PETROLEUM CONFERENCE HIGHLIGHTS ISSUES CONFRONTING T&T OIL

UNCLAS SECTION 01 OF 03 PORT OF SPAIN 000152

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR WHA PDAS DUDDY, WHA/CAR, WHA/EPSC, EEB/ESC/IEC/EPC
SOUTHCOM ALSO FOR POLAD

E.O. 12958: N/A
TAGS: EPET ENRG EINV EFIN TD
SUBJECT: PETROLEUM CONFERENCE HIGHLIGHTS ISSUES CONFRONTING T&T OIL
AND GAS SECTOR

REF: Port of Spain 21

SENSITIVE BUT UNCLASSIFIED - PROTECT ACCORDINGLY


1. (U) SUMMARY: Oil and gas companies operating in Trinidad &
Tobago outlined aggressive programs to develop proven reserves in
their presentations at the T&T Petroleum Conference, but several
speakers raised concern that exploration may not be keeping pace
with gas utilization. Energy Minister Saith announced that results
of the first audit of T&T's reserves in two years will be released
within the next few months and that a feasibility study is being
launched for a new LNG train. Saith also foreshadowed a GOTT move
into shipping and regasification of its LNG exports, and he
announced plans for a conference in late March/early April to
discuss the future of T&T's energy sector. Several speakers raised
PetroCaribe as a diplomatic success for Venezuela and a challenge
for T&T. Presentations on Nova Scotia and Chile, as well as the
Extractive Industries Transparency Initiative, provided a
counterpoint to resource nationalism elsewhere in the region. END
SUMMARY.


2. (U) The annual Trinidad and Tobago Petroleum Conference (TTPC),
February 5-6, brought together several hundred local and visiting
oil and gas industry executives with GOTT officials, a trade
delegation from Nova Scotia, and Suriname Energy Minister Rusland.
While the conference theme, "Energy and People," set the stage for
companies to showcase their workforce development/local content and
corporate social responsibility efforts, the program also covered
the macro issues confronting energy policy makers in T&T and, to a
lesser extent, the Caribbean region.

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T&T Energy Sector - Questions on Gas Reserves
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3. (U) Rampersad Motilal of the South Trinidad Chamber of Industry
and Commerce (STCIC) questioned whether T&T gas reserves are keeping
pace with gas utilization, which increased from 3 billion to 4
billion cubic feet per day over the previous year. Voicing concern
over the future of T&T's gas-based economy, Motilal noted that the
GOTT had not released an update of audited reserves since January
2005 and that the 2006 bid round for exploration and development
rights drew minimal interest.


4. (U) Responding to these concerns, T&T Energy Minister Lenny Saith
announced that the results of a new audit of T&T's gas reserves
would be announced by the third quarter of FY-2007 (i.e.
April-June). U.S. accounting firm Ryder Scott is performing the
audit, which will assess reserves as of end-2006. On the 2006 bid
round for new exploration blocks, Saith said the GOTT would seek
industry views on whether newly revised model production sharing
contract (PSC) had discouraged companies from bidding, and he
affirmed that the GOTT would adjust PSC terms as needed.


5. (SBU) NOTE: Industry contacts previously told Econ Chief that the
GOTT mishandled the 2006 bid round by dividing the commercially
risky deep water region into too many blocks and tilting PSC terms
too much in its own favor. END NOTE.


6. (U) Saith reported that oil and gas companies' current
exploration and development plans call for investing US$400 million
in T&T's upstream sector over the next two years, comprising eleven
new wells in 2007 and six in 2008. Moreover, the GOTT's National
Gas Company (NGC) had concluded negotiations with most of the
companies producing in T&T for a total supply of 560 million cubic
feet per day of natural gas over a 12-15 year period, tied to
production sharing contracts.

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LNG Markets - GOTT Studying Train X, Going Downstream
-------------- --------------


7. (U) Energy Minister Saith announced that the GOTT would soon
launch a feasibility study for a fifth LNG train, known as "Train
X," to be concluded by end-2007. He also said the GOTT intends to
diversify and invest in the liquefied natural gas (LNG) sector by
attracting new entrants to gas liquefaction and increasing GOTT
participation in the shipping, gasification, and marketing of T&T's
LNG exports. Professor Ken Julien, chair of the National Energy
Corporation and president of the University of Trinidad & Tobago
(UTT),elaborated that by investing in U.S. regasification
terminals, the GOTT could address concerns that existing commercial

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arrangements do not provide T&T with "direct access" to the U.S.
market.


8. (SBU) One industry contact commented during a sidebar
conversation with Econ Chief that the downstream end of the LNG
value chain is notoriously complex, and a move into regasification
would stretch the GOTT's capacity.


9. (U) Sheldon Daniel of bpTT reported that Atlantic LNG's Train 4
is on its way to producing at full capacity, as the company has
largely worked through "teething problems" that have affected Train
4's first year of operation. Daniel also said a framework agreement
between T&T and Venezuela for development of cross-border gas
deposits was "nearly ready" for signature, and he hoped that a
bilateral working group examining gas volumes and allocations of the
Kapok/Dorado cross-border field, in which bpTT has an interest,
would finalize its recommendations in 2007.

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PetroCaribe seen as success for Venezuela
--------------


10. (U) Professor Anthony Bryan of the Center for Strategic and
International Studies described Venezuela's PetroCaribe initiative
as posing serious diplomatic challenges for the GOTT and the CARICOM
region. Two years after the initiative's launch, Bryan said,
import-dependent CARICOM countries see Venezuela as a "trusted
regional partner" and PetroCaribe as a real attempt to find a
regional solution to the energy supply problems that they face.


11. (U) Ruth Potopsingh, Managing Director of the Petroleum
Corporation of Jamaica (PetroJam),described Jamaica's dependence on
imported oil and praised Venezuela and PetroCaribe for having
allowed Jamaica to set aside funding for social programs. She also
stated that Venezuela was considering support for a proposed upgrade
for PetroJam facilities, including configuring a PetroJam refinery
to handle Venezuelan crude, by end-2009.


12. (U) While GOTT Ministers' remarks did not address PetroCaribe,
Wayne Bertrand of the T&T state oil company Petrotrin cited
PetroCaribe as contributing to a slight decline in output from the
Petrotrin refinery, which produces for the domestic and Caribbean
market, as a result of market share lost to Venezuela.

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Energy and Development
--------------


13. (U) Energy Minister Saith outlined the GOTT strategy to leverage
energy resources to achieve developed country status by the year

2020. Near-term plans include seven downstream projects based on
natural gas, entailing over US$8 billion in foreign direct
investment in petrochemicals, steel, and aluminum production.
Collectively these projects would create 25,000 jobs during the
construction phase and 4,400 "permanent" jobs, while laying the
groundwork for an expanded manufacturing industry. Saith also
announced that the Energy Ministry and the Natural Gas Export Task
Force will hold a conference in late March or early April to look at
the future development of T&T's energy sector.


14. (U) STCIC president Rampersad Motilal commended GOTT priorities
for use of oil and gas revenues, including increased spending on
education and allocations to a Heritage and Stabilization Fund.
Motilal also voiced support for the general GOTT policy thrust of
developing downstream industry, while noting that GOTT plans for
aluminum smelters have generated controversy (see reftel).


15. (U) Professor Ken Julien welcomed the local debate on aluminum
smelters as a "blessing in disguise" that was forcing a critical
analysis of how T&T should use its gas reserves. He called for
dialogue that was "free of emotion and hidden agendas" and
encouraged the GOTT Environmental Management Agency to play a more
assertive role in framing discussion of environmental concerns
related to the proposed smelters.


16. (U) Nova Scotia Energy Minister Bill Dooks described his
province's approach to developing renewable energy sources,
encouraging use of local content, and developing post-secondary
educational resources that respond to energy industry needs. Dooks
described these policies as an effort to keep jobs and investment
dollars from leaving Nova Scotia.


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17. (U) Former Chilean Central Bank President Roberto Zahler
highlighted the importance of opening markets and enabling private
sector-led development of energy resources in his presentation on
Chile's energy sector development model. Dr. Carlos Monge of the
International Advisory Group for the Extractive Industries
Transparency Initiative (EITI) delivered a presentation on the
status of the EITI in Latin America.


18. (SBU) COMMENT: Resource nationalism and developments in
Venezuela's energy sector, while not explicit themes of this year's
TTPC, were clearly on the minds of the conference organizers and
most private sector participants with whom Econ Chief spoke during
the event. Presentations on Chile, Nova Scotia, and EITI added up
to a ringing endorsement of private sector led energy development
and energy revenue transparency. The fact that Energy Minister
Saith did not mention Venezuela reflects both Saith's cautious style
and the GOTT's delicate position. Many CARICOM neighbors welcome
PetroCaribe and blame T&T for not doing more to help in a time of
high oil prices, while Venezuela has veto power over development of
cross-border gas deposits that are essential for T&T to increase LNG
production. A new LNG train would in turn enhance T&T's ability to
supply LNG to Jamaica and other CARICOM partners, a possibility that
may explain the GOTT's interest in gaining experience and know-how
in downstream LNG.


19. (SBU) COMMENT CONTINUED: Oil and gas companies made clear in
their presentations that they will remain busy developing T&T's
proven reserves - and reaping returns from past exploration - over
the next several years. Nevertheless, with few new discoveries and
limited interest in the exploration blocks not yet assigned, concern
over the sustainability of the GOTT's aggressive gas-based
industrialization plans is on the rise, surfacing most conspicuously
in the debate over Alcoa's proposed aluminum smelter. In this
election year for T&T, Post anticipates intense scrutiny of the
forthcoming audit of T&T reserves. END COMMENT.

AUSTIN