Introduction

Problem definition
The recently released Ryder Scott report gives Trinidad and Tobagos Reservesto-production ratio for proven reserves of Natural Gas at January 1 st, 2007 was at a level of about 12 years. This figure is in marked contrast to peak R/P ratio of 50.2 yrs achieved in 1998 [some nine years ago]. Several questions in this paper attempt to discuss the reasons for and the implications of reserves to production ratio of 12 years to the Government of Trinidad and Tobago [GORTT]. There exist several factors that which must be discussed when analyzing the relevance and influence of a Reserves-to-production ratio to a particular countries economy. Analysis of these factors is especially important if the economics of a particular country are dependent on the production of these reserves is a crucial element of its revenue. In many countries, this ratio is an indicator to companies of the potential of exploitation of a particular resource because cost recovery may not be realized if the reserves dont produce long enough and hence make capital investment unattractive. These factors can be considered in the broad categories of those factors concerning reserves and those factors concerning production. Factors involving the reserves may involve the nature of the resource itself, area in which the reserve is being depleted, degree of exploration used in finding the resource and economic exploitation of the resource itself. With production, factors such as rate of production, equity of produced resource, nature of production [production techniques] , politics of the country in which production takes place, geographic position of the resource, dynamics of the current economic market and the sufficiency of reserves, either probable or possible, to meet the demands of production. With natural gas as a resource, some of these factors weigh very heavily with regards to their significance. Analysis of the r/p ratio will greatly rely on the economic exploitation of gas reserves to achieve good value for the product as gas has always been cheaper than oil and, for gas based reservoirs, had to be produced in large enough scale to economically viable. Also, the rate and volume at which gas can be put to productive use by either physical or chemical means is important as both forms of production have different effects on rate and volume of natural gas produced.

Currently the GORTT is experiencing great revenues from natural gas that surpass that of oil. In fact the country now produces more gas in bpoe/d than it does crude oil in bpd. The first commercial use of natural gas was in 1953 as a fuel for power generation by the Trinidad and Tobago Electricity Commission. In 1959, natural gas was used for the first by time by Federation Chemical Ltd. to manufacture anhydrous ammonia. Gas based industries started with the National Gas Company [NGC] of Trinidad and Tobago formed in 1975 and mandated to develop the gas market in Trinidad and was granted monopoly rights for the purchase, transmission, and sale of gas within the country as serious planning for the development of the natural gas sector was needed. At the time significant gas reserves off the East Coast of Trinidad were discovered and the government struck a deal with oil companies at the time to give associated gas from oil production to the government instead of being flared. The main supply of natural gas in the country comes from British Petroleums (BP) wells in the Teak, Poui, Cassia, Immortelle, Flambouyant and Mahogany fields located off the East Coast of Trinidad. Other suppliers of natural gas include British Gas (BG) and Enron Oil and Gas (EOG) Resources Trinidad. In addition, NGC owns and operates two offshore gas compression platforms, located in the Teak and Poui fields, offshore the southeast coast of the island. BHP Billington also has significant gas reserves both associated and non-associated in the Angostura field but the associated gas is yet to be used commercially. NGC purchases high pressure gas from its suppliers and together with its own supply of compressed gas, transports this gas via pipelines to the Phoenix Park Gas Processors Limited (PPGPL) plant at Point Lisas. At PPGPL, the heavier gases, mainly propane and butanes and other natural gas liquids [NGLs] are extracted and exported, while the natural gasolines are utilized in refining operations. The methane-rich gas is then distributed to various consumers across the country for the production of electricity, petrochemicals (such as methanol, ammonia and urea), iron and steel, and liquefied natural gas (LNG). It is known that almost two thirds (2/3) of the possible acreage within GORTT waters has yet to be assessed for hydrocarbon potential. Most of this acreage is, however, off shore in fairly deep water. Questions for discussion What are the reasons for the decrease in R/P ratio over the last ten yrs? What are the current implications for Trinidad and Tobago, if any, of the current ratio?

What level should the R/P ratio take? [higher, lower, where?] What actions can be suggested to stabilize or increase the R/P ratio? What are the consequences of, and the possible strategies for dealing with, a continuing decline of natural gas R/P ratios?

