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Trinidad, Venezuela closing in on gas deal

27 Jan 2017 21:13 GMT
Trinidad, Venezuela closing in on gas deal

Santiago, 27 January (Argus) — Trinidad and Tobago is "weeks" away from cementing a high-stakes plan to import natural gas from Venezuela's offshore Dragon field, a senior executive involved in the negotiations tells Argus.

A state-to-state agreement signed in December 2016 laid the groundwork for the proposed commercial deal between Trinidad's state-owned gas company NGC, Venezuela's state-owned oil company PdV and Shell, which has a long-established presence in the two Caribbean countries.

Negotiations are at an advanced stage, the executive said. Another executive close to the parties said Shell has brought a sizeable team into Venezuela to examine the project. Shell declined to comment.

Others close to the talks remain skeptical in light of PdV's conspicuous absence from Trinidad's well-attended energy conference in Port of Spain this week. And they question PdV's assertions of having already completed multiple subsea wells and infrastructure, because the company's contractors say they have not been paid.

Others maintain that a recent cabinet shake-up in Caracas has slowed down the talks. Ideologically driven believers in Venezuela's long-unfulfilled plan to process the gas on its own territory hold considerable sway in Caracas, they say.

For Venezuela, Trinidad's underutilized Atlantic liquefaction complex would enable the country to monetize its giant gas reserves, and generate desperately needed hard currency. Dragon is part of the wider Mariscal Sucre complex that also encompasses the Patao, Mejillones and Rio Caribe fields. Together they hold 14.7Tcf of reserves, PdV says. Caracas is hoping Russia's Rosneft will also participate in future development of the complex, but the Russian firm has moved slowly, if at all.

For Trinidad, the Venezuelan project is crucial to sustaining its industrial base. Natural gas production is declining and heading toward a steep "cliff" in 2019, the industry there says. Trinidad produced 3.32Bcf/d in January-November 2016, down more than 13pc from the 2015 average. Plans by leading producer BP to bring on an offshore compression project in April and the 590mn cf/d Juniper offshore project around August will only serve to offset declines elsewhere in Trinidad.

Despite its modest size, Trinidad has a 14.8mn t/yr liquefaction complex, led by Shell, and multiple ammonia and methanol plants built decades ago on the back of once-abundant gas supply. That supply is now regularly curtailed by more than 30pc, curbing downstream production and exports, and the revenue they generate for the government.

The project is not seen as capital intensive. Connecting Dragon to the Shell-operated Hibiscus platform off Trinidad's northwestern coast would only require a 17km flowline. From Hibiscus, the gas would run southward through an existing pipeline to Atlantic.

In terms of development, Dragon is not unlike Venezuela's shallow-water 7Tcf Perla field where Spain's Repsol and Italy's Eni are producing some 500mn cf/d of gas. In contrast to Venezuelan onshore oil projects that are controlled by PdV, Perla is a 100pc private-sector gas project, with PdV as the offtaker and a minority participant in a parallel condensate development. Similar to Perla, Dragon would produce 300mn cf/d, ramping up to 500mn cf/d in a first phase.

But the proposed integrated nature of Dragon is distinct from Perla, because Shell would be the primary actor across the chain, from the wellhead in Venezuela to Hibiscus to the LNG cargoes loading at Atlantic in Port Fortin.

The major has had a presence in Venezuela for a century, and played a key role in Venezuela's gas-export aspirations dating back to the 1980s. In the early 1990s, the major partnered with ExxonMobil, Mitsubishi and PdV in the Cristobal Colon LNG project, the original iteration of Mariscal Sucre. Cristobal Colon was aborted as part of a deep-seated political backlash which went on to shape contemporary state-oriented Venezuelan energy policies.

Another major is watching the progress of Trinidad's planned tie-up with Venezuela. Chevron also has a presence in both countries at Loran-Manatee, a cross-border offshore field that would further replenish Trinidad's gas supply.