Natural Gas in Trinidad and Tobago

Context (What is the problem?)

Trinidad and Tobago has a problem. The main driver of its economy is natural gas production. In Trinidad and Tobago, natural gas is used to produce LNG, methanol and ammonia and generate all the electricity. The 218% increase in natural gas production from 1999 to 2008 led to a quadrupling of Trinidad and Tobago’s real Gross Domestic Product making it the richest country in the English-speaking Caribbean. After 2008, natural gas production hit a plateau and since 2011, it’s been in decline. What then is the problem?

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Trinidad and Tobago has four LNG trains, twenty world scale petrochemical plants, five power plants, and 1000 kilometers of natural gas pipeline. What then is the problem? The problem is all this infrastructure is running short of natural gas. The problem has been there since late 2010 and has gotten progressively worse. For 2016, the LNG and downstream plants are running at an average of 22% below their contracted demand. The total natural gas sales on the island are 3.2 billion cubic feet per day and the total contracted demand is 3.9 billion cubic feet per day (that’s 22% less).

This means loss of revenue, loss of foreign exchange earnings, shrinkage of the economy, and loss of jobs. It has reduced LNG exports by 15.5 %, when 2015 data is compared to 2010 data. For ammonia, the decline is 11% and for methanol, it is 7%. Incidentally, Trinidad and Tobago remains the largest exporter of methanol to the United States, accounting for 63% of the imports of methanol into this country.

In June 2011, when I became Minister of Energy, this problem was already on the table. The problem arose because companies like BP and BG (now Shell) had slowed down investment in exploration and production between 2007 and 2010. There was also a lengthy period of maintenance from 2010 to 2013 by BP.

We addressed the loss of appetite to invest by giving the upstreamers a lot of fiscal incentives and they responded with big increases in drilling activity. Next year (2017) natural gas production will increase for the first time in six years but it won’t be enough and the deficit between supply and demand will persist.

Enter Venezuela

The anomaly, however, is that while this supply – demand-deficit problem persists, Trinidad is surrounded by natural gas deposits, some of which are stranded in transboundary natural gas fields and some fully in the waters of our nearest neighbor, Venezuela. Venezuela is currently in sharp economic decline and needs money, while Trinidad and Tobago needs natural gas. You would think that a deal would be something that could be fashioned quickly.  However, negotiations have been dragging on for years.

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Our relations with Venezuela, as far as boundary issues are concerned, goes back to the year 1942 (when T&T was a colony of Great Britain). In that year, the British Government and Venezuela signed the “Gulf of Paria Treaty,” which divided the Gulf of Paria.  This paved the way for exploration, which led to the discovery of the Soldado oilfields in Trinidad’s waters in the early 1950’s. These fields are still in production and there are occasional issues with the Guardia Nacional (Venezuela’s coast guard).

International Agreements

We now know that are three transboundary fields that straddle the Trinidad and Tobago and Venezuela maritime border. These fields are closer to Trinidad and Tobago‘s well developed infrastructure. It therefore makes good economic sense to monetize this natural gas in Trinidad and Tobago.

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Transboundary issues involving shared deposits of hydrocarbons are becoming more common as more and more hydrocarbons are discovered. With regard to international law, there is vagueness over the rule of capture and its applicability to transboundary deposits.

The law of capture has its origin in the British common law and is used in the United States.  The law of capture is not part of the petroleum law in Trinidad and Tobago. The Petroleum Regulations of Trinidad and Tobago call for cooperation on deposits that straddle multiple license blocks as oppose to the application of the law of capture.

The same principle of cooperation for hydrocarbon deposits that straddle multiple license blocks applies in Venezuela and is in the Venezuelan Gaseous Hydrocarbons Law (Article 20). Most countries prefer to go the route of cooperation and mutual restraint instead of “rule of capture” as it relates to transboundary deposits.

Cooperation is also encouraged by the United Nations.  The UN General Assembly’s Resolution 3129 (XXVII), states that there should be “harmonious exploitation of natural resources common to two or more states”. The same principle is in the 1974 United Nations Charter of Economic Rights and Duties of States. It’s also embodied in the UN Convention on the Law of the Sea.

The most famous example of a dispute related to the law of capture is the Rumaila oil field in Iraq and Kuwait, which was one of the reasons proffered for the invasion of Kuwait by Saddam Hussein’s Iraq in 1990.

The second legal principle in international agreements, as they relate to transboundary hydrocarbon deposits, is the obligation of mutual restraint. The UN Convention on the Law of the Sea provides that states make every effort not to jeopardize or hamper the reaching of final agreements. States are thus obligated to refrain from unilateral action.

There are only ten international transboundary arrangements. There are three unitization agreements between Norway and the UK for North Sea fields and one between the UK and the Netherlands. There are four Joint Unitization agreements between Nigeria and Sao Tome, Nigeria and Equatorial Guinea, Australia and East Timor and Malaysia and Brunei. There are two unitization agreements between Trinidad and Tobago and Venezuela.

