BP Trinidad and Tobago - Press - The importance of the energy sector and energy policy for sustaining Trinidad and Tobago

Honourable Minister of Energy and Energy Affairs, Carolyn Seepersad-Bachan
Chairperson Mr. Wayne Bertrand
Industry colleagues
Members of the media
Distinguished ladies and gentlemen
Good morning and greetings from BP Trinidad and Tobago.

Before I begin this presentation allow me to say thanks to the IBC Energy Caribbean organisation for inviting me to RBR IBC conference 2010: Page 2 of 19 make a contribution to this conference which is being staged at a critical point in the life of the energy sector. And no I do not say it is a critical point due to the recent announcements of my new role with BP’s Safety and Operations Risk function or because BP Trinidad and Tobago will now be led by my esteemed colleague and our current Chief Financial Officer, Mr. Norman Christie. While I’ve been positively overwhelmed by the interest in and response to this announcement, I call it a critical point because I continue to sense that many people out there are concerned about the future of the petroleum industry in Trinidad and Tobago. In fact some of them are even wondering whether we have a future in the industry. I am not. And I am here to tell you why.

The theme of my address is “The importance of the energy sector and energy policy for sustaining Trinidad and Tobago.”

Energy policy by governmental authority has always been a critical factor in determining the future of this industry. Good policy is really the ladder for any real progress in the petroleum industry. Early in the last century, during the British colonial times, it was British policy on petroleum during World War I that gave us our first oil boom: Churchill’s declaration that the Royal Navy must convert from coal to oil fuel which must come from resources within the British Empire. Influenced by policy again we became the major refining hub in the British Commonwealth for a while up to the fifties and sixties. Then came our big discoveries of gas and oil in the late sixties. Now I am not here to deliver a lecture on the history of petroleum policy in the development of our industry, but if we must address the importance of the energy sector, I believe we must talk briefly first of all about its role in the economy and the country, particularly in the recent past decade or so with respect to natural gas.

The historic role of the sector, particularly in the last several decades has been the economic development of an industrial base. Trinidad and Tobago has clearly forgone higher revenues from the sector in order to create development of an industrial base. The technocrats and architects who were responsible for the early development of national gas policy and our gas industry were not solely interested in maximizing revenue. They were primarily interested in maximizing the economic development of the gas base and they were prepared to heavily subsidize the downstream in order to create jobs and create an industrial base from which the people of Trinidad and Tobago would benefit. And the objective was also to clearly cross-fertilize that energy sector development into other economic opportunities.

We have chiselled a unique position in the world for ourselves in this business. Natural gas will be needed in the future because it is the cleaner alternative with less carbon emission per unit of energy. Gas is expected to eventually replace coal as a primary source of energy and with continued global demand for gas and LNG, we can expect energy revenues to be the bedrock of Trinidad and Tobago’s economy for a long time to come.

The problem with this outlook however, is that our industrial base is almost entirely dependent on gas and this therefore creates a potentially difficult picture for us if over time we cannot continue to find new gas resources. It makes growth of our current industrial base difficult. We may have enough natural gas resources to sustain the current industrial base, but until we find more gas, we really do not have the potential to really grow this industrial base. We have kept to this paradigm for too long and we have continued to persist in introducing industrial projects that are entirely dependent on gas. It has been diversification within the energy sector that has deepened our dependence on natural gas, and the need to always find more gas. Natural gas is not an infinite asset and we cannot perpetually expect to find new resources of gas.

And that is why today we are beginning to have to abandon projects or make hard choices about them. Government has for example recently stopped the Alutrint smelter and there is a debate going on about whether this was a political or economic decision. There might be a bit of both elements in the decision to scrap the project, but I personally did not think it was the best use for our hydrocarbons. This project was not going to create any different development than we had before and it was just going to deepen our dependence on gas for an insignificant return. The argument that “we RBR IBC conference 2010: Page 7 of 19 will have lots of jobs” did not pan out for our iron and steel plants; it did not pan out for methanol or ammonia; and it was quite unlikely to pan out for aluminium, because nothing had changed. It is time for us to begin to think more about the sustainability of our new industrial projects that are sustainable outside of the energy sector.

