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Economists divided on new gas company

Thursday, March 22, 2018

Government’s decision to start up another state enterprise to find and produce natural gas from small and fields has been applauded by one economist, Gregory McGuire. However, another economist, Dr Ronald Ramkissoon, is urging caution.

McGuire, who has worked and written on the energy sector for decades, said the move was a good one since significant amounts of gas that can and should be produced from small and stranded fields.

“My suspicion is that this company is likely to be a subsidiary of the National Gas Company Ltd because it makes sense to separate out the NGC’s assets and not to confuse the exploration and production assets with the rest of the company. All the NGC’s upstream assets are held in separate companies so that it does not reflect on the NGC’s accounts per se,” he said.

NGC has interests in the Teak, Samaan and Poui fields operated by French outfit Perenco and the Iguana field operated by Denovo which is expected to land first gas soon.

In a telephone interview with Business and Money, McGuire said it is a good move because there are many smaller fields that the “BPs of this world will not produce because to them it is not viable or economic to bring into production.”

He gave the example of TSP which once produced as much as 145,000 barrels of oil per day (bo/d) and now produces just over 10,000 bo/d.

He said for the larger companies TSP is not attractive but Perenco has taken it over and is making good use of the asset.

The energy economist said there are companies with licences that have held onto acreage they are neither exploring nor producing. It is those kinds of situations that an NGC, with a more nimble and smaller gas partner, may be in a better position to produce the stranded gas.

McGuire said he was confident the government and the companies with the acreage will find a mutually agreeable position to move forward.

But Dr Ramkissoon warned that the government has to be extremely careful in risking taxpayers funds. He said the country has been down this road before and it has not been very successful.

“There are too many lessons around bad decision making in the energy sector and other state enterprises as well, to cause us to be extremely cautious about getting Government involved in the energy sector, or for that part several other sectors,” he said.

“There are very bad lessons all around us in all of that. We need much more details before one can really make that judgment, but the population must also understand what are the risks that the government will be taking, because at the end of the day if the thing does not pan out as the government hopes, it must come back to the people and account for the loss of capital and that is not something that governments like to do.”

Dr Ramkissoon said the country needs an assessment of where we are and a vision of where the government wants to take the energy sector.

“It must be a commercially oriented decision and we have seen enough of state involvement that has only led to losses,” he said.

However, McGuire argued that past failures must not deter the government from moving forward because the solution is simple —get it right this time.

He said NGC has $48 billion in unleveraged assets and once the company is set up as a subsidiary it will be able to leverage the assets while, at the same time, isolating the its balance sheet so it does not necessarily impair its regular business.


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