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.”
