The Evolution of the Dragon Gas Supply: Maduro, Venezuela, Russia and T&T
The government of T&T insisted repeatedly in the public domain that it’s seeking the supply of a daily volume of natural gas from Venezuela which Maduro and PDVSA has insisted will not be supplied fully by the Dragon field of the Mariscal Sucre Project situated offshore north of the Paria Peninsula, Sucre state, Venezuela. The T&T government then stated repeatedly that as the Patao and Mejillones fields of the Mariscal Sucre Project developed gas will be sold to T&T from these fields to satisfy the daily gas supply sought by the T&T government. But Maduro and PDVSA are yet to publicly affirm this position via a public supply agreement. Silence then is now the word on the said gas supply from Venezuela as the visit of Maduro to T&T to sign off on the supply deal is yet to materialise as at December 18, 2017. But Maduro has issued statements from Venezuela and on his foreign travels citing the gas supply deal with T&T as the prime example of Maduro’s embrace of the Caribbean and his new gas driven direction for Venezuela’s energy economy where gas exports via pipelines or as LNG is the new frontier. In these statements the daily gas supply designated for T&T is in line with the daily volume stated by the T&T government in public which means that gas from the Patao and Mejillones fields are in the agreement or what T&T desires will be drawn from the production of the Dragon field. What was clear on Maduro’s pronouncements on the gas supply deal with T&T both local and foreign is that T&T was now his bitch as he has us by the short and curly. In fact, the gas supply agreement with T&T was repeatedly cited by Maduro both local and foreign as the prime indicator of Venezuela’s intent on becoming a reliable gas supplier to its neighbours under the new gas economy. The T&T gas supply arrangement with Venezuela is cited by Maduro as an indicator of his legitimacy as President of Venezuela. Then there was word from Miraflores but we don’t know if that word was in fact accurate or fake news that Maduro had in fact signed off on the gas supply agreement but from the T&T government there is only silence.
On December 17, 2017 the play T&T was now caught in became clearer as Maduro met with Igor Sechin CEO of PJSC NK Rosneft in Venezuela where licences were authorised for Group Rosneft a subsidiary of NK Rosneft to explore and develop the non-associated gas reserves of the Patao and Mejillones fields of the Mariscal Sucre Project. Group Rosneft is authorised by these licences to be the operator of the project and to export all production of these fields as pipeline gas and/or LNG with Group Rosneft and PDVSA each holding 50% of the equity of the project. This event in Venezuela puts in train the Heads of Agreement signed with NK Rosneft in 2016. Russia in the house! T&T in its quest for gas from the Patao and Mejillones fields as of December 17, 2017 now has to dance with NK Rosneft and Putin.
The quest for gas from Venezuela has now sucked T&T into a geopolitical quagmire as gas from a Group Rosneft/PDVSA entity raises the issue of the impact of US sanctions on Russia and Venezuela and how it impacts the conduct of business with Rosneft and PDVSA by T&T entities. Can sanctions placed on Russia by the US be applied to products manufactured from gas sourced from the Rosneft/PDVSA entity in T&T exported to US markets? To step back from embracing Rosneft produced gas can have blow-back on the Dragon supply as the pipeline can slowly go dry. As a step back is a rejection of the business and political model of the gas supplier across the Gulf. Whilst dancing according to the rules of the gas supplier across the Gulf invites the push back from the hegemon in the room summed up in the person of the Donald. Possibly this is the aim of the Maduro dragon dance: to marginalise a geopolitical threat at the underbelly of Venezuela? Consider that in light of the oil play offshore Guyana at present.
T&T is between a rock and a very hard place as we have inadvertently entered a geopolitical game of thrones because of the failure of all ruling politicians of T&T to police the natural resources of T&T to ensure supply that serves the interests of T&T not that of the globalised transnationals. We failed miserably to learn from the Norwegian model. We are now a pawn in a geopolitical battle for regime survival vs regime change powerless to impact and determine the outcome of the game. A pawn to be played to the strategic benefit of the warring parties only. A geopolitical fiasco of our own making. The Dragon will dance on all of us in T&T!
