraekke as ‘falling off Mt Trinidad,’ need to be immediately addressed by the government to stop the inevitable: a near complete collapse of the nation’s gas-driven sectors at home and abroad.


MCDERMOTT AWARDED T&T EPC CONTRACT

US engineering company McDermott has been awarded the engineering, procurement, construction, hook-up and commissioning of the Cassia C topsides, jacket and bridge, which will form a new offshore facility 35 miles offshore Trinidad & Tobago, the company said January 24.

The award is part of the Cassia compression project, which is intended to stabilise the supply of gas to Atlantic LNG and other downstream customers. Cassia C will receive 1.2bn ft3/day of gas through new piping across a bridge constructed between Cassia B and C, McDermott said. The gas will go through three gas turbine compressors before being returned to Cassia B for export.

Atlantic LNG comprises four trains with total capacity of 15.3mn metric tons/yr built between 1999 and 2006. Exports from Atlantic LNG were 10.81mn mt in 2017, up slightly on 2016, after four years of decline from the 14.63mn mt produced in 2013, according to International Gas Union data. Trinidad & Tobago's gas production peaked in 2010 at 4.2bn ft3/day but fell to 3.2bn ft3/d in 2016, improving slightly in 2017 to 3.3bn ft3/day, according to BP.

BP Trinidad and Tobago sanctioned the Cassia Compression project in December. The new offshore facility will enable BPTT to access and produce low pressure gas reserves from currently-producing fields in the Greater Cassia Area, maximizing recovery from existing resources, the company said in December. First gas from the new facility is expected in 3Q 2021.

BPTT also sanctioned the Matapal project in December, which will develop gas resources discovered by BPTT in 2017. The project will be a three-well subsea tie-back to the existing Juniper platform with production capacity of 400mn ft3/day. First gas from Matapal is expected in 2022.

McDermott will fabricate the Cassia C compression platform at its facility in Altamira, Mexico. The topsides will weigh 8,100 mt, the jacket 3,400 mt and the bridge 720 mt. The EPC contract follows a detailed engineering and long-lead procurement services contract which McDermott completed for Cassia C earlier this year.