Raphael John-Lall

En­er­gy con­sul­tant An­tho­ny Paul be­lieves that the 45 per cent of the gross in­come that the Venezue­lan state will re­ceive from the ac­ti­va­tion of the Drag­on Gas Agree­ment, which was signed in De­cem­ber 2023, be­tween T&T and Venezuela is on­ly nat­ur­al as it was mu­tu­al­ly agreed up­on and will ben­e­fit both par­ties.

“If both sides in a ven­ture (in­vestor and as­set/re­source own­er, in this case) have come to an agree­ment, with­out duress, then we can on­ly con­clude that each par­ty is sat­is­fied with what it gets in re­turn for its con­tri­bu­tion to the ven­ture,” he told the Busi­ness Guardian.

He said these re­sults are de­rived from nor­mal ne­go­ti­a­tions.

“As they say, you get what you ne­go­ti­ate for. You know what is fair to you, on­ly if you know the val­ue of your in­put to the ven­ture. Mean­ing, as an as­set own­er you need to un­der­stand the full val­ue chain of the busi­ness that your re­source en­ables, not just the op­er­a­tions that take place on your prop­er­ty.”

Britain’s multi­na­tion­al Shell and T&T’s Na­tion­al Gas Com­pa­ny (NGC) will pay Venezuela no less than 45 per cent of gross rev­enues from the Drag­on gas pro­duc­tion project off Venezuela’s coast, ac­cord­ing to li­cense terms pub­lished.

Ac­cord­ing to the Venezue­lan Of­fi­cial Gazette, Venezuela is set to re­ceive al­most half of the in­come from the Drag­on Gas deal be­tween T&T and Venezuela. “In no case may the Venezue­lan State’s in­come from the project be less than 45 per cent of the gross in­come of the li­censees,” the Gazette stat­ed.

Young con­firmed on Mon­day that the doc­u­ment in Guardian Me­dia’s pos­ses­sion was the of­fi­cial gazetted li­cence, which was pro­vid­ed to him by Pe­dro Tel­lechea, Venezuela’s Min­is­ter of Pop­u­lar Pow­er for Pe­tro­le­um and pres­i­dent of the coun­try’s state-owned en­er­gy com­pa­ny, PDVSA.

The gas li­cence grant­ed by the Venezue­lan gov­ern­ment and signed last De­cem­ber, will have a du­ra­tion of 30 years and will have the pos­si­bil­i­ty of be­ing ex­tend­ed for a pe­ri­od agreed by the par­ties.

Some 70 per cent of the gas pro­duced will be ex­port­ed to T&T for liq­ue­fac­tion at the At­lantic fa­cil­i­ty in Point Fortin, and the re­main­ing 30 per cent will be des­tined for the petro­chem­i­cal sec­tor, ac­cord­ing to the terms of the li­cence.

Econ­o­mist Dr An­tho­ny Gon­za­les, who is al­so for­mer di­rec­tor of the In­sti­tute of In­ter­na­tion­al Re­la­tions at the Uni­ver­si­ty of the West In­dies (UWI), told the Busi­ness Guardian that it is very dif­fi­cult to de­ter­mine whether the min­i­mum 45 per cent re­quest­ed by Venezuela is an eq­ui­table dis­tri­b­u­tion of the in­come re­ceived from the sale of the nat­ur­al gas.

“It is com­pli­cat­ed as one has to know the like­ly prices of the sale of the dry gas and the prices of all the oth­er com­po­nents of the nat­ur­al gas that go for petro­chem­i­cals, liq­ue­fied pe­tro­le­um gas as well as any oil and con­den­sate. I note that 70 per cent will go to LNG and 30 per cent for petro­chem­i­cals. As a non-ex­pert I as­sume that the dry gas for elec­tric­i­ty will be ex­tract­ed from the lat­ter 30 per cent along with the re­main­ing com­po­nents.

“The cost of pro­duc­tion and trans­porta­tion as well as prof­it would then have to be cal­cu­lat­ed and this is be­tween NGC and Shell. NGC I as­sume will buy the gas from Shell and then NGC will sell it to the LNG plants and to the com­pa­ny that ex­tracts the dry gas and then the rest will go to the petro­chem­i­cal com­pa­nies. I am not clear who is ex­tract­ing the dry gas,” Gon­za­les said.

He said it is not pos­si­ble for an out­sider with lit­tle in­for­ma­tion on all the play­ers in­volved and their costs and prices to in­di­cate whether the min­i­mum 45 per­cent of gross in­come is eq­ui­table.

“I would as­sume that ex­pe­ri­enced play­ers as Shell and NGC would have done their home­work and made the cal­cu­la­tion that it is rea­son­able and al­lows them to make a prof­it. Oth­er­wise, they would not en­ter such a deal.”

On Tues­day, for­mer PDVSA con­sul­tant and Venezue­lan en­er­gy an­a­lyst Ein­stein Mil­lán Ar­cia on the Venezue­lan news web­site Apor­rea ar­gued that de­spite Venezuela re­ceiv­ing a 45 per cent cut from the Drag­on Gas Agree­ment, he still did not think that Venezuela is get­ting its fair share of the deal.

“Ac­cord­ing to the press re­leas­es, PDVSA would keep ‘no less’ than 45 per cent of the gross rev­enues of the project, plus the roy­al­ties re­quired by law. Venezue­lan Oil Min­is­ter Pe­dro Tel­lechea does not spec­i­fy [at least in the gazette] to which project the li­cense refers; whether the pro­duc­tion of gas to the well­head, or to the in­te­gral project un­til the de­liv­ery of the gas and its de­riv­a­tives to the fi­nal des­ti­na­tions. It doesn’t talk about down­stream par­tic­i­pa­tion. The cur­rent ne­go­ti­a­tion does not seem suf­fi­cient, al­though it must be rec­og­nized that it is an ad­vance with re­spect to the ini­tial as­pi­ra­tion of Shell and NGC, who in­tend­ed to keep a 70/30 cut, leav­ing on­ly the roy­al­ties to Venezuela/PDVSA. The project en­vis­aged some 350 Mil­lion Cu­bic Feet Per Day (MM­CFD) in its ini­tial phase. In the end, there were dis­agree­ments over LNG fu­tures (prices),” he said in the ar­ti­cle.

He al­so said de­spite the fact that for this rene­go­ti­a­tion the Gazette spec­i­fies that the Min­istry of Pe­tro­le­um must ap­prove the terms of the gas sales con­tracts, this is not enough.

“If it is the first case; that is to say, the de­liv­ery of the gas to the well­head with­out down­stream par­tic­i­pa­tion, the busi­ness does not make sense since the equiv­a­lent [find­ing costs] that bring to­geth­er those of ex­plo­ration, part of pro­duc­tion and cap­i­tal­iza­tion of these and oth­er re­serves added and/or to be added in time from these or oth­er prospects, could not be paid in 30 years. With 45 per cent of a mil­lion BTUs that to­day in the over­seas mar­ket bare­ly amount to US$2.06; that’s about US$0.92 per MMB­TU.”

He ar­gued that PDVSA’s ne­go­ti­a­tion deal leaves a lot to be de­sired.

“Venezuela has not been able to take ad­van­tage of the sit­u­a­tion in Trinidad to take ad­van­tage of the down­stream. With­out Venezuela’s gas, the is­land would be forced to shut down liq­ue­fac­tion plants in the short term and de­clare force ma­jeure, thus los­ing its cus­tomer base and mar­kets.”