Results of the latest deepwater bid round are being announced this week. This round saw considerably more success than past ones; in this context, could you elaborate on the changes in the structure of these biddings rounds compared to previous rounds?

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Senator the Honourable Kevin C Ramnarine, Minister For Energy and Energy Affairs

We made a number of changes to the fiscal regime for this bidding round. First, we increased the rate of cost recovery to 80 % (the recovery rate was 60 % in prior rounds). Second, we repurposed all the 3D seismic data that we held for deep water. Third, we marketed the bidding rounds very differently, attending many international conferences. We also presented a smaller number of blocks—only 6 blocks as compared to 11 deepwater blocks in previous rounds. Another factor was the opening up of the Guyana basin, which contributed to greater prospects for Trinidad. Finally, many companies have now realized Trinidad is a good place to do business, due to our stable political situation and ability to speak English. Companies like BP have had a good experience in Trinidad over the last 50 years.

What levels of interest are you expecting to see from foreign companies in next year’s bidding rounds?

I do not believe Trinidad’s fiscal regime is competitive enough—we still need to come up to par with Colombia, Brazil and West Africa. Early next year a government committee will conduct a comprehensive reform of the fiscal regime for the energy sector. There will also be a land-based bid round launched in January, spearheaded by Petrotrin and supported by the Ministry of Energy. We went on a road show in Calgary to promote this bid round, because we believe smaller companies are the best fit for land in Trinidad. In March 2013, we want to launch another deep water round with 6 new blocks, and three companies have already shown interest. Deep water is still in the exploration phase. Exploration took place on our continental slope in 2002, which proved the existence of a working hydrocarbons system but did not find commercial quantities of oil and natural gas. However, things will have changed a lot since 2002 and the technology has taken new leaps. With a new fiscal regime, new technology, and greater processing, we believe Trinidad’s deep water holds great potential.

Regarding the overhaul of the fiscal regime, what needs to change in order to make Trinidad more competitive?

The fiscal regime cannot be considered solely as a mechanism to collect money; it must meet the objectives of the country, for example through fashioning the fiscal regime around CSR or local content. Many global reports have ranked Trinidad in the top quartile in terms of highest government take in the world. I would like Trinidad to be competitive but still have a fair return to the state. Moving forward, we will be reexamining taxation, production sharing agreements, etc, to see how we can best reach that balance. Production sharing contracts have evolved significantly in Trinidad; in the 1970s, the government take was based on level of production, and in the 1990s we introduced a matrix based on production level and price. Today, we also need to consider costs—costs in the industry began to increase dramatically around 2005, concurrently with the demand for steel in China. Costs are a major factor with regard to the competitiveness of the environment. The costs to produce natural gas are the same as to the costs to produce a barrel of oil, but gas is much less valuable; Trinidad of course has become predominately a gas-based economy.

With the recent shale gas discoveries in the US, there have been moves to diversify Trinidad’s export markets. Which international destinations have become attractive to Trinidad?

In 2009, 80 % of our gas was being exported to the U.S.

Today, we export about 19 % of our gas to the U.S. as LNG, and the remainder goes mainly to Latin America, including Chile and Argentina. We also send cargoes into Europe and Asia, where prices are sometimes three to six times higher than in North America. We believe demand for LNG will always outstrip supply, and our cargoes will continue to find a buyer on the global market.

Examining the pioneering NGC model, how do you think the structure might change, making sure that the supply is guaranteed for a fair amount of risk?

The NGC model has worked very well since its inception in 1975, and has made the NGC the most valuable company in the Caribbean with assets close to 6 billion USD, healthy profits and constant dividends. I have questioned the relevance of the NGC model moving forward, as it was premised on a world in which the U.S. was in decline with regard to gas. We are reconsidering the model by which the NGC acts as the sole monopoly on natural gas. Deviation away from this model has already begun—there are a couple of hybrid (or back-to-back) contracts, where the customer has a direct relationship with the upstream supplier. A big policy question for 2013 is how the NGC can mitigate movements between the increasing cost of buying natural gas, while companies on the Estate continue to demand lower prices.