Trinidad and Tobago Transboundary Issue Time Line

The transboundary issue between Trinidad and Tobago and Venezuela has its origin in 1974, when the Government of Trinidad and Tobago announced the outcome of a bid round.

One of the blocks in that bid round was Block 6, and it was awarded to a consortium of two American companies Tenneco and Texaco. These two companies have been replaced by Shell and Chevron. This block 6 contains the Manatee field which is the extension of Venezuela’s Loran field.

The maritime border between both countries was established by a delimitation treaty signed on April 18, 1990.  Article VII of that treaty deals with “Unity of Deposits” and provides that the parties should seek to reach agreement as to the manner in which any hydrocarbon deposits that extend across the border should be exploited. Article VII states:

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At the time that treaty was signed the main issue was not hydrocarbons. It was fishing.  Arising from the obligation to seek to reach agreement as enshrined in the Delimitation Treaty, the Unitization process between Trinidad and Tobago and Venezuela was initiated in 2002 with the establishment of the Unitization Committee which comprised representatives from various arms of both Governments. In 2010, a similar treaty was entered into with Grenada. Article VI of that treaty called for cooperation on “exploration for and exploitation of the non­living natural resources” and Article VII was a replica of the 1990 treaty with Venezuela.

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The Loran field was discovered in 1982 by PdVsa. In 2004, Chevron confirmed the Loran find with wells Loran 2X, 3X, 4X wells in what is Venezuela’s Block 2. The following year, Chevron confirmed the extension into Trinidad and Tobago’s territorial waters with the Manatee 1 discovery. When Chevron drilled the Loran wells, the late President of Venezuela Hugo Chavez said that it would provide the impetus to speed up Venezuela’s own LNG ambitions in the Mariscal Sucre region. By that time, Trinidad and Tobago was already in the process of building its fourth LNG train. Note that Chevron is the common factor on both sides of the maritime border and this is indeed an advantage.

Mil Años de Amor

In 2003, there was a strike by workers of PdVsa. Then Prime Minister of Trinidad and Tobago Patrick Manning responded to a request for help from Caracas by sending supplies of fuel. President Chavez in a show of gratitude visited Trinidad and Tobago and declared “mil años de amor” or one thousand years of love. That visit led to a Memorandum of Understanding (2003) that established a Joint Steering Committee for the Unitisation of Hydrocarbon Reservoirs between Trinidad & Tobago. Incidentally, “mil anos de amor” was tested two years later, when President Chavez proposed the Petrocaribe agreement which was embraced by most of the English speaking Caribbean with the notable exceptions of Trinidad and Tobago and Barbados. There was also a tension between both countries with regard to hemispheric politics. Former Prime Minister Manning was a supporter of the Free Trade Area of the Americas and had lobbied for its headquarters to be Trinidad and Tobago. President Chavez on the other hand was promoting his alternative grouping called ALBA.

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Both countries continued, however, to press ahead with plans for the unitization of transboundary resources. In 2007, an overarching treaty (the Framework Treaty) was signed by the then Prime Minister of Trinidad and Tobago and the President of Venezuela. The Framework Treaty was designed to deal with any transboundary deposit. The Framework Treaty was designed as a template for Unitization Treaties for individual reservoirs. The Treaty provides for, inter alia the principles of unitized exploitation, determination and allocation of reserves, re-determination and metering. This Framework Treaty is one of nine Unitization and Joint Development Agreements in the world.

On August 16 2010, instruments of ratification of the Framework Treaty on the Unitization of Hydrocarbon Reservoirs that extend across the delimitation line between the Republic of Trinidad and Tobago and the Bolivarian Republic of Venezuela were exchanged confirming that the Framework Treaty carries force of law in both jurisdictions.

Also on August 16 2010, the Unitization Agreement for the Exploitation and Development of Hydrocarbon Reservoirs of the Loran Manatee Field that extend across the Delimitation line between Trinidad and Tobago and Venezuela was signed.

The combined Loran/ Manatee field has been determined to have approximately 10.25 trillion cubic feet of natural gas. It has been determined that 73% of the gas is on the Venezuelan side of the border and 27% is on the Trinidad and Tobago side of the border. In all there are three cross border fields (to date).

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The reserve estimates for these three (3) fields are as follows:

Field Total Reserve / TCF Trinidad and Tobago  Venezuela
Loran-Manatee 10.25 27% ( Shell / Chevron) 73% ( PDVSA/ Chevron)
Cocuina -Manakin 0.74 66% (BP) 34% (Total/ Statoil)
Kapok-Dorado 0.47 85% (BP) 15% ( Open Acreage)

In December of 2011, I accompanied the Prime Minister to the CELAC in Caracas. At that meeting, I met for the first time with the Minister of Petroleum of Venezuela, Rafael Ramirez. We both discussed the development of the Loran/ Manatee field and agreed that it had to be accelerated. In that discussion, I asked whether Venezuela would consider some of its Loran natural gas coming to Trinidad for processing into LNG. His response was “No, Venezuela’s gas goes to Venezuela.”

