April 12, 2016
Statement by Kevin Ramnarine
Prime Minister’s Parliamentary Statement on Natural Gas supply is Historical Revisionism
The Prime Minister’s opinion on the gas shortage, not surprisingly, conveniently neglects to mention that one of the main reasons we experienced gas shortages from late 2010 to today is the fact that upstream investment dried up from 2008 to 2010. This was rectified when petroleum related Foreign Direct Investment climbed from US$ 501 million in 2010 to US$ 1.5 billion in 2015. This piece of history has been conveniently and continually ignored by the Prime Minster. The gas shortages of 2010 to the present are due to:
3) Over contracting of natural gas from 2007 to 2009 by NGC with BG, EOG and BHP.
The records of these events can be substantiated and are well known among industry players.
Expired NGC – Downstream contracts
He also continues to repeat the story of expired contracts between the NGC and MHTL that expired in 2013. The facts are that one MHTL contract, the M4 plant contract expired in 2013 and two in December 2015. If this is such a big issue why have they (the PNM) not yet renewed these expired contracts given that they have been in office for over 20 months and counting?
PM involved in price negotiations with EOG
In his statement the Prime Minster also said that he was part of a negotiation with EOG Resources to determine a natural gas price that was hitherto not achievable between EOG Resources and the NGC. Price negotiation is the role and remit of the National Gas Company not the Prime Minister. It is improper for the Prime Minister to be directly involved in natural gas price negotiations with EOG Resources. This is a dangerous precedent that is being set.
Criticism of Fiscal Incentives
The Prime Minister is also wrong about the 100% capital allowance for exploration which he says has affected the country’s revenue. How is that possible when the two BP exploration wells are being drilled in 2017 and capital allowances can only be applied point forward. What year is he referring to? The Prime Minster seems to be proud that BP is drilling two exploration wells this year but is critical of the incentives that made them a reality. This demonstrates a dichotomous policy position that confused the whole energy sector.
Shell gas supply to NGC
The Prime Minister boasts that his Government has gotten a commitment from Shell to supply (100 to 105) mmcfd to NGC. He said this was a great achievement. This is a moot point because Shell is already contractually obligated to supply 220 mmcfd to NGC under the terms of the 2009 Incremental Gas Sales contract. This is therefore no reason for celebration. Shell is supplying within existing contractual terms albeit below contract levels.
Claims against the NGC
The claims against the NGC for failure to deliver on contractual volumes to downstream customers is not the fault of the NGC and arose because of circumstances outside of the control of that company. The NGC is protected against such claims in its contracts. These claims therefore have to be negotiated in that context. However, statements by the Prime Minister regarding the gas shortage may have the effect of weakening the NGC’s defence against these claims.