Trinidad and Tobago’s hydrocarbon resource and in particular, its natural gas have enabled it to become the most industrialized Caribbean nation. Foreign investment in the Energy Sector accounts for over eighty percent (80%) of the country’s export earnings.
The country is well experienced in exploration, production, refining and other process plant type operations, for example, petrochemicals. Gas is used for electricity production, petrochemical, liquefied natural gas, metals, heavy industrial and light industrial use. Projects, such as additional steel and ethylene plants have been discussed, but do not now appear to be on the “front burner” as a result of the 2008 recession. Trinidad and Tobago is the world’s largest exporter of ammonia and methanol. In this Chapter, Grantley L. Wiltshire and Gregory Pantin, Partners in the firm’s Energy Practice Group, and Dispute & Risk Management Practice Group respectively, provide investors with an overview of the Trinidad & Tobago Energy Sector.
The Energy Sector has long been important to the economy. It accounts for approximately thirty-six point one percent (36.1%) of the country’s gross domestic product and represents over eighty percent (80%) of the country’s export earnings. Within the energy sector, there was approximately 27 per cent reduction in energy exports from US$8,705.07 million in 2015 to US$6,407.2 million in 2016.
The first oil deposits were discovered in 1866 and serious drilling first undertaken in 1907. Crude oil production started in 1908 and the first oil refinery was established in 1912. Exploration for offshore oil commenced in 1954. Production of natural gas has been increasing rapidly since the mid-1970s. For several years, gas has been more important to the economy than oil. Natural gas is used primarily for electricity generation, petrochemical manufacture, LNG production, steel and metal production, cement manufacture and light industry.
The focus of the Ministry of Energy and Energy Affairs over the last two (2) years has been on arresting the decline in and increasing crude oil production. In fact, for the year 2016, there was a slight decrease.
As at October, 2016, the country’s non-associated natural gas reserves were stated by The Energy Chamber of Trinidad and Tobago as:
Further, there are potential new discoveries which are termed “unrisked exploratory resources” of 39.9 tcf. Natural gas from most fields in Trinidad and Tobago is primarily “sweet” gas (0.1% – 0.35% carbon dioxide and negligible sulphur).
Oil reserves as at December 31, 2011 were as follows:
Condensate reserves (associated with natural gