Venezuela, Trinidad & Tobago ink joint gas fields unitization accord despite future LNG competition

Aug. 29, 2002
The governments of Venezuela and Trinidad and Tobago have agreed to work aggressively towards the unitization of certain natural gas fields that straddle both countries' borders. Venezuela continues to cling to the prospect of using some reserves on its side for its own LNG export scheme rather than quickly monetizing all of the field's reserves in Trinidad and Tobago's booming LNG export project.

By an OGJ correspondent

PORT OF SPAIN, Aug. 29 -- The governments of Venezuela and Trinidad and Tobago have agreed to work aggressively towards the unitization of certain natural gas fields that straddle both countries' borders.
Included in that accord is a major cross-border gas field, Loran, with reportedly most of its reserves on the Venezuelan side.
Venezuela continues to cling to the prospect of using reserves from Loran for its own resuscitated but long-stymied LNG export scheme rather than quickly monetizing all of the field's reserves in Trinidad and Tobago's booming LNG export project.
At the same time, Venezuela disclosed that it has marked progress on awarding gas-prone acreage to foreign multinational major companies in the Deltana Plataforma region that contains Loran and other undeveloped gas fields.
Those disclosures underscored industry expectations that, despite the unitization of jointly owned gas fields, the two Caribbean Sea region neighbors eventually will have a spirited competition on LNG export sales in the Western Hemisphere and, to a lesser degree, Europe.

Agreement precedent
The historic agreement was signed in Trinidad and Tobago's capital, Port of Spain, between that's country's foreign minister, Knowlson Gift, and his Venezuelan counterpart, Roy Chaderton Matos, and could lead to the joint development of several cross-border fields containing an estimated 14 tcf of gas.
If successful, it would be among the first offshore unitization agreements between two countries in the Western Hemisphere and one of few ever reached in the world—the most noteworthy having occurred in the North Sea.
Trinidad and Tobago and Venezuela are separated by less than 18 miles of sea, and it is thought that many of the geological formations found on the northern South American mainland also exist in the Caribbean twin-island republic.

Venezuela's Loran plans
The accord came just days after Venezuela's vice-minister of energy and mines, Bernardo Alvarez, had cast doubt on Trinidad and Tobago's hopes of using Venezuela's natural gas for its own future LNG expansions.
In an interview with OGJ shortly before the agreement was announced, Alvarez declared that his country intends to use any Venezuelan gas reserves produced from Loran for its own LNG project. After the accord was announced, Alvarez reiterated Venezuela's basic stance toward Loran reserves and unitization.
In that interview during his recent visit to Trinidad and Tobago, Alvarez said Venezuela wants to unitize its Loran field, in the Plataforma Deltana (Deltan platform) area on Venezuela's Atlantic continental shelf, with Block 6D on the Trinidad side of the border; However, he noted, Venezuela is unwilling to allow its gas to be used to support the future expansion of the Atlantic LNG plant at Point Fortin, Trinidad.
Alvarez said, "We believe that while the reservoir in Block 2, popularly called the Loran field, runs into Trinidad and Tobago waters, most of the reserves exist on our side of the border, and we feel it's better for us to monetize (that gas) by using it for our own LNG production."
Venezuelan state oil company Petroleos de Venezuela SA (PDVSA) discovered Loran, on the Venezuelan side, in 1982.

Venezuelan Deltana awards
Late last week, the Venezuelan government named BG Group PLC (operator) and ChevronTexaco Corp. preferred bidders for Block 2. BG and ChevronTexaco are negotiating with Venezuela's Ministry of Energy and Mines to finalize a work program and commercial terms for Block 2 development. Both companies are also partners in Trinidad's offshore Block 6D, into which Loran is believed to extend.

That award was part of a broader intiative by Caracas that saw tentative accords signed with other major companies to develop gas reserves postulated at 20-30 tcf in Venezuela's Deltan platform area. The government carved up 27,000 sq km into five blocks, tentatively awarded as follows: Block 1, still under negotiation with BP PLC; BG-ChevronTexaco's Block 2; Blocks 3 and 4, offered to Statoil ASA and TotalFinaElf SA as preferred bidders competing with each other; and Block 5, to be awarded in December after further assessment.
All the foreign majors will be required to take on PDVSA as a partner and can earn up to a 35% stake in the blocks. Final terms and contracts are expected to be ready by December.

LNG revival
Venezuela recently decided to try once again to develop an LNG export project by recently okaying the participation of Royal Dutch/Shell Group and Mitsubishi Corp. in a 4.7 million tonne/year project on the Paria Peninsula, in which PDVSA would have at least a 51% majority shareholding.
The new project is a scaled-down version of an LNG export scheme that earlier had included not only PDVSA, Shell, and Mitsubishi but also the former Exxon Corp.; it foundered for lack of market and questionable economics in the early 1990s.
Earlier this year, ExxonMobil Corp. was beaten out by Shell for a stake in the revamped project, according to Venezuelan press reports.
Gas for this project, as originally conceived, was expected to be sourced from earlier discoveries in the Gulf of Paria between Trinidad and Venezuela, south of the Paria Peninsula.

However, the fact that the Plataforma Deltana area off the Orinoco River delta is so much closer to Trinidad than it is to Venezuela that both the Trinidad and Tobago government and BG are confident that gas reserves in Loran field and elsewhere in the Plataforma Deltana could be monetized more quickly via Trinidad and Tobago's thriving Atlantic LNG export project.
Alvarez said, "We know that to produce gas into the Paria LNG project from the Plataforma Deltana region, we would have to transport it for close to 400 miles (see logistics map, OGJ, Mar. 4, 2002, p. 41), but that it not a difficulty; it is economical." He added: "It is because BG is the operator on the Trinidad side and the fact that we have to unitize the fields that made us decide to select the company to explore and develop the Loran field."

It is estimated that combined reserves at Loran on the Venezuela side and Block 6D on the Trinidad side exceed 4 tcf of gas. On several occasions, former British Gas Trinidad & Tobago Ltd. Pres. Jacques Robinson had expressed optimism that the Atlantic LNG project will eventually comprise least six trains, with Loran field supporting Trains 5 and 6.
Currently, Atlantic LNG is in the midst of a two-train expansion that will be fed in part by gas produced from other BGTT-operated gas fields off Trinidad's northern coast.
Reached Aug. 27 for comment, a BG spokeswoman said the company could not respond to Alvarez's statements. She said, "There is no doubt that we are interested in further LNG expansion, but at the moment we are interested in reaching agreement with the Venezuelan government, exploring and producing the field."

LNG stumbles
Meanwhile, Venezuela must cope with the fact that it has for more than a decade now been talking about what was once called the Cristobal Colon LNG project, which it has abandoned in favor of the new PDVSA-Shell-Mitsubishi consortium backing a smaller-scale version.
In addition, Atlantic LNG has been expanding quickly, even though the Trinidad and Tobago government has changed twice since 1995, when discussions first started on Train 1. This is in marked contrast to the earlier delays on Venezuelan LNG efforts and continued political instability in Venezuela, marked by a recent attempted coup and the unpredictability of the politics of Venezuela's President Hugo Chavez.

Alvarez acknowledged his country's stumbles on LNG exports, saying: "Let us face facts: This is a project (Paria LNG) that should have been done 20 years ago, but we are late in the game and we admire what Trinidad and Tobago has achieved. "However, we have now taken a principled position to exploit our offshore natural gas, and we need the gas in the Plataforma Deltana area for an expanded Paria LNG project."
He explained that, under the Paria LNG agreement, Shell and Mitsubishi have the right to develop as many as two LNG trains, after which other companies are free to bid to expand the Paria plant, thereby opening up the possibility of BP or BG participating in LNG production in Venezuela.
But there are no guarantees, and even if the Paria project gets off the ground, it would take some time before any reserves at Loran could be monetized unless they are delivered to Trinidad's Atlantic LNG project.

BG strategy
With this in mind, and with BG-ChevronTexaco already in possession of the license for Block 6D on the Trinidad side of the border, BG aggressively pursued acquiring Loran field on the Venezuelan side.
The company arranged a visit by Venezuela's Energy and Mines Minister Alvaro Silva Calderon, along with Alvarez and a PDVSA delegation from Caracas to show them BG's operations in Trinidad. The Venezuelan delegation visited BG's Dolphin platform on Block 6b off Trinidad's eastern coast as well as the Atlantic LNG plant in which BG is a major shareholder.

BGTT Pres. Peter Dranfield said the Venezuelan group was pleased to learn that the compact Dolphin platform could produce a train's worth of LNG with just slight upgrading.
Dranfield said, "The Venezuelan (energy) minister had recently been to the North Sea and seen those 10 story (tall) 'skyscraper platforms' and, in Dolphin, he witnessed something that Venezuela could do easily. You have to bear in mind that, despite the size of the Venezuelan oil industry, it has no real offshore experience."
He said BG is in favor of unitizing the fields and has the experience of similarly unitizing fields across national borders in North Sea—experience the firm is willing to make available to Venezuela and Trinidad and Tobago.

Agreement details
The agreement between Venezuela and Trinidad and Tobago took the form of a letter of intent in which the two governments declared their interest in creating "a favorable environment for the signature of bilateral agreements between both governments for the exploitation and development of particular cross-border fields."
The governments also undertook to "facilitate whatever assistance and logistical support may be necessary to make exploitation of cross-border reserves a mutually beneficial reality in the near future."
A decision was also made for both countries to enter into a memorandum of understanding (MOU) that sets out the procedure to be followed in the exploitation of any cross-border reserves that fall under the jurisdiction of both countries.
The MOU is expected to be followed by more detailed treaties between the two countries relating to the exploration of specific cross-border fields.

What's affected
Venezuela's Alvarez said his country is pushing for the unitization of its Block 1 with that of BP's Kapok field on the Trinidad and Tobago side of the border. PDVSA has already held discussions with BP on the matter, and it is expected that later this year BP will send a technical team to Caracas to continue the discussion.
Alvarez said, "We are hoping that agreement could be reached with BP on the issue because BP already has significant infrastructure in that region, and it would be easy and quick to monetize that gas by selling it into (Trinidad and Tobago's) Atlantic LNG plant, albeit for a limited period of time."
Sources at BP agree that it would take a short time and slight modifications to their development plans to accommodate a unitized field. Alvarez said the Dorado 1 well, which was recently drilled on Block 1, confirmed 1.5 tcf of gas on the block, which shares a reservoir with Kapok field and its estimated >3 tcf of gas.

Hedging his stance
At the same time, the Venezuelans reiterated their interest in unitizing Block 2 with Block 6d on the Trinidad side. Alvarez argued that by unitizing the fields, it would ensure that gas reserves on both sides of the border are not stranded.
He said, "Let us not for the time being argue where the gas would be monetized. The important thing is to (decide to) produce the gas, and then we will decide where we should monetize it—although it is our firm position that the Loran field should be used for Venezuela's LNG production."

Alvarez said joint development did not rule out each side using their percentage of the gas for their own domestic purposes. He said, "We have come to Trinidad with good intentions. There is no doubt that we are playing catch-up with (Trinidad) in the natural gas business, but at the same time I want to assure you that there is enough room for all of us in the LNG market."
Both Alvarez and Trinidad and Tobago's foreign minister agreed that the joint development plans would have the effect of increasing employment through the creation of additional opportunities for service companies.