Venezuela’s Position on the supply of Dragon gas to Trinidad and Tobago
In a news report dated March 16, 2017 on the PDVSA website in Spanish stated that the Framework Agreement for the supply of natural gas to T&T was signed in Caracas. This agreement has as its parameter the building, operation and maintenance of a pipeline connecting the Dragon field Venezuela to the Hibiscus field T&T some 30 kilometres long. The report stated that a special project vehicle constructed as a joint venture was signed between NGC of T&T and Shell international at the said meeting in Caracas. It was reported that Luis Prado signed for Shell. The report states that Minister Martinez of Venezuela indicated that Shell will construct the infrastructure necessary in T&T to receive the gas from Venezuela and that the Dragon gas deal involves the negotiation and finalisation of an agreement between three parties to the mutual benefit of all three: Venezuela, T&T and Shell. Minister Young of T&T in the report describes Shell as a “collaborating partner”.
A news report dated March 31, 2017 on the PDVSA website in Spanish reported that representatives of Shell and the NGC had visited Guiria to confirm that that the mechanical completion of the submarine infrastructure of the Dragon field was in fact realised. Necessary for completing the project to supply 300 million cubic feet of dry gas to T&T. The joint coordinating commission formed in T&T comprises Venezuela, NGC and Shell was reported by the news report.
A news report dated May 17, 2017 on the PDVSA website in Spanish reported that PDVSA and Shell held a meeting in Venezuela to discuss matters concerning the gas supply from Dragon to T&T with no member of the NGC and the T&T government mentioned as being present at this meeting in the news story. The president of PDVSA and the president and vice-president of PDVSA Gas were there along with Luis Prado president of Shell Venezuela and T&T and the Shell representative for the Americas and Africa but no mention of NGC representation. The news stated that the PDVSA and Shell officials discussed gas prices, gas volumes and the point of interconnection between the Dragon field gas supply and the pipeline to T&T. The vice-president of PDVSA indicated that they are presently reviewing the gas export base of the field, they have received proposals to complete the project and to increase production from the field to enable an increased gas supply to T&T. The meeting also discussed the joint venture Shell has with PDVSA, the Petroregional del Lago project which is a land based oil producing joint venture project.
Shell has then irons in the fire with the prime agenda being the Petroregional del Lago project as Venezuela needs to raise oil production and PDVSA simply doesn’t have the cash to spend to bring about this increase. On del Lago Shell then announces its intention to invest USD 400 million in the venture and its now Maduro’s sweet heart on both sides of the border. What is Shell’s locus standi in this Dragon gas supply project? Is Shell negotiating gas prices and volumes with PDVSA in our absence simply because Venezuela is selling the gas to Shell who is then selling it to the NGC? Is Shell building the necessary infrastructure in T&T waters in keeping with the task of being the vendor for Dragon gas to the NGC? The news report of March 16, 2017 stated that gas from Dragon will be going to the LNG plant in T&T. The power relations of the geopolitics of the gas supply between Venezuela and T&T are not in T&T’s favour unlike the deal with Aruba and the key to these power relations is Venezuela’s gambit. What does Venezuela intend to achieve in its favour that redounds to the benefit of Maduro with this gas supply deal is the primary question that must be answered realistically. When PDVSA sits in a room with Shell and negotiates only with Shell it’s also negotiating with the largest single shareholder of Atlantic and the Dragon field is a very small field in the arsenal of offshore gas plays of Venezuela. The people of T&T remain in the dark on this reality as we did with the deal negotiated for trains 1 to 3 at Atlantic LNG and as always we’re left holding the dirty end of the stick as the gas economy has become unstuck.
