Trinidad´s defiant bet on Venezuelan gas

Author Patricia Garip, Editor

Commercial logic aside, Venezuela┬┤s persecuted opposition is up in arms over all of this, accusing Shell and Trinidad of enabling the autocratic government. It maintains that any agreements signed by Maduro are invalid and will be torn up after he is swept from power. At a minimum, the Trinidad gas agreement flies in the face of an international campaign to isolate Caracas.

These are bold times for Trinidad and Tobago. First, the Caribbean archipelago agreed to buy Venezuelan natural gas. A few days later, it officially threw in the towel on its oil refinery. 

The long-awaited gas deal with Venezuela and Shell is aimed at replenishing and expanding supply to Trinidad´s gas-based industries led by Atlantic LNG, in which Shell and BP are the main shareholders. Methanol and ammonia producers will also benefit after years of curtailments.

The plan is for Shell to produce gas from Venezuelan state-owned PdV´s shallow-water Dragon field and build a short flow line to its Hibiscus platform off Trinidad. From there the gas would be delivered into the distribution network of Trinidad´s state-owned NGC. The project makes commercial sense, but there are a lot of unanswered questions, and considerable challenges.

For one thing, Shell has to develop the Dragon gas in a country where above-ground risk is a euphemism for catastrophe. Venezuela´s GDP could fall by as much as 22pc this year. Hyperinflation is accelerating on the back of economic measures that are driving hundreds of thousands of Venezuelans to flee. The oil industry, the only legitimate source of government revenue, is collapsing.

Not so the long-overlooked gas industry. Dragon is part of the 14.7 Tcf Mariscal Sucre complex. This is familiar territory for Shell, which has been in Venezuela for a century. In the early 1990s, the acreage had been earmarked for the ill-fated Cristobal Colon LNG project grouping Shell, ExxonMobil, Japanese trading house Mitsubishi and PdV. The project fell apart as nationalism resurfaced in the run-up to late president Hugo Chavez´s rise to power in 1998.

The major is probably looking to replicate the shareholder structure of the Cardon 4 joint venture, which is wholly owned by its European competitors Repsol and Eni. The partners produce gas from the offshore 17 Tcf Perla field and sell it to PdV, which has fallen behind on payments.

Shell has been mum on the details, but the company is probably pursuing 100pc of Dragon and direct payments from Trinidad, effectively carving out PdV. The carrot for Venezuela is a separate agreement with PdV to cut gas flaring in its eastern division. The money for that deal might be coming from Shell´s revenue derived from its other Venezuelan operations that Caracas will not let it repatriate.

Chevron, which operates a dormant 10 Tcf gas field that straddles the Venezuela-Trinidad border, is watching Shell´s progress. So is Russia´s state-controlled Rosneft, which has an agreement for Mariscal Sucre´s other three gas fields.

Commercial logic aside, Venezuela´s persecuted opposition is up in arms over all of this, accusing Shell and Trinidad of enabling the autocratic government. It maintains that any agreements signed by Maduro are invalid and will be torn up after he is swept from power. At a minimum, the Trinidad gas agreement flies in the face of an international campaign to isolate Caracas.

The calculation in Port of Spain, and Shell´s boardroom, must have been that the upside of accessing Venezuela´s abundant gas far outweighs the risks. These include US financial sanctions that suddenly look limp.

Back in Trinidad, state-owned Petrotrin is going in for a makeover. The 168,000 b/d Pointe-a-Pierre refinery will start decommissioning in October. Debts will be rescheduled, the kit packed up, and workers retrained in gas-based industries that will be revitalized with Venezuelan feedstock. The problem is that Caracas could be revitalized too.

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