Andrea Perez-Sobers
Senior Reporter
andrea.perez-sobers@guardian.co.tt
The T&T energy sector, when viewed through the lens of the production of oil, natural gas and derived commodities such as LNG, ammonia, methanol, and smelted metals can best be described as mature and with clear signs of decline.
The challenge is in striking a balance between getting an acceptable rate of return for the people of T&T and at the same time providing an acceptable return to international investors, who have other options to consider.
This is the view of Eugene Tiah, CEO of the newly minted organisation the Caribbean Energy Chamber (CEC) in a wide-ranging interview with the Sunday Business.
He explained that an acceptable rate of return is complicated as it is not just a single number.
“It varies based on things like the riskiness of the investment etc. Companies use several factors to arrive at what is an acceptable rate of return considering the risk profile of the investment. For example, there could be a technical subsurface risk, there may be operational risks, there could be commercial risks etc,” he said.
Also, he noted that it is easy to take a “balcony commentary position” on such complicated matters and provide prescriptions.
“It is much harder, of course, to be on the playing field, in the heat of the competition, dealing with all the complications and trade-offs that must be considered in making long-term decisions and meeting contractual commitments,” explained Tiah, who worked for Phoenix Park Gas Processors Ltd for 23 years, including 13 as president.
The energy expert highlighted the natural gas exploration projects that are advancing currently through the delineation, assessment, and development phases are further from shore in deep water, smaller and more marginal or are cross-border opportunities.
“All of these have their complexities that impact cost, value sharing, and getting to acceptable rates of return for all stakeholders to make the investments feasible,” Tiah said.
He further advised T&T that there is an incentive to produce oil while it can, rather than delay and find that it is no longer economical to produce.
Referencing the Supplemental Petroleum Tax (SPT), Tiah, who once served as the chairman of the Energy Chamber, said he supported the view that the Supplemental Petroleum Tax (SPT) should be looked at to create greater incentives for exploration and production.
Delving into the specifics of how the SPT works, Tiah described it as “quite complicated.”
“A reduction in SPT requires giving up tax revenue in the short term to hopefully get a similar or greater return arising from additional production which usually can only come from additional investment. The challenge is that additional investment doesn’t necessarily mean additional production,” he said.
Further, he said, there is a risk that exploration may not yield any prospects that are worth developing. There is also the risk that producers will take short-term profits from the tax reduction and not make the additional investments required for additional production.
This explains the slow and cautious nature of the government, Tiah said.
However, he advised that notwithstanding, T&T’s tax structure must be considered in assessing its attractiveness/competitiveness relative to other locations.
“I fully support the continued dialogue which could ultimately result in changes that could be value-adding to both T&T and the investors particularly in the context of price volatility and the concerns regarding the rate of progress toward a lower carbon future,” Tiah detailed.
The Energy Chamber has long advocated that the SPT remains one of the mechanisms to stimulate more investment in existing acreage held under exploration and production licences through fiscal reform.
It has argued for many years for amendments to the SPT to encourage investment in oil production in mature acreages and for changes to the Petroleum Profit Tax and royalties to encourage investment in gas, especially from small fields.
Regarding T&T’s energy sector in a broader sense, Tiah noted that the policymakers and technocrats are aware of the actions that can be taken to incentivise investment in exploring, developing, and producing new resources considering the reality that the easier-to-develop fields have already been developed and are producing or depleted.
Creating regional energy security
Energy security is also national security so, Tiah believes, it behooves the region to work together in a more united way given that it is international geopolitics that often disproportionately affects countries in the region.
As such, he said the CEC is “a formal but informal mechanism” that allows the region to meet with the various energy stakeholders more frequently to address energy issues.
“The objective is to understand as a region where we are and then to enable tangible actions to move the energy security agenda forward,” Tiah disclosed.
On whether he believed there is too much fragmentation amongst Caribbean countries when it comes to achieving energy security in the region, Tiah said there are many different and good dimensions of work on energy security taking place in Caribbean countries.
However, he indicated that while there is some intra-Caribbean cooperation, there is no entity that brings all the energy stakeholders together on a consistent and sustained basis to develop the full energy security picture.
Tiah reiterated that the CEC therefore, aims to address this and work on an already developed roadmap to move affordable net zero energy security forward for the Caribbean.
He further emphasised that regional countries need to have more coordinated dialogue to close such gaps when it comes to creating unison for energy security.
“That is why CEC is encouraging wide application for membership from all the various sectors since a significant part of the value of CEC is derived from the membership having a voice in defining what priorities should be addressed at a pan-Caribbean level by the CEC,” Tiah said.
He also noted that some Caribbean countries are more advanced with their national policies and enabling regulations for the incorporation of renewables in specific technologies.
For example, Tiah cited Jamaica with solar and wind resources and Barbados with solar resources, adding that their advancement present the opportunity to adopt or adapt what has been developed, thereby avoiding the wastage of resources in replicating what is already available.
Why establish the CEC?
According to Tiah, the Caribbean is faced with major issues such as climate change and global conflict, which directly or indirectly affect the region.
As such, these issues hold significant importance.
“Climate change has a disproportionate impact on the Caribbean and requires global collaboration to address its effects. Additionally, geopolitical tensions outside the Caribbean, especially the recent conflicts have resulted in soaring food and energy prices, underscoring the volatility of the global market,” he explained.
Given these concerns, Tiah said the CEC is optimistic about the collaboration within the Caribbean itself as well as between the Caribbean and the global community, highlighting the importance of recognising differences while focusing on shared values.
“There is a role for an entity like the CEC to enable, on a consistent and sustained basis, more dialogue and collaboration at a working level to advance at a more rapid pace actions related to the transition to a lower carbon future (net zero), energy security and affordability and resilience of energy systems.
“This is what inspired me to be part of the founding board of CEC,” he said.
About the CEC
Established in St Lucia, the CEC is currently less than a month old as an establishment.
However, Tiah noted there are already pan-Caribbean board members as well as board members from Barbados, Dominica, Stt Lucia, and T&T.
The entity is in the process of onboarding other board members from other parts of the Caribbean.