What models have you looked at for the future role of the NGC?

The NGC will continue to be a pipeline operator, as well as a buyer and seller of natural gas due to the long-term nature of contracts. However, a third dimension would be for the NGC to go global. Growth can no longer be guaranteed on our current model. We expect growth to take place through acquisitions—the NGC is a cash-rich company, and we are looking at several acquisition prospects within and outside of Trinidad, including in West Africa. The company has also started to market its own LNG, and we are also looking at marketing Petrotrin’s cargoes as well. We may see the emergence of an LNG marketing company that is jointly owned by Petrotrin and by the NGC.

We have also seen a move towards local infrastructure, including the Eastern Caribbean pipeline and smaller CNG projects. What would the impact of these projects be for Trinidad?

These projects are all very small—the gas fill project is a small scale LNG project that would not require more than 70 million standard cubic feet of gas. The LNG market in the first decade of the 21st century focused on size—larger ships and trains—whereas now there is an emerging market for smaller countries that need smaller ships and trains. Small countries have both market and geographical constraints. There is also a CNG project plan for Trinidad and Tobago, which is centered on Centrica’s development of block 22. The CNG facilities will supply CNG to consumers in the Caribbean, and most likely a significant amount of the gas will go to Puerto Rico. In the last 6-7 years, all the islands in the Caribbean have paid a lot of attention to balance of payments with regard to the cost of purchasing oil for power generation and transportation. All the islands in the Caribbean use fuel-oil fired or diesel-fired power stations, which are both more expensive and less clean than gas. There is a desire in the Caribbean to convert to natural gas fired power. It has happened in the Dominican Republic and in Puerto Rico, but it has not yet happened in the rest of the English-speaking Caribbean. The only supply in close proximity to many of the Carib-bean countries is Trinidad, because Venezuela has not developed a gas export industry yet. The supply side is also beginning take hold in Trinidad.

Regionally, Colombia provides an interesting model for Trinidad and Tobago to observe in the development of its energy sector. What lessons do you believe Trinidad can learn from Colombia?

Colombia has democratized their oil industry, and made it available to smaller operators. These small operators are nimble and have smaller overheads. Another aspect is the refining industry. In the past two years, two refineries have closed in the region, including the Valero Aruba Refinery and the Hovensa refinery in the U.S. Virgin islands. This leaves us with the Petrotrin refinery and refineries in Venezuela, the latter of which have issues with maintenance and accidents. No new refining capacity is coming onstream anywhere in the Americas, with the exception of Brazil. In the next 5-10 years there will be a bottleneck with regard to refining capacity in this region, and this is where Trinidad can play an important role thanks to its strategic location. The National Energy Corporation (NEC) will be expressing interest for a new refinery in Trinidad.

Trinidad is at a crossroads at the moment, and in many areas of the sector there is a need for reinvention. Could you elaborate on this?

The sector needs to be reinvented both from the point of view of the oil industry and preparing the gas industry for this new world. We have to change the way we do business in Trinidad.

How has political stability facilitated successful projects in Trinidad?

Regarding political stability, the largest investment in the history of the Caribbean is Atlantic LNG—it has over 5 billion USD worth of foreign investment coming into Trinidad. That project spanned the period 1995 to 2006, during which we had three different governments in Trinidad. This project remains the lowest cost per ton of LNG in the world today, which has made Trinidad very competitive in global markets.

As you begin your third year as Minister, what would you like your legacy to be in the oil and gas industry in Trinidad and Tobago?

I would like to reinvent the entire energy sector, which includes the oil industry, deepwater exploration and the downstream industry. Furthermore, I am pushing for the internationalization of Trinidad’s energy sector, using the NGC as a vehicle to take the Trinidad and Tobago name abroad.