Caribbean & Central America - February 2023

Trinidad and Tobago has brokered a major liquid natural gas (LNG) deal with two long-standing regional rivals, Venezuela and the US, which will also benefit Jamaica and the Dominican Republic.

After a round of regional diplomatic talks, including interventions by US Vice President Kamala Harris, Trinidad and Tobago Prime Minister Keith Rowley announced the deal on 24 January. The US Department of the Treasury’s Office of Foreign Assets Control (OFAC) which enforces economic sanctions against Venezuela, has issued a licence allowing Trinidad to do business with Venezuela’s state oil company Petróleos de Venezuela (PDVSA), to develop the Dragon gas field. Dragon is in Venezuelan waters, but there is a long-standing proposal that its natural gas should be pumped by pipeline to Trinidad’s oil and gas hub, where it will be liquefied and exported in liquefied natural gas (LNG) form to the world market. Rowley said that under the deal Trinidad would gain access to 350m cubic feet of gas per day (cfd). 

Various conditions are attached to the new, two-year Dragon development licence. One is that part of the eventual LNG output should go to Jamaica, the Dominican Republic, and potentially other Caribbean states, to improve their energy security. Another is that PDVSA should receive no cash payments from the deal. That would normally be a complete deal-breaker, but the proposal is that Trinidad could pay Venezuela in kind, with humanitarian aid supplies such as food and medicine. It could therefore fit with recent talks between the Venezuelan government and the opposition, which have floated the idea of a United Nations (UN)-supported programme to use US$3bn of disputed overseas Venezuelan assets to meet humanitarian needs. Rowley commented: “We have done that before. So we buy the gas and we pay for it in a variety of ways.”

PDVSA owns and operates the Dragon project, which has been inactive over the last decade, largely because of a lack of investment funds. An earlier development proposal envisaged that investment of US$1bn-plus would be needed to get the gas flowing.  Oil company Shell is the operator of the neighbouring Hibiscus field in Trinidadian waters, and Rowley said he hoped Shell would become the operator of Dragon. Oil industry analysts say financially troubled PDVSA is unlikely to be able to raise the capital needed. Francisco Monaldi, a Latin American energy specialist at the Baker Institute for Public Policy, says Trinidad and Venezuela would have to reach agreement on how to compensate PDVSA for past exploration and infrastructure spending

Analysts have also pointed out that increasing gas supplies into the Caribbean would improve the region’s energy security as well as assisting the transition to cleaner and renewable energy sources. Trinidad would make significant gains. It is Latin America’s largest LNG exporter but is operating at below full capacity. The country can process 4.2bn cfd into LNG, petrochemicals, and power, but its current gas production is only 3bn cfd. There is therefore significant room for expansion. If the Dragon project meets the politically diverse objectives of the US, Venezuela, and Trinidad, it might be possible to extend it to another Venezuela-owned project, the Loran-Manatee gas field. A downside however is that developing these fields is a multi-year, billion dollars plus commitment, with investors sensitive to ongoing political risks.   

US-Caribbean Partnership

A 24 January press release by the US embassy in Trinidad highlighted that OFAC’s action is in line with efforts to strengthen the energy security and climate resilience of the Caribbean, pointing out that at the US-hosted Summit of the Americas in June 2022, Harris launched the US-Caribbean Partnership to Address the Climate Crisis 2030 to “support the region’s long-term energy security and climate resilience priorities”.