Mariano Browne
The Dragon Deal revisited
''Patriotism is the last refuge of a scoundrel.”
(Samuel Johnson).
“Patriotism For many years various administrations have pursued initiatives to monetise the energy resources which lie between Trinidad and Tobago and Venezuela, “cross-border gas” and more recently energy deposits which lie in Venezuela waters (across the border gas). The purpose has been to increase the gas resources available to T&T as reserves have been stagnant or declining. These initiatives became more important when gas output began to fall in 2012 or thereabouts. Several “agreements” have been signed but we are no closer to the implementation phase.
Before reaching the project implementation stage, the feasibility of any project must be looked at from several angles; technical, financial/economic, environmental. For a project to become a go proposition it must satisfy the tests in each area and the risks of failure mitigated. In addition, the organisation and management structures must also to be aligned as a good project can still fail if the management and project execution is weak.
This is why the gestation period for a project is long; there are many constituent elements to be evaluated before the project is accepted by investors and lenders alike and money invested.
Environmental clearance by itself is a critical consideration that stands separate and apart from technical and economic feasibility. Examples of recent public sector projects requiring the Environmental Management Authority (EMA) surveillance for their certificates of clearance include the aluminium smelter and the highway. Project Sandals in Tobago is at this stage though we have had no word on its economic or financial feasibility.
Students in the last project finance course (2018 SEM6012) of the Arthur Lok Jack Global School of Business MBA programme in Sustainable Energy Management were asked to evaluate the feasibility of the “Dragon project.”
Their diverse backgrounds (engineering, finance and other technical areas) facilitated a cross-functional approach to the evaluation process.
There was general agreement on the technical and economic aspects of the project. Detailed costing was not required as the specifications were not available.
Students noted that the Hibiscus platform operated by Shell in T&T waters was sufficiently close to the Dragon field to act as a centre point to its development, thereby reducing the investment outlay as the Hibiscus platform is already connected to the T&T pipeline grid. This would limit the investment to the platform in Venezuela waters and the associated pipeline to connect with the Hibiscus station and all the associated technical and engineering costs.
Students agreed that the project was feasible from a technical and economic perspective. It was assumed that some partnership arrangement with Shell would be required. This approach is supported by the official statements which suggest a partnership between Shell and NGC.
Students were then asked to identify any pitfalls which would prevent the project from moving forward for any of the parties.
This step required the consideration of the risks that could impact the project’s success, in particular political risk. Opinion was divided; many were prepared to accept the political risk including expropriation.
Recent history is not propitious.
There are at 22 legal actions against Venezuela before international courts demanding compensation for expropriated assets. The most successful of these actions has been Conoco, which seized Venezuela/ PDVSA assets in Curacao and Aruba in May 2018. New loans to Venezuela have come from Russia and China predicated on the allocation of energy rights and payment in oil. As ever, the threat of US sanctions looms large.
Can T&T survive an investment stranded by US sanctions? Would Shell be prepared to jeopardise its international position for a mere 10 TCF of gas? The answer to both questions is a resounding no. Shell is interested in all of Venezuela’s gas not 10 TCF. The timing is not right, nor is the existing political situation improving.
The Prime Minister invested considerable time and political capital pursuing the Dragon initiative. It added lustre as a man of action, it sounded good, but it was hopeless gambit with little chance of success. Stationing two long-range Russian bombers in Venezuela and the announcement that Iranian warships would be sent to Venezuela raises the geopolitical stakes.
The Prime Minister must now find a scapegoat to blame for his failure and for the foreign policy mistakes and mispositioning at the OAS on Venezuela. This is a standard operating procedure and explains his claim that the opposition conspired with a member of the National Assembly, Carlos Valero, to sabotage his efforts whilst visiting T&T last month.
Mr Valero simply reiterated what several T&T Ambassadors to Venezuela have reported to wit; No deal between Venezuela and T&T is legally binding unless it is ratified by the National Assembly.
There was never a Dragon Deal; this never rose beyond an initiative and needed no sabotage to fail. Blaming the opposition fits the political narrative and sells well.
(Samuel Johnson).
“Patriotism For many years various administrations have pursued initiatives to monetise the energy resources which lie between Trinidad and Tobago and Venezuela, “cross-border gas” and more recently energy deposits which lie in Venezuela waters (across the border gas). The purpose has been to increase the gas resources available to T&T as reserves have been stagnant or declining. These initiatives became more important when gas output began to fall in 2012 or thereabouts. Several “agreements” have been signed but we are no closer to the implementation phase.
Before reaching the project implementation stage, the feasibility of any project must be looked at from several angles; technical, financial/economic, environmental. For a project to become a go proposition it must satisfy the tests in each area and the risks of failure mitigated. In addition, the organisation and management structures must also to be aligned as a good project can still fail if the management and project execution is weak.
This is why the gestation period for a project is long; there are many constituent elements to be evaluated before the project is accepted by investors and lenders alike and money invested.
Environmental clearance by itself is a critical consideration that stands separate and apart from technical and economic feasibility. Examples of recent public sector projects requiring the Environmental Management Authority (EMA) surveillance for their certificates of clearance include the aluminium smelter and the highway. Project Sandals in Tobago is at this stage though we have had no word on its economic or financial feasibility.
Students in the last project finance course (2018 SEM6012) of the Arthur Lok Jack Global School of Business MBA programme in Sustainable Energy Management were asked to evaluate the feasibility of the “Dragon project.”
Their diverse backgrounds (engineering, finance and other technical areas) facilitated a cross-functional approach to the evaluation process.
There was general agreement on the technical and economic aspects of the project. Detailed costing was not required as the specifications were not available.
Students noted that the Hibiscus platform operated by Shell in T&T waters was sufficiently close to the Dragon field to act as a centre point to its development, thereby reducing the investment outlay as the Hibiscus platform is already connected to the T&T pipeline grid. This would limit the investment to the platform in Venezuela waters and the associated pipeline to connect with the Hibiscus station and all the associated technical and engineering costs.
Students agreed that the project was feasible from a technical and economic perspective. It was assumed that some partnership arrangement with Shell would be required. This approach is supported by the official statements which suggest a partnership between Shell and NGC.
Students were then asked to identify any pitfalls which would prevent the project from moving forward for any of the parties.
This step required the consideration of the risks that could impact the project’s success, in particular political risk. Opinion was divided; many were prepared to accept the political risk including expropriation.
Recent history is not propitious.
There are at 22 legal actions against Venezuela before international courts demanding compensation for expropriated assets. The most successful of these actions has been Conoco, which seized Venezuela/ PDVSA assets in Curacao and Aruba in May 2018. New loans to Venezuela have come from Russia and China predicated on the allocation of energy rights and payment in oil. As ever, the threat of US sanctions looms large.
Can T&T survive an investment stranded by US sanctions? Would Shell be prepared to jeopardise its international position for a mere 10 TCF of gas? The answer to both questions is a resounding no. Shell is interested in all of Venezuela’s gas not 10 TCF. The timing is not right, nor is the existing political situation improving.
The Prime Minister invested considerable time and political capital pursuing the Dragon initiative. It added lustre as a man of action, it sounded good, but it was hopeless gambit with little chance of success. Stationing two long-range Russian bombers in Venezuela and the announcement that Iranian warships would be sent to Venezuela raises the geopolitical stakes.
The Prime Minister must now find a scapegoat to blame for his failure and for the foreign policy mistakes and mispositioning at the OAS on Venezuela. This is a standard operating procedure and explains his claim that the opposition conspired with a member of the National Assembly, Carlos Valero, to sabotage his efforts whilst visiting T&T last month.
Mr Valero simply reiterated what several T&T Ambassadors to Venezuela have reported to wit; No deal between Venezuela and T&T is legally binding unless it is ratified by the National Assembly.
There was never a Dragon Deal; this never rose beyond an initiative and needed no sabotage to fail. Blaming the opposition fits the political narrative and sells well.