Shell stays course on Trinidad, Venezuela gas

Shell is sticking to plans to develop the Loran-Manatee field, which could yield much needed gas for Trinidad and Venezuela

Trinidad and Tobago has asked Shell to study development options for an offshore gas field that straddles the country's maritime border with Venezuela.

Trinidad has long viewed the Loran-Manatee field, estimated to hold about 10 trillion ft³ (283bn m³) of gas, as potentially a key source of supply for its extensive gas-based industries, led by the 14.8mn t/yr Atlantic LNG plant. The country's gas production has rebounded since late 2017, but domestic demand still outstrips supply, leading to costly curtailments for gas-based industries.

"Shell continues to pursue the Loran-Manatee development for the benefit of Trinidad and Venezuela," the major says. "[Trinidad's government] has asked us to consider options for phased development, but it is too early in the process to comment further." Loran-Manatee covers block 6 on Trinidad's side of the maritime border and block 2 on Venezuela's. Shell acquired a 50pc operating stake in Trinidad's share of Manatee in June 2017 from Chevron, which still holds the other 50pc. A 2013 bilateral agreement between the countries allocated 73.75pc of reserves to Venezuela and 26.25pc to Trinidad, but their subsequent negotiations on developing the field have dragged on for years.

Trinidad needs the gas to supply its industries, while Venezuela needs export revenues and has no infrastructure to monetise the gas on its own. Before farming out part of the asset to Shell, Chevron had proposed operating the field as a single unit and presented a development plan to the two governments in November 2016. Now Trinidad's section of the field is in the hands of Shell, which is already the country's second-largest gas producer and a leading shareholder in Atlantic LNG. When Loran-Manatee moves ahead, the smaller 310bn ft³ Kapok-Dorado and 740bn ft³ Manakin-Coquina cross-border fields would be next in line.

The commercial logic of developing the Dragon field in Venezuelan waters is equally compelling. Shell, Venezuela's state-owned PdV and Trinidad's gas counterpart NGC signed a preliminary deal in late August 2018 for Trinidad to purchase 150mn ft³/d (1.55bn m³/yr) of gas from Dragon. Production was supposed to have begun in 2019-20, with volumes later ramping up to 300mn ft³/d. The gas would be delivered by pipeline to Shell's Hibiscus platform in Trinidad's east coast marine area and connected to NGC's distribution network.

Protracted political and economic turmoil in Venezuela, and escalating US sanctions aimed at forcing President Nicolas Maduro to step down, have thwarted the country's gas plans. Shell, like Chevron, is careful to reiterate that its "activities relating to Venezuela are in strict adherence to all applicable laws, regulations, trade controls and sanctions". Dragon is expected to be more challenging to develop than Loran-Manatee because it requires a separate agreement between PdV and Shell. Venezuela would sell the gas to Shell, which in turn would process it and sell it to Trinidad, PdV says. Shell would also build a short pipeline to Trinidad and purchase the gas on Trinidad's side through NGC.

A real Perla

The export terms are critical for Shell. Spain's Repsol and Italy's Eni own Venezuela's giant Perla offshore gas field as part of the Cardon 4 joint venture, in which PdV is the sole offtaker. Most of Perla's production in recent years has been shut in because PdV cannot pay for it and nearby refineries are barely operating. PdV has provided crude to Repsol in exchange for the limited gas output at Perla.

PdV has long neglected its abundant gas reserves in favour of oil. Venezuela has almost 224 trillion ft³ of proven gas reserves — over three-quarters of South and Central America's total — according to BP's 2019 Statistical Review of World Energy. Most of the onshore gas is associated with crude, and around 2bn ft³/d is flared.

Dragon and Loran-Manatee fields