The LNG Reality Impacting T&T in 2017
The inability to produce and supply the requisite amount of gas to Atlantic LNG necessary to maximise economic production levels is not the only reality impacting the contribution of this facility to the national coffers. The reorganisation of world energy markets as a result of US exports of shale gas LNG and the coming on-stream of especially the LNG plants in Australia have especially impacted the Asian market which is the largest market for LNG trades. The increased volume of supply has now allowed the Japanese importers with the support of the government to insist that the destination clauses of the long term contracts that forbid Japanese importers from re-selling their imported loads be amended to allow Japanese re-selling. Suppliers including those operating in T&T are applying the pressure for the Japanese importers to drop this request but US shale gas LNG producers as Cheniere are offering contracts linked to US Henry Hub prices unlike the present contracts which are linked to oil prices and allow re-selling of loads purchased from US suppliers. The lesson in this scenario to T&T is that under the contracts ratified by the then UNC government for trains 1 to 3 the LNG exporters of T&T can move product to various markets but they are taxed on US Henry Hub prices even though the prices at the importing market are higher and the operators also allow importers of T&T LNG to re-sell their loads as is the case with Gas Natural of Spain but these said operators insist that Japanese importers cannot re-sell loads sourced from these operators. Wonder why? Wonder who is a major shareholder of Gas Natural? The US producer is presently supplying loads governed by contracts signed with Japanese importers. US shale gas LNG has also entered Latin American markets and as production expands and new production facilities come online the competition posed to T&T LNG will intensify as it’s clear that US producers intend to win market share by any means necessary and with a facility in T&T faced with a heightening shortfall in gas supply in existence without relief for some 5 years hard decisions will have now to be made by the major shareholders especially Shell. The acquisition of BG at a most inopportune time in the energy industry has forced Shell to dispose of assets in order to reduce the debt on its balance sheet and this process commenced in 2016 and continues. Shell has repeatedly made it clear that it intends to continue to grow its LNG trading arm towards ensuring it is the premier LNG trader in world markets and in 2016 Shell indicated that this strategy is not premised on investment in LNG production facilities that it considers offering less than optimum return on investment in the life of facility. The report on Bloomberg in 2016 that Shell was rumoured to have marked its shareholding in Atlantic for disposal possibly arose from this strategy of Shell. But Shell in 2017 and thereafter has another strategy possible in T&T that will contribute to attaining its LNG trading strategy and maximising its take from the gas market from T&T by biting multiple times on the LNG cherry. You sell your shareholding in Atlantic but bind the purchaser of your share to long term LNG supply contracts to Shell’s trading arm which you then sell on world markets, you develop the gas fields acquired from BG in T&T and become an independent/non-shareholder supplier/seller of gas to Atlantic bypassing the NGC cut off the top and to facilitate all of this you dance with the Chavista government of the day to enable the supply of gas from Dragon to the designated end users then you enable the Loran/Manatee development and the flow of gas to T&T with you and Chevron as gas suppliers. A T&T government ever thankful, ever beholding to Shell has then to facilitate the multiple biting of the cherry and enabling the cherry to grow in size whilst being bitten. In the reality of this dreamland scenario I wonder what we the ordinary citizens profit from this. What profit in this for us? Remember diversification T&T style is foreign franchise merchandise, goods and services for sale on the local market burning up foreign exchange it does not and cannot earn but such is the model of Bogota, Panama City and Santo Domingo and others in the Caribbean Basin. New England, USA remains the most profitable US market for LNG from T&T as the pipeline system to move shale gas into this state especially during winter remains underdeveloped to satisfy demand for energy especially during harsh winters as the 2016/17 winter. Imported LNG via Everett, Massachusetts which is close to Boston is used to satisfy energy demand resulting in an explosion of prices per million BTU at Everett outstripping Henry Hub prices. In this scenario LNG produced in T&T is sucked into this market to exploit the high gas prices. But what is the benefit of exploiting this windfall price to the people of T&T given the terms of the contract governing especially Trains 1 to 3 of Atlantic? But this artificially produced shortfall in supply is under pressure from the energy supply companies and with Trump and his merry oil men in power brace for the end of this artificially created choke point as it’s not only Standing Rock will soon capitulate.
Is the Dragon dancing for T&T or another case of being played by Venezuela?
On December 5, 2016 the gas supply deal from Venezuela to Trinidad was signed in Caracas and they danced with the instance of African Venezuelan culture presented at the signing which led me to ask if they dance and what they dance when the Chinese and Russians are in town signing huge deals? From the outset what is potently apparent is that T&T has hitched its wagon to the Maduro dynasty because of the collapse of the strategy embarked on by all ruling politicians in T&T since the arrival of Amoco. They have all failed T&T singularly and we will now pay the price as the Dragon is dancing upon us.
The Mariscal Sucre project is the brain child of deceased Hugo Chavez where four offshore gas fields: Dragon, Patao, Mejillones and Rio Caribe located to the north of the Paria Peninsula will be developed and the gas piped into an industrial complex at Guiria, Sucre state including a LNG train. To-date only the Dragon field is producing gas, it is 100% operated by PDVSA and the gas is feed into the national gas network. In February 2016 PDVSA and Rosneft of Russia announced that they had signed off on an agreement to develop Patao and Mejillones and possibly Rio Caribe but what is to be done with the gas produced was not placed in the public domain and no work on these fields have started to date by the said joint venture. The question remains: why will a foreign investor invest valuable USD in gas production in Venezuela to sell what it produces in Venezuela when Venezuela is BROKE and PDVSA does not have the money to fund the project on its own? Why invest in a LNG train in Venezuela with the US ramping up shale gas production which is bloating their natural gas stocks in storage and there is a world LNG surplus? Then there is the potent example of Repsol and Eni and the Perla field where with the discovery of conservatively 17 trillion cubic feet of gas you are told you must first supply the Venezuelan gas market at a stated volume per day and in 2016 you have almost covered your daily obligation but what happens next? The gas supply market has so changed in Venezuela in 2016 Venezuela is exporting gas to Colombia a drastic change from begging for gas from Colombia when you are obligated under an agreement to supply gas to Colombia. The closed Colombia-Venezuela border was suddenly opened the truck loads of food started coming into Venezuela and the Venezuelans cross over into Colombia looking for food to purchase with Bolivars that are accepted in Colombia now there is talk of formal exchange convertibility. By comparison what is happening with Maduro’s USD 50 million revolving fund for purchases in T&T? It went Colombia! So the food flowed then the Venezuela gas flowed to Colombia along with all the illicit tankers of gasoline, LPG etc. back to business gangstas rule!
An article in Oil & Gas Journal states that T&T wants 500 million scf/d of gas from Mariscal Sucre but since is only Dragon presently in production only 100 million scf/d will be sold to T&T and the rest when the other fields come on stream. T&T has then to wait on Rosneft time to now kiss up to Putin join the line behind Trump! We are now looking for 500 million scf/d with daily demand in T&T in excess of 3,000 m scf/d. No matter the Maduro gambit the present government has to dance with BP and grapple with the demands BP is making since the last government. Kamla’s strategy of denial and do nothing aren’t working whilst we are now Maduro’s bitch but I wonder what he wants from T&T? And a future Putin bitch then a XI bitch as we might have to go to Beijing to beg for their help with Maduro and whoever follows and with Putin. This is where the politics of race put us!
My article titled “Nicolas Maduro, Venezuela and the end of the Chavez experiment” has been posted to my website. Maduro has made the rounds of the Caribbean island chain sharing out promises as in the case of T&T and the members of Petrocaribe all in one week. At the Petrocaribe council of Ministers held in Caracas last week first gas from the Loran field via T&T was promised to the Caribbean member of Petrocaribe then it was the creation of a gas pipeline from Venezuela to these member islands. Maduro is playing out of Chavez’s playbook drawn up for a match long ended as he is seeking to preempt an imperial agenda by being everything to everybody in an attempt to hopefully distract from harsh realities at home worsened by his unannounced and unexplained austerity medicine applied to Venezuela as Venezuelans labour under Maduro’s austerity that he terms the “economic war”. Maduro is playing survival politics hoping that 2017 will be better but the three card shuffle now you see it now you don’t others are willing to play with Maduro in the quest for gas is a game which potently indicates the unfavourable news received in London town during the visit. Added to this are the news reports that Shell is seeking to sell USD 30 billion in assets including its assets in T&T to pay down on the huge debt they now carry after gulping BG. Maduro is in play, T&T is in play and Shell is in play and can play T&T in the gas play. That is what you call symptoms of a failed paradigm. The article on Maduro is at:
The problem we face in T&T is not caused by the collapse in oil prices as our daily oil production is below 80,000 bpd. The problem is the glut of LNG seeking buyers by any means necessary and any rise in oil prices say to USD45 at best for WTI with the consequent rise in contract LNG prices triggers a rebellion of buyers on contract. Contract due for renewal in 2017 and 2019 are under pressure already by a buyers’ rebellion for those contract prices to reflect market reality. Qatar has already signalled to buyers its willingness to cut prices to retain market share increasing the pressure on LNG producers and Russia and Norway are flooding Europe with pipeline gas to maintain their market shares of the market. Some have insisted that in the next two to three years the market will sink into a bloodbath very similar to the oil market. Others have stated that the LNG market will attain balance possibly by 2025 until then glut is the reality. Why then must BP tap increasingly smaller pools of gas to supply LNG trains to market a product in a glutted market until possibly 2025? The issue is no longer incentives from the government to tap pools of gas but to change the business model that will allow the gas producer to maximise returns on investment on both the local and international gas markets. Then the gas producer must sell gas directly to the end users who use gas as an input in an export driven enterprise in T&T. The cost of gas to the LNG trains must be competitive in light of international market realities hence little or no rents charged. That is the advice you will get when you take your business to the purveyors of the Washington consensus. In this new revenue horizon you must then radically cut your state expenditure and deepen the neo-liberal order the politicians in T&T love. If you want to borrow because you are addicted to grand state projects that change little but the balances on offshore accounts you must have the assent of the Consensus and to get this assent you have to deepen your dance with neo-liberalism where less than 1% become even richer and the rest of us learn how poverty is the hottest part of hell. The present right wing neo-liberalism worshipping government of Norway dipped into the sovereign wealth fund and the dippings continue to escalate because neo-liberalism solves only the problems of the super rich whilst we the poor have no problems to be solved because the exploitation our problems make the super rich what they are. To address our poverty is then to render neo-liberalism irrelevant. Out politicians will never accept this and the death of the politics of race.
Those who don’t earn foreign exchange/hard currency in T&T insist they are entitled to spend it as if it is their personal property. In a social order where the significant earners of hard currency are energy companies and the government collects its share of this hard currency through taxes and rents on the energy companies the talking heads bump their gums to talk about diversification without spelling out if these non-energy pursuits will at least earn the for-ex they consume. There is a vast difference between creating jobs utilising for-ex you don’t earn and cannot earn and creating jobs whilst being self-sufficient in for-ex needs and paying taxes and rents to the government in for-ex. The local manufacturers are a long way from this state of operation and they must learn from the Jamaican enterprises that are now globalised and self-sufficient in for-ex consumption such as Jamaica Broilers Group. The Caricom market must now be replaced by North Atlantic markets then you can speak of manufacturers before that then you must speak of pampered assemblers living off subsidised inputs and a captive market closed by tariff and non-tariff barriers. Learn from the strategic plan of GraceKennedy. But the abiding reality is that the for-ex collected by the state overwhelmingly comes from the LNG exporters and the world LNG markets are in glut which is expected to deepen in the next five years as new LNG plants come alive in the next five years. It is estimated that by 2021 25% of global LNG production will be homeless as it seeks buyers with the impact on LNG prices being obvious. The May 2016 Asia LNG spot price is USD 4.20 per mmbtu and for June 2016 USD 4.00 per mmbtu. Of the 17 LNG cargoes purchased by YPF of Argentina for mid-year delivery LNG traders dominated the suppliers to the detriment of energy companies because LNG producers are selling homeless production to traders for the cash flow rather than hold stock and seek out buyers. In six cargoes sold to CFE of Mexico traders won 3 of 6 supply contracts. The word among traders is that contracts for June and July shipment were all sold for below USD 4.00 per mmbtu. This reality means that the government of T&T cannot defend a TTD exchange rate below TT7.00 to USD 1.00 without running down the for-ex reserves to dangerous levels and 9 billion USD is no nest egg given the rate entitled citizens love to blow it at. Learn from the experience of other energy economies that the measures announced simply do not protect the reserves in a LNG market reality we are faced with in the next five years and failure to protect is not an option as Haiti beckons.