The 2023 Trinidad and Tobago (TT) Energy Conference, themed, ‘Navigating a complex energy future’ took place in January. We sat down with Malcolm Mackenzie, Financial Analyst at Aegis, to discuss his key takeaways for businesses.
The overarching theme highlighted the pressure faced by upstream and downstream companies, and those in the energy services sector, to reduce and eventually eliminate their carbon footprint.
New legislation needed
Mackenzie noted that “Where the energy sector is heading is a new landscape. It’s a new frontier and Trinidad and Tobago must develop a stronger framework for the energy transition; we’re still operating with legislation that’s been around for decades.”
“For example, the petroleum taxes that the government levies on upstream operators – if we needed to position the country to be more competitive, we would need to relook at some of these tax regimes, the legislation that we have in place. As we get towards net zero, we need new legislation, new policies.”
During the energy conference, Dr Keith Rowley, Prime Minister of TT, spoke about taking legislation on Feed-in-Tariffs to Cabinet soon. He said this was part of his administration’s “strategy to encourage low carbon power generation technologies and renewable energy generation.”
“Feed-In-Tariffs have proven to be an effective policy instrument in encouraging investment in renewable energy technologies and in the growth of domestic renewable industries. It is currently being reviewed by the Ministry of Energy and Energy Industries and will be brought to Cabinet this quarter,” Dr Rowley said.
Referring to this and noting that keeping track of legislative changes can take the focus away from one’s core business, Mackenzie said Aegis stands ready to ensure clients meet all legislative requirements in Trinidad and Tobago.
Another noteworthy topic was the shift towards net zero and environmental, social, and governance (ESG) investing. Net zero refers to the balance between the amount of greenhouse gas produced and the amount removed from the atmosphere. Net zero is achieved when the amount of greenhouse gas added is no more than the amount removed. ESG investing is where potential investments are reviewed based on the corporate policies of the companies involved.
Mackenzie said “the scarcity of capital” on a global scale means companies have to examine how they can make their projects even more bankable.
“Traditionally, you just needed to show that there’s a financial return and you can get project financing but now, there’s a shift towards ESG, renewables and how you price carbon emissions into your project because carbon emissions now have a major price implication. For example, a project that’s profitable on paper, but requires the burning of heavy fuels just won’t be attractive to the major financing institutions.”
It is therefore advisable that companies begin, if they have not already done so, to move from traditional fuels to green/clean/renewable energy. It’s not only good for the planet, it puts your company in the running for project funding.
“Having a green component in your (business) model gives you an edge over your competitors because that’s where the global economy is headed. And if you can get a head start on that now, it will translate down the road. We’re already seeing companies around the globe with premium pricing opportunities due their green initiatives.”
“Oil and gas are going to play a part in our lives for the next few decades,” Mackenzie noted, “but it’s about transitioning towards greener fuels. One of the takeaways that I had from the conference is that the energy transition is a transition towards sustainability. It’s about creating that balance where your business continues to thrive but you’re meeting those socio-economic needs of your country, your environment, and the global economy.”
Dragon gas field offshore Venezuela
Mackenzie also shared his thoughts on the United States (US) Government’s recent decision to grant TT a two-year waiver to explore the Dragon gas field in Venezuela’s territorial waters.
Prime Minister Rowley announced this significant development on January 24, which happened to be day two of the energy conference.
Back in August 2018, TT and Venezuela had signed a US$1 billion deal to develop this field. Signatories to that deal included TT’s National Gas Company (NGC), Venezuela’s state oil company PDVSA and energy giant, Shell. However, the deal stalled when the US imposed new sanctions against Venezuela in 2019.
Mackenzie recalled that word quickly spread on the sidelines about the US Office of Foreign Assets Control (OFAC) waiver, which would potentially see TT gaining access to 350 million cubic feet of natural gas per day from the Dragon field.
“It came up in conversation, people were talking about it but the conference itself wasn’t discussing that announcement.”
Referring to the ongoing geo-political tensions between the Venezuelan and American governments, and the delicate balance TT has to maintain in its relations with the two, Mackenzie noted that “political considerations have to be there” when considering the upcoming US presidential elections in November 2024 versus the time needed to get natural gas flowing to TT.
“Depending on the outcome of those elections, that is a decision that can be reversed, as we’ve seen with many political decisions. It’s all about politics and what is meeting your agenda at the time.”
Mackenzie recalled that one conference topic concerned the difference in timelines from discovery of oil or gas to development approval, to first production. “The context of the conversation was that the discovery to sanction timeline is where we (TT) need to tighten up; it takes about four to six years. If they (Dragon field) are looking at the same four to six-year timeline, the TT government could make a decision to accelerate this and get our infrastructure in place to try and get gas flowing before the political landscape in America changes but that may not happen in time.”
Noting that Aegis’ energy sector clients would be among those watching the latest developments closely, Mackenzie said, “You have to weight that risk in making your investment because the announcement was really the lifting of sanctions, allowing Trinidad to develop the gas field.”
He added that being cautious when political decisions have an impact on your business decisions is something he would advise anyone to do. “You need to be wary about the changing political landscapes. With one election, things can change drastically.”
“The political climate today,” Mackenzie said, “is more prevalent in your decision-making than it ever has been. It has to be because an election cycle lasts four years but your investments may have a longer ROI; return on investment. It may take longer than four years, so depending on where you’re operating, geographically, you have a lot of considerations to make. With a Venezuelan gas field, that political risk goes up.”
If you have any questions about your business, feel free to contact Aegis at email@example.com