Background
Definitions
Definition of the Reserves to Production The Reserves to Production ratio is defined for any year as the quantitative relationship between the average rate of production during the previous year and the volume of existing proved reserves Definition of Reserves used to calculate Reserves-to-production ratio A reserve is considered proven when the accumulation of hydrocarbons is known to exist and can be technically and economically recovered from the present time onward. In Trinidad, Ryder Scott is the auditing company that was hired by the Government of Trinidad and Tobago [GORTT] to account for the amount of proved gas reserves in the onshore and offshore reservoirs in Trinidad and Tobago. They have taken data given to them and have computed the reserves to production ratio with these figures however the accuracy associated with the calculation of proved reserves can always become a point of contention as there are many assumptions that are made while calculating these volumes of recoverable. Reserves development will be considered to be the exploitation of probable reserves while exploration will seek to find possible reserves.

Definition of Production and primary sources of gas utilization Production may be defined removal of hydrocarbon gas from the reservoir and utilization of this gas by either physical or chemical means over a period of unit time. This leads to specific sources of domestic and international gas utilization in Trinidad which include re-injection, electricity generation, ammonia production, methanol production, urea production, gas liquefaction [LNG for export], Hydrogen production and cooking fuel [in minimal amounts domestically] and natural gas liquids [extracted from natural gas]. The capability to sustain these different types of production at their current rate will be considered the productive capacity.

Appendix B at back gives the breakdown of how gas is being utilized for production. Where ever possible, words will follow meanings set out by the SPEs 2005 Glossary of Terms Used in Petroleum Reserves/Resources Definitions document.

Assumptions
The assumptions made were that the current infrastructure with regards to gas transmission remains the same, Henry Hub gas price remains at a value which keeps gas production economical, all figures and dates provided by the Ministry of Trade and Industry, Ministry of Energy and Energy Industries, South Trinidad Chamber of Commerce and Industry and SPE papers referenced below are considered true and geopolitical factors for GORTT remain constant.

Literature review

Research into the significance of the Reserves-to-production ratio lead to a paper published in 2001 called Natural Gas Supply/Demand Balance: The Case of Trinidad and Tobago by authors Godfrey Ransome, SPE, and Haydn Furlonge, NGC Trinidad/Tobago Ltd.. This paper discusses scenarios pertaining to the sustainability of gas production on the island in the cases of low, medium and high gas consumption. It states, that given the anticipated development of the natural gas industry in Trinidad and Tobago, that the supply/demand balance can be mathematical modeled and shows the optimal reserves addition profile needed to meet all projected demand scenarios. It shows that there is a need to boost reserves by up to 39 TSCF in a 20-year period to satisfy a high demand scenario and to maintain a minimum reserves-to-production ratio of 25 years. There were obvious limitations to this mathematical optimization approach such as the assumptions that supply and demand remained constant after 2005. However the most interesting part of this paper is the fact that current production and utilization surpasses the high demand scenario projected for the paper by about 213 MMCFD which gives an indication that the projection of gas needed to fill out current projects needs to be raised past the additional 36.2 TCF projected in 2001 so that a decent reserves-to-production ratio can be kept for security of long term projects. Currently, reserves are being found at a rate that can sustain current production for a while but not a consistent reserves-to-production ratio. The statement issued by the South Trinidad Chamber of Industry and Commerce [STCIC] on their website entitled The Future Of The Energy Sector was published after the leak of the Ryder Scott Report to the Guardian Newspaper on 5 th of August, 2007 was made public and after the stakeholders meeting at the Governments Conference on
The Future Development of The Energy Sector in Trinidad & Tobago held on August

13th and 14th of 2007. This document makes suggestions for significant reform of policies in areas concerning the petrochemical sector, the

legal and fiscal regimes necessary to promote exploration and advice on forming state owned energy companies. Recommendations are mentioned in the document that are meant to create incentives for oil companies to do exploration in the deep water blocks off the east coast of Trinidad which would help improve the reserves profile of the country. It also considers the scenario of Trinidad and Tobago not being able to find sufficient reserves to cope with the current needs of production. It seems to purport that an economy emphasized downstream sector with post gas processing for conversion into petrochemicals should be seen as plausible considering our geographic position to Venezuelas resources. Hence the importation of gas may be a desirable alternative to a shortage in domestic supply.

