Is two years enough to bring Venezuela’s Dragon gas field on stream? [Gas in Transition]

A year has passed since the US government first granted Trinidad and Tobago a temporary exemption from sanctions for the purpose of reaching an agreement with Venezuela on the joint development of Dragon, an offshore natural gas field. Port of Spain and Caracas needed more time than they originally anticipated to strike a deal on the project, which will be led by the UK-based super-major Shell, but they finally did so late last year.

With that milestone met, the government of Trinidad and Tobago is now projecting confidence in its decision to work with Venezuela to gain access to new sources of gas. Indeed, representatives of the Caribbean state’s government said on January 22 that they expected this move to start paying off in less than two years.

Speaking during the Trinidad and Tobago Energy Conference 2024, Minister of Energy and Energy Industries Stuart Young confirmed that Dragon was anticipated to begin production before the end of 2025. The field, which will yield an initial 185mn ft3 (5.24mn m3)/day of gas, will be Venezuela’s first gas export project, he noted.

Prime Minister Keith Rowley said at the same event that Trinidad and Tobago had started discussions with some European buyers on future purchases of LNG made from Venezuelan feedstock. He did not name any potential customers but suggested that there was strong demand for fuel of this type.

“There is serious European interest in what is happening in Trinidad and Tobago as they attempt to bring to market resources from South America,” Reuters quoted him as saying.

It is not at all clear that this confidence in Caracas is warranted. The expectation that cooperation with Venezuela will yield rapid results is probably ill-founded.

Dragon license issued

This hope is based on the granting of a 30-year licence for the Dragon to Shell by the Venezuelan national oil company (NOC) PdVSA and state-owned National Gas Co. of Trinidad and Tobago (NGC) in December 2023. That document provides for Shell to serve as operator of the offshore gas field, which holds 4.2 trillion ft3 (118.9bn m3) of gas, with PdVSA and NGC serving as non-operating partners.

Dragon is located within Venezuela’s offshore zone, but it is very close to the maritime border with Trinidad and Tobago. Under the license issued in December, it will yield up to 1 trillion ft3 (28.3bn m3) of gas during the first phase of development, or 185bn ft3 (5.24bn m3). Its production will be pumped to shore through an 18-km subsea pipeline linking Dragon to Hibiscus, a gas field that Shell is already developing offshore Trinidad and Tobago.

In December, Rowley expressed relief at the prospect of securing new sources of feedstock for his country’s numerous gas-based industrial facilities. These include numerous petrochemical plants as well as Atlantic LNG, the liquefaction plant that has seen output decline since 2020, when it had to take one of its four production trains off line for lack of gas supply.

Rowley also emphasised that the deal for Dragon had happened because Trinidad and Tobago had insisted on maintaining diplomatic relations with Venezuela. If the country had cut ties, he said, Shell might not have had the chance to push the project forward.

The prime minister’s remarks were probably a reference to the multi-national’s original attempt to develop the field. Shell had signed an agreement with PdVSA and NGC in 2018, but the partners were never able to take action because of the imposition of the US sanctions regime in early 2019.

Two-year timeframe

Now, though, the US has agreed to a two-year waiver. And according to Reuters, Trinidad and Tobago’s Ministry of Energy and Energy Industries (MEEI) said in late December that Dragon was expected to start production within this timeframe, provided that a positive final investment decision (FID) is taken.

It is not entirely clear why MEEI is so certain that Dragon can begin production this quickly. Presumably, however, it is basing this short timeline on two facts: first, that Shell and PdVSA have already done some work at Dragon, and second, that the distance between the Dragon and Hibiscus fields is so short as to make building the planned 18-km subsea pipeline relatively cheap and easy. (It may also be relieved by PdVSA’s apparent acceptance of plans to pipe gas to Trinidad and Tobago first instead of constructing a link to the Venezuelan mainland as suggested last year.)

Even so, two years may not be enough. As Reuters explained in December, Shell and PdVSA “installed some infrastructure, did production tests and began building a gas line to Venezuela’s shore” at Dragon before the end of 2018, before the imposition of US sanctions. However, whatever infrastructure was put in place at that time is now more than five years old, and in the interim it has almost certainly been neglected. After all, Shell has been in no position to provide upkeep or repair, and PdVSA has had to prioritize its onshore oil production and processing facilities, since US trade restrictions limit its options for sourcing spare parts and equipment.

So even if the existing infrastructure was once capable of supporting full-field production at Dragon, it is likely to be in sore need of rehabilitation now. In other words, Shell will probably have to do quite a bit of work before even starting gas production, let alone transportation into Trinidad and Tobago’s offshore zone. That is, it is likely to need more than two years to drill the wells, establish the production facilities and lay the pipes needed to make the cross-border connection to Hibiscus that will allow it to send gas to Atlantic LNG and the onshore petrochemical plants of Trinidad and Tobago.

Diplomatic discomfort?

So while the island state might like to have Dragon up and running by the end of next year, it probably will not succeed. It will simply need more time to achieve this end. As such, it should prepare for more negotiations with the US government on sanctions as its two-year exemption runs out.

Trinidad and Tobago may also need to prepare for a certain amount of diplomatic discomfort if it remains close to Venezuela. The latter country is currently testing the limits of the US decision to roll back sanctions in exchange for movement toward free and democratic elections and other signs of political liberalisation, via its territorial dispute with Guyana over the land it claims as a lost province, Guayana-Esequiba, and its efforts to limit the recognition of certain opposition politicians.

In late December, though, Rowley indicated that his government would uphold its relationship with Caracas despite such controversies. “We have been speaking to Venezuela on all issues,” he said, according to a Reuters report. “But at the end of the day, Trinidad and Tobago stands on its principles.”