It appears to me that this new government is asking the energy sector to play a somewhat different role. Some of their policy statements suggest that we will continue to see industrial and domestic plants and it seems that they are trying to encourage investment in downstream industries. If the intention is to pursue new industries that will be sustainable even if the gas is not there, then that to me would be true diversification. If the government takes such a policy direction then the role of the petroleum sector in this scenario would be the generation of revenue to enable us to subsidize or support that kind of new industry in a facilitative way.

A fair example of pathways we can follow can be found in what we did with platform building in the country. Platform construction can logically be redirected into things like boat and maybe even ship building. And ship building will not depend on us having to build a new industrial base. Over the next ten to fifteen years upstream activity should be built around bases that we could easily direct into other activities.

And this brings me to an important question that must be asked: What is the role of the energy sector going forward? The answer must be clearly articulated, because if it is not clear, then we could create policy which can actually detract from incentives in the upstream for doing exactly what we need to do so desperately now, and that is

to maximize recovery of our petroleum resources. We need to drive efficiency of our production on existing acreage, and pursue exploration of new acreage. Because if we don’t unlock this efficiency we could find ourselves in an environment with gas and oil prices that are too low and an industry that is therefore so unattractive that we will not be prepared to take the risk and spend the money necessary to pursue marginal hydrocarbons or even new hydrocarbons. So what’s the future of the industry? The future of the industry depends on our ability to replace reserves at the rate at which we are utilizing them, because if we fall behind that replacement rate, and the reserve to replacement ratio starts to fall too rapidly, that essentially tells the industry to bring up the reserves. The downturn in both gas and oil prices has caused the industry to stall.

The industry is going through a period of its lowest activity in probably ten years. This is the lowest I have seen the industry since I have been at the helm of bpTT. And we have also seen declines in oil production even though gas production has maintained its output levels, although we have not had any really truly significant finds or any new significant plays for a long time.

So does that mean that the industry is fundamentally in decline? I do not believe so. I believe that Trinidad was slow to recognize that the cost of doing business in the petroleum sector had gone up so quickly and steeply that we fundamentally became uncompetitive simply because we didn’t respond to the change fast enough.

I am optimistic however that the recent changes to some of the petroleum tax regimes for both onshore and offshore will be sufficient to stimulate an exciting new era of exploration. For our industry to be sustainable over the next twenty years new finds must be made, not just on existing acreage, but in new plays, new areas, including the deep water. And I also believe that we are in the meantime, also quite capable of making smaller and important finds of more gas on the continental shelf to the north and east of the island through innovation and new technology.

Much of the oil production portrait in the country will depend on the performance of Petrotrin – how it is made to work and decisions around how their producing base is husbanded. I think one of the biggest challenges we have had is the fact that one of the country’s most prolific oil fields under the former Trintomar has gone into decline. It should not be in decline, and I believe we can successfully turn this around and arrest the sharp decline in oil production. And further, possibly over two to three years actually increase the amount of oil we produce, onshore and offshore.

So I think the strategy simply has to be about producing more from the existing acreage through the use of technology and greater efficiency and opening up new acreage on a consistent basis to encourage new exploration in new plays. Only when the bit is turning and we discover new hydrocarbons will we know exactly how long this industry can be sustained.

Within our operations at bpTT we are still focused more on gas than oil, but we are pursuing several strategies for development. We are starting to employ subsea technologies that will allow us, at a lower cost, to access what I would call smaller pools of gas in our marginal fields or fields in close proximity to currently producing fields. The issue with accessing these smaller and marginal pools is cost and we have had to find ways to lower that cost through technology that would allow us to access those resources through existing infrastructure. We propose using subsea technology to access appraisal wells or small maringal pools and to bring them back to existing platforms with extended reach drilling. This will lower cost the cost of access to resources that could not be accessed before.

