Trinidad's LNG export pendulum

In the 1990s, the government of the twin-island nation of Trinidad and Tobago moved forward with construction of liquefied natural gas (LNG) export facilities, the first in the Latin America and Caribbean region. With its prime location in the Caribbean, Trinidad’s LNG exports, through four trains with a combined processing capacity of 18.6Mt/y, were destined primarily for the US which due to its lack of gas reserves at home coupled with its growing appetite for gas and relatively high gas prices, was a natural market for Trinidad’s exports.

The US gas market has changed in recent years due primarily to issues related to slow economic growth and the boom in shale gas production. While the former issue has somewhat affected gas prices, the latter has affected internal demand for gas, directly impacting US demand for imports of LNG from Trinidad. The trend does not look to revert itself anytime soon, and so the Trinidad government has already begun to divert its LNG exports to other markets to make up for lost market share. While this move appeared to be the only one the government needed to make to guarantee future LNG export revenues, an apparent unstoppable decline in gas reserves continues to overshadow moves into new LNG markets: all could be in vain without discovery and development of new gas reserves.

DECLINE IN RESERVES

After reaching a peak in 1999, Trinidad’s proved gas reserves have been in gradual decline, while production continues to increase to fulfill demand in the local market and to supply the nation’s four LNG trains. As a result, Trinidad’s reserve-to-production ratio, an indicator of longevity of actual reserves based on current production, has declined more than fourfold.

At end-1999, Trinidad’s gas reserves peaked at 21.4Tf3 (605Bm3) while production was 0.4Tf3, resulting in a reserves-to-production ratio of 51.6 years. By end-2000, these gas reserves had declined to 19.7Tf3 while production increased slightly to 0.5Tf3, resulting in a reserves-to-production ratio of 38.4 years. However, by end-2010 these reserves had dwindled further to 13.5Tf3 while production increased to 1.5Tf3, resulting in reserves-to-production ratio of just 9.1 years.

Despite declining proved reserves, Trinidad has additional reserve potential in its probable and possible categories, which totaled 7.6Tf3 and 6.0Tf3, respectively, at end-2010. Furthermore, should exploration activities move forward offshore Trinidad where reserve potential is said to be around 26Tf3 on the low end, the country believes there are sufficient reserves to provide the nation with more than twice its existing proved gas reserve base.

NEW EXPORT MARKETS

Approximately 40% of Trinidad’s gas production is destined to supply the domestic market, including methanol and ammonia plants, while the remaining 60% is destined for export markets in the form of LNG.

Trinidad initiated LNG exports in 1999 and by 2005 some 89% of these exports were destined for the US with the remaining 11% for other markets. Today, just 19% of Trinidad’s LNG exports are shipped to the US, with the remaining 81% destined for markets in Europe, Asia and South America. Despite the changes in the end-market for Trinidad’s LNG exports, export revenues have not declined due to higher realized gas prices in the new markets as compared to the US market.

Mild winters, slow economic growth, and additional shale gas production have pushed down benchmark Henry Hub gas prices in the US to less than US$3/MBTU in 2012 from an average of US$3.99/MBTU in 2011. In contrast, gas prices in other worldwide markets have been much higher and remain that way today.

For example, in Europe, where gas prices are linked to fuel oil and gas oil, gas prices at the region’s two main benchmarks, the National Balancing Point and Belgium, were between US$8/MBTU and US$10/MBTU. In Asia, where gas prices are linked to oil prices, the average price of the Japanese Crude Cocktail benchmark was US$13.50/MBTU. In South America, where gas prices are linked to oil prices, gas prices in Argentina and Chile are nearly US$11/MBTU and US$14/MBTU, respectively.

MORE NEEDS TO BE DONE

Since initiating LNG exports in 1999, Trinidad's government has grown accustomed to steady LNG export revenue. However, economic slowdown in the US coupled with increased shale gas production has allowed the US to slowly wean itself off foreign gas, primarily from Trinidad. Years of successive Trinidadian governments have neglected to offer attractive taxation and fiscal terms to oil and gas companies interested in exploration activities offshore, causing gas reserves to decline to the high single digits.

In order for Trinidad to continue as a reliable LNG exporter to world markets, the government must now pressure companies to replace a minimum 100% of production and increase field activities to prove up current probable and possible reserves. Furthermore, the government must urgently encourage exploration offshore where large gas reserve potential is in abundance. Failure to advance on any of the these fronts could cause Trinidad to lose LNG market share or worse see the nation lose its potential to export LNG due to its inability to develop and commercialize its abundant non-proved gas reserves offshore.

By Pietro Donatello Pitts