Discussion
Given mathematical considerations, and a steady-state of factors, a reserves-toproduction ratio can only decrease for two reasons: either the amounts of reserves decreases over time while production stays constant; or the rate of production increases while reserves are constantly replenished at the same rate. In a real world scenario neither factor ever stays in a steady state but examination of both factors will lead to an objective decision as to which one has the greater influence. Over the last ten years, the amounts of proven reserves have been steadily for the years 1997 to 2003 [on average]. Only within the years 2003 to 2007 were decreases seen. GORTT reserves are currently given as 17.71 TCF at the end of 2006 according to the Ryder Scott report but stood at 22 TCF at the end of 1999. What is most interesting about the current reserves figure is the value in spite of discoveries of gas fields off the south east coast by BP of about 5 TCF in total. In light of this, the paper now discusses production According to the NGC total production of all of the gas producing companies in the country was at an average of 3883 MMCFD which gives an annual production of about 1.4 TCF for the year 2006. Not all of this gas was utilized in production but the figure does represent the amount of gas removed from the reservoir.

This production represents an overall increase in produced gas of about 20% from the previous year. [3217 MMCFD] This increase in produced gas is mainly due to the increase in commitments in gas to be liquefied at Atlantic LNG plant. This trend of increasing production has been seen throughout the past ten years. Figures show values of production increasing steadily until the year 2000 where production rose by twenty one percent from the previous year in the most recent publication of the BP Statistical review 2007. Another sudden increase occurs between the years 2002 to 2004 and 2005 to 2006 with the later having and increase in production of a little more than fifteen percent accounting for 1 per cent of total world gas production in 2006. It is noteworthy to mention that all these increases in production positively correlate to the commissioning of four LNG trains over these periods. Train 1 was commissioned in 1999 currently processing 520 MMCFD while trains 2 & 3 were commissioned in 2002 and 2003 respectively with a combined gas usage of 1120 MMCFD. Train 4 was commissioned in 2005 to utilize 800MMCFD of natural gas. These LNG trains currently take a 56.8 % share of usage of total gas production in Trinidad with total production capability of utilising 2099.4 MMCFD in 2006. LNG is currently the principal export of the economy accounting for over TT 8 billion dollars in revenue in the first quarter of 2006. Given that the reserve profile of the country has actually decreased steadily over these years somewhat, we can conclude that the decrease in the reserves-to-production ratio was overall due mainly to a phenomenal increase in production capacity of the country through the four LNG trains. Implications and Consequences With Trinidad and Tobago in context, there are several implications for a low reserves-to-production ratio on this countrys economy. Given that the economy is gas based, the ratio is a signal to downstream investors that the length of time available for a secure supply of gas for capital investment projects is too short and that cost will may not be recovered. The ratio also means that the government needs to improve its current incentives to attract upstream investors to explore for more gas before the supply runs dry. Overall, these implications mean that policy changes must take place if the economy is to continue to be based in gas revenues.

Hence it is the writers belief that the ratio should be a bit higher [about 25 years is safe] so that downstream investors may find security in the obtaining supplies of gas for capital investment in the energy sector. Most petrochemical plants have a lifespan of about 25 to 40 years and recover there initial investment between 10 to 15 years. Although there are other countries around the world that operate with low r/p ratios like America and the United Kingdom, these countries import the gas they use from different sources such as pipelines. This thereby supplements their limited domestic reserves. However in Trinidad, all of the local gas production is fully supplemented by domestic reserves. If the ratio were to continue to decrease, the two broad scenarios possible after exploration are that there exist gas to sustain projects and that there is no gas to sustain projects currently underway. In the second scenario, the GORTT must now seek either alternatives to the domestic natural gas supply for downstream companies or/and must abandon its dependence on gas revenues so that a recession and bust does not take place in the economy. A declining ratio could also lead to the larger multinational oil and gas companies leaving the country. As the gas runs dry, these companies may no longer seek interest in performing further exploration activity as this option would expose the companies to less risk. Enticing foreign companies to perform exploration activity requires a delicate balance of incentives, tax regimes and legal framework that will show them the governments commitment to ensuring the viability of their business while yet still not selling itself short on possible gas revenues.

