In 2007, the Government of Trinidad and Tobago (GOTT) commissioned a consulting firm to do a study of the nation’s natural gas reserves. The report, which became known locally as the Ryder Scott Gas Reserves Report, was made available to the general public during the third quarter of 2007. The report questioned the adequacy of our nation’s gas reserves and this has fueled debate on whether or not the ‘end of the road’ was within sight. The report showed that we are consuming our gas reserves much faster than we are replacing them (finding new reserves). Without any further new field discoveries, our country’s proven reserves (both oil and gas) will be exhausted by the year 2025. Given that this sector is responsible for almost eighty percent (80%) of Trinidad and Tobago’s (T&T’s) foreign revenue, it is surprising that public reaction has been negligible. This lack of reaction is probably due to the lack of understanding over the definition of petroleum reserves. Politicians add to the public’s confusion as they attempt to class probable reserves as proven reserves since this makes the situation look significantly better.
There are three (3) main categories of reserves, proven, probable and possible. The industry accepted definitions are as follows:
> Proven Reserves – the quantities of petroleum, which can be estimated with reasonable certainty to be commercially recoverable from known reservoirs and under defined economic conditions, operating methods and government regulations. Analysis of geo-science and engineering data determined these quantities from a given date forward and there is a 90% probability that the quantities actually recovered will equal or exceed the estimate.
> Probable Reserves – the additional reserves which are less likely to be recovered than proven reserves but more certain to be recovered than possible reserves. Analysis of geo-science and engineering data indicate that there is a fifty percent (50%) probability that the actual quantities recovered will be equal to or exceed the sum of the proven reserves plus probable reserves.
> Possible Reserves – the additional reserves which are less likely to be recoverable than probable reserves. Analysis of geo-science and engineering data suggest that there is a ten percent (10%) probability that the actual quantities recovered will be equal to or exceed the sum of the proven plus probable plus possible reserves.
Simply put, proven reserves are like the fish that we caught which we can weigh, smell and eat. Probable reserves are candidates for development. These are like the fish that is on the hook but we are not sure of the size and there is still the chance the fish may get free from the hook. Possible reserves are like fish that may be there in the water but we don’t know for sure. Even though probable and possible reserves may materialize, this is not certain and investors will only proceed with economically feasible projects on the basis of proven reserves. Financial institutions, such as the International Monetary Fund (IMF), want certainty and do not lend on the basis of probable, much less possible, reserves.
The industry viewpoint is that there is more gas still to be found. Energy experts believe that the sizes of fields yet to be discovered, are no larger that 0.5 trillion cubic feet (tcf). This is much less that the multi tcf fields discovered in the past. On average, our country consumes 1.5 tcf of gas per year. Yet, for the past few years, new discoveries each year only add up to 0.5 tcf, hence our declining reserves position. These same experts suggest that we need to drill between thirty (30) to forty (40) exploration wells each year, but for 2007 and 2008, only a dozen wells were drilled each year, even though Trinidad is considered to be one of the top ten (10) hydrocarbon provinces in the world.
The global economic downturn is being heralded as the reason for less activity in the sector. Fiscal terms have been tightened so much, that it is no longer attractive for foreign oil and gas companies to explore here. T&T now has one of the highest tax takes in the world. Energy authorities believed that because T&T has such an attractive hydrocarbon province, foreign companies will be lining up to do business, regardless of the tax terms. This belief has been proven wrong. This is a global industry and investment goes where it can get the best return. If proper incentive is not provided, then we will not see an increase in exploration and the sector will continue to decline.
On December 12th, 2007, at the Seventh (7th) Energy Caribbean Conference held in Port of Spain, Trinidad, one prominent politician stated that when he was a young man in the 1970’s, he saw a letter which claimed that the oil and gas were about to run out. The letter was dated decades before that time. Therefore, his position was that we have always found oil and we always will. This is faulty logic. Someday, my fellow Trinidadians and Tobagonians, our luck will run out.