Our next strategic move is to introduce new seismic activity.

BPTT intends to invest in excess of one hundred million US dollars in seismic alone. While not yet formally approved or finalized, we are planning to carry out a new seismic survey using a fairly new technique that places seismic receivers on the seabed rather than floating on the sea surface. The new approach is called ocean bottom seismic and the receivers are placed on the seabed either as arrays of cables or hundreds of individual sensors called nodes. The array would cover an area of say 20 sq km, and is called a patch. The acoustic source is on a boat which sails above the array on the seabed and the advantage of the ocean bottom seismic method is that as the receivers are directly in contact with the sea floor it ensures the signals received by the sensors on the seabed are as pure as possible, not affected by having to travel up from the seabed through hundreds of feet of water before being received. This helps the subsequent processing of the data to produce a clearer image of the structures in the subsurface. At this time we are working to understand the best form of ocean bottom seismic technology to apply here in order to get the best results.

Another strategic move will be to improve our well performance. Some 65% of our existing wellstock is currently shut-in and we are working to examine each shutin well with a view to bring these wells into production, where technically and mechanically possible. Bringing these wells into production has the potential to add an extra 200 million standard cubic feet of gas a year for the next five years and possibly increase bpTT’s oil production levels. So we have a plot aimed at maximizing the recovery of resources efficiently and safely on the existing acreage. That will allow us to at least sustain the existing production base for longer than the contracts in place are for. And then the next stage is to see if we could get into exploration and find some new hydrocarbon sources. These are our strategies and we are heartened by the fact that this approach is fully supported by the government.

I can still confidently assure the national community at this time that we can meet all of our gas delivery contractual obligations.

In fact this year we will potentially have more resources to add than we have demand for in contracts, for the first time in a long time. We have accumulated upwards of one trillion cubic feet of gas, so we have almost replaced all of the gas that we would use and more in this year. And so our objective is to continue to try and replace everything that we used. In 2009 we achieved 89% reserve replacement and it looks as though we could do that again or even better in 2010.

So I am optimistic that the industry has a longer life than certain pessimistic elements now project. On the price side oil continues to be very attractive. Gas is not so attractive in the near term. Prices are still in the three dollar mark. But opportunities are starting to open up in Europe and for trade there, which would create the conditions for a better price for gas in the medium term, but not the near term. We think that by the end of the decade, it is likely that given the environmental impacts of coal, we would see a trend of countries turning more and more to gas. If that is so, then prices at the back end of the decade would begin to elevate again. There are therefore going to be pressures on the world to produce enough gas to meet the economic growth that should start to return to the world by the next decade. So we see a tough early period which we are managing through. I am of the mind that the best time to invest in that opportunity is now, not when everybody sees good prices again. So for volume and price the future is robust and in Trinidad we still see it as a future predominantly based on gas, not so much on oil. There is a future for oil, once you find it, but the question is whether the rocks have oil and in what volumes?

I cannot at this forum examine the many opportunities that are out there for sustainability but they are there. In the near term BP and other exploration and production companies will return to more rig utilisation in 2011. There are African countries who want to use our experience and expertise in their search for hydrocarbons. The government should now pursue taking positions in third party states. And in return for the government investing in those positions, taking acreage positions of 10%, 5% or 3% interest, insist that our indigenous service industry works in those locations. Our service sector has already demonstrated that it can compete globally within the BP group. That is a form of diversification worth pursuing. There are other sustainable opportunities to be found in conservation and alternative energy which I cannot examine here.

So I continue to be optimistic about the future. The energy industry will continue to play a very important role in Trinidad. And we must begin to use the revenue and experience generated from this sector to secure a sustainable future outside of conventional hydrocarbons. We need to move ahead urgently towards true diversification outside of the energy sector. We cannot wait on two generations down the road. The time to do it is now.

Ladies and gentlemen, I thank you.

The importance of the energy sector and energy policy for sustaining Trinidad and Tobago

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