Conclusions and Recommendations

Currently, given the latest reserves to production ratio and the particular nature of current production within Trinidad, complete replacement of produced reserves now is not necessary to maintain current productive capacity, but it will be necessary in the very near future and preparations should be made for such an exploration intensive climate. Reserves development in some of the existing fields will not cost as much as the exploration for new reservoirs at deeper depths and in the deep water blocks because of the existing equipment and infrastructure. However, the economics which govern the

choices between these two will depend upon the price of gas and at what rate will current production take in the future. A search for more difficult [deeper depths] and unconventional sources of gas will become more feasible as world supplies for gas and LNG decrease and prices increase but must be made attractive to bigger business companies to that they may be made aware of the potential targets for production in acreage not yet up for bid. Increasing current productive capacity will require an aggressive search to increase the proven reserves profile to help maintain production and ensure a dedicated gas supply for large and long term capital projects in order to positively widen the gap between reserves and production. However, further LNG expansion may not be feasible for Trinidad in terms longevity of gas income or value for gas. A study is currently being conducted by the GORTT for the establishment of a fifth LNG train [Train X] which will discuss the financial and economic feasibility of this project given the possibility of increasing reserves, the risk involved, along with considering social externalities not considered in this report. Programs such as the methanol to power research project being conducted by University of Trinidad and Tobago [UTT] in conjunction with Methanol Holding Trinidad Ltd. [MHTL] in investigating the feasibility of methanol as a fuel are great ways of expanding the downstream scope of petrochemicals and will add value to methanol because, as a fuel, methanol is easier to transport than LNG. A working reserves-to-production ratio of about 20 years may be considered safe for long term petrochemical sector investments and this would require atleast additional 39.1 TCF to be found over the next twenty years given current rate of consumption stays constant. This figure is calculated given that last years rate of consumption was about 3878 MMCFD [on average 1.42 TCF per year] and that current reserves stand at 17.7 TCF.

References:
BP Statistical Review 2007 Guardian Newspaper on 5th of August, 2007, page 3 Marcelle-De Silva, J. , Jagai, T. ; Monetizing Gas Reserves: Trinidad and Tobago's Approach ; SPE 69524; Copyright 2001, Society of Petroleum Engineers Inc. ;This paper was prepared for

presentation at the SPE Latin American and Caribbean Petroleum Engineering Conference held in Buenos Aires, Argentina, 25-28 March 2001. Ransome, G and Furlonge, H; Natural Gas Supply/Demand Balance: The Case of Trinidad and Tobago ; SPE 69521; Copyright 2001, Society of Petroleum Engineers Inc. ;This paper was prepared for presentation at the SPE Latin American and Caribbean Petroleum Engineering Conference held in Buenos Aires, Argentina, 25-28 March 2001 South Trinidad Chamber of Industry and Commerce [STCIC]; The Future Of The Energy Sector; http://www.stcic.org/index.php? categoryid=47&p2001_articleid=147 ; Retrieved November 6th ,2007 at 2:00pm http://www.spe.org/spe-app/spe/industry/reference ; Retrieved November 2nd , 2007 NGC http://www.ngc.co.tt/Publications/11GASCO-Juy%2006.pdf GASCO Magazine, July 2006 Ministry of Energy and Energy Industries [MEEI] http://www.energy.gov.tt/applicationloader.asp?app=doc_lib_details&id=273 ; Retrieved October 26th , 2007 Ministry of Trade and Industry, [MTI] http://www.tradeind.gov.tt/Economic %20Data/2007/val_imps.htm ; Retrieved November 2nd, 2007 Methanol Holdings [Trinidad] Limited http://www.ttmethanol.com/web/index.htm

Appendix A
Table showing Integrated Upstream and downstram Processes, percentage Equity and Natural Gas Supply [Courtesy BG website http://www.bg-group.com/international/trinidad.htm , Retrieved November 2nd, 2007]

Appendix