In March 2013, I visited The University of Texas at Austin. On the way home, we decided to visit Ali Moshiri, the President of Chevron, who has his office in Houston. On landing in Houston, we discovered that President Hugo Chavez had finally succumbed to cancer. I wondered what that would mean for our relations with Venezuela. A few months later, I met his successor, Nicolas Maduro, in Moscow at the Gas Exporting Countries Forum, a summit that was chaired by President Putin.

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In my address to the GECF Summit, I called for “a natural gas strategy is part of the solution to rising energy cost in the Caribbean and Latin America”.  I said that there was an “opportunity for collaboration and partnership between GECF members Trinidad and Tobago and Venezuela in the area of natural gas development especially as it relates to the development of the large natural gas reserves in the Plataforma Deltana area”.

Agreed Minutes of 2013

One week later, President Maduro was in Trinidad and Tobago to meet with Caricom leaders. At that meeting, he agreed to accelerate discussions. This led to the negotiation of what is called the “Agreed Minutes” and was signed by me and Minister Ramirez in September 2013. This was an agreement that created the governance framework for the development of the Loran/ Manatee field.

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The “Agreed Minutes” concerned the functional structure and governance of the Loran-Manatee Unit Area. It establishes the unit operator and says that there shall be three bodies. The first body is the directing committee, made up of representatives of both Governments and the four companies involved. The four companies being: Chevron, Trinidad and Tobago; Chevron Global; British Gas, Trinidad and Tobago and PDVSA, the Venezuelan state company.  The second body is the investing committee, made up of the four companies just mentioned, and the third body is the executing entity, drawn from among the four companies.

The directing committee makes recommendations to the Joint Ministerial Commission and has the authority over the operations of the investment committee and the executing committee.  The members of the directing committee right have their voting rights in accordance with their title to natural gas under the production sharing contracts, on our side in the case of block 6, and on the Venezuelan side in the case of block 2. The Joint Ministerial Commission gives either Minister a right of veto. That means that for any recommendation of the directing committee to be accepted it must be agreed to by both Ministers.

For most of the period after the Agreed Minutes were signed, things went cold with the Loran/Manatee issue. In February 2015, the Venezuelan President visited Trinidad and Tobago, and we signed the Coucina-Manakin field specific treaty and a Framework Agreement on Energy Cooperation.

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By then, the Venezuelans had a new Minister of Petroleum, Asdrubal Chavez, a cousin of the late President. Former Minister Ramirez had been relieved of his job and was appointed to the United Nations, where he remains to this day.

In July of 2015, I got a letter from Asdrubal Chavez and a paragraph in that letter jumped out at us. It read: “. . . . in order to enable the valuation of the reserves of gaseous hydrocarbons that will be drained from the aforementioned shared field, and in order to create the necessary protocols to have an efficient, logistical and economic blueprint for the liquefaction of part of said energy resources, using the existing facilities in your country; for the purpose of promoting exports to markets requiring this type of energy.” This was a shift in the Venezuelan policy of “Venezuela’s gas goes to Venezuela,” which was the position of Rafael Ramirez.

The Dragon Field

In July of this year (2016), President Nicolas Maduro visited Trinidad and Tobago (again), and there was an announcement concerning the Dragon Field. The Dragon field is not transboundary. It resides 100% in Venezuela’s waters. The agreement between both countries is aimed at exploring ways and means of developing the natural gas in the Dragon field, with the view of exporting to Trinidad and Tobago via subsea pipeline. It is interesting to note that the closest platform to Dragon is now owned by Shell. The fact that Shell’s chairman in Trinidad and Tobago is Venezuelan helps that cause.

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What is Next?

The experience of Trinidad and Tobago and Venezuela in this issue of transboundary fields has taken long perhaps because it’s not a top priority for Venezuela  and their political and economic situation does not lend itself to a strategic focus on transboundary issues. Venezuela has, however, resuscitated a claim to Guyana’s lands and part of its exclusive economic zone. This dispute was settled in 1899, but it was again re-opened when Exxon made a major discovery of oil in Guyana’s waters.

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Way Forward

Looking into the near future, it is inevitable that Venezuela’s natural gas from the Plataforma Deltana region and from the Mariscal Sucre region will come to Trinidad and Tobago because it makes economic sense. This will extend the life of Trinidad and Tobago’s natural gas sector and will help the Venezuelans monetize what is otherwise stranded reserves of natural gas. When it happens, it will be a first for this hemisphere. The international agreements that will underpin the commercialization of these reserves have been developed and agreed to by both nations for over 27 years. The solution would be all the more impressive when we consider its complexity that involves two sovereign Governments and four companies which include a major U.S. international oil company, Chevron.

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