Interview: Norman Christie
How elastic is T&T’s gas production with respect to sudden changes in prices?
NORMAN CHRISTIE: Gas production is relatively inelastic, largely because of the length of investment cycles. We can make marginal investments in our rig programmes, which will have a short-term impact on production, but output is mostly driven by long-term investment made in particular fields. These continue producing at relatively low prices, and in 2016 we are investing at a level that is comparable to – or higher than – 2015. That’s not happening in every jurisdiction BP operates in, but the fiscal incentives that were provided in T&T in recent years allow for it.
An upstream investment cycle is typically around four or five years, but it can also come in chunks. For instance, when Juniper is completed in 2017, it will bring about 500m standard cu feet per day on-stream, going a long way towards redressing declining production. The main investment conversation involves discussing what capital project comes next. Ideally, there would be a list of projects lined up so that the country doesn’t experience another period of sharp production decline.
What are the main policy decisions that will shape the industry in the next few years?
CHRISTIE: The National Gas Company (NGC) contract expires in 2018 and Atlantic Train 1 contract in 2019. There will be policy decisions around gas allocation for domestic use and export, which will affect national revenues and net back to upstream stakeholders. The upstream industry is advocating for contracts with more exposure to market-reflective prices. The current contracts have variable degrees of exposure to ammonia, methanol or liquefied natural gas (LNG), but there is a fair amount of fixed pricing, especially under the NGC supply contract. This may be good for other parties in the value chain, but it could negatively impact upstream parties.
In what ways can upstream investment and gas supply be sustained in the long term?
CHRISTIE: A few conditions have to be met. These include no radical changes in fiscal policy, a positive renegotiation of commercial arrangements expiring in 2018 and 2019, and a good long-term price outlook for commodities like LNG, ammonia and methanol. We expect to maintain high investment levels in the next two to three years, as this is the only way T&T is going to make up for the current shortfall. The onshore compression project and Juniper can be completed by 2017 and are not dependent on the commercial arrangements up for renegotiation in 2018. Next in the pipeline is the development of the Angelin field. Angelin should come on-stream in 2019 and help sustain long-term supply levels. As it typically takes two to three years from the point of sanction to first gas, we must make a final investment decision on Angelin in 2016 to ensure first gas is achieved in 2019. This decision will be influenced by government policy.
How competitive is T&T for gas development?
CHRISTIE: T&T is still a very competitive place for gas development. This is certainly true in our Columbus basin, which is relatively shallow acreage, and we are seeing development in BHP Billiton’s deepwater acreage. A lot of investment into seismic technology has given us much higher degrees of certainty about sub-surface risk, lowering costs. Organisations are using new technologies to implement enhanced processes, like smaller pools and pressure optimisation. However, T&T can become even more competitive by managing cost, improving efficiency and eliminating waste. We can increase the ease of doing business and enhance industry collaboration, especially in interactions with third-party contractors and in logistics. T&T has always been a good place for sourcing energy professionals, but we have to manage labour productivity better to keep building projects locally.
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