Has east coast peaked?

Trinidad Express
Mary King

The announcement that the fields in the East Coast Marine Area-Teak, Samaan and Poui-are for sale, has set off a flurry of demands that these assets should not fall again into foreign hands. The Editor of the Business Guardian is passionately adamant that we should retain these assets locally and calls on all of us to reject the current paradigm that T&T investors should be excluded from owning the commanding heights of the T&T economy.
David Renwick in the Business Guardian states that if the Ministry’s policy is to encourage more local private sector ownership in the East Coast Marine Area, as it is supposed to do, then it should tacitly encourage local investors to get in on this act.

Dr Krishna Persad also welcomes the sale of these wells and suggests a format for the bidding such that the joint ventures would include companies with the required experience in mature fields together with 51 per cent local ownership (to me GOTT should not be involved).

He even quotes Prof Julien who is alleged to have said that the best form of local content is equity, but in what? We need equity investment in projects that allow us to learn the new technologies and subsequently be able to innovate in them.

My first concern is why does bpTT want to sell these assets? Clearly bp is not strapped for cash in these days of high-energy prices. Renwick sees bpTT’s off-loading of these fields as good economics’ triumph over sentiment. He did not go into any detail as to what economic parameters bp might have used.

Let us raise our eyes a bit. Bilaal Abdullah reports in his recent book, Peak Oil Paradigm Shift that the Kashagan field in the Caspian Sea was discovered in 2001 and deemed to be the greatest field of the decade. In 2002 bp and Stat oil quietly sold their 14 per cent share of this field for US$800 million. In 2003 British Gas sold their 17 per cent share for US$1.2 billion.

The author asks “What do these original parties know about the world’s greatest field or do they merely want to spread the wealth?” We may ask the same of bpTT. Robert Riley is reported as saying that these old fields are not the size relative to local gas assets and even less so in relation to oil assets elsewhere.

H ave these fields that are in operation since 1972 already peaked or are they about to peak? The press indicates that the present productions from the fields at last December were 8,832; 6,717 and 5345 bl/d from Teak, Samaan and Poui respectively.

According to the production model developed by the famed geologist, M King-Hubbert (no relation to me), the information required to determine the amount of resources actually in the field and their accessibility is the history of the production over the years and the technologies utilised from which can be determined the production pattern of the field and the coefficient that governs the shape of the decline of the production curve.

If the fields have peaked then the production henceforth decreases on the down slope of the production curve. The cost of production increases as progress is made down the slope until it becomes uneconomic to produce the remaining oil.

We have seen in the massive Ghawar field of Saudi Arabia that has now passed its peak the need to use expensive “bottle brush” drilling and the injection of large amounts of sea water daily to maintain production and as a result hasten the demise of the field.

Of crucial importance is a due diligence on these bp fields as to where they are on their production curves, what will be the production costs and required technologies once past their peaks and how are these costs expected to escalate. What are the risks of diseconomies of small scale that even bpTT is not willing to take?

These have to be discounted against the projected prices of oil and the need to conserve energy locally for our own long-term use.

When this study has been done then one has to look at the opportunity cost of this investment. It is worth noting that simple financial investment to create returns and without offering us opportunities to create more quality jobs, or to develop the capability and capacity to create advanced factors, does not take our country any further down the path of economic development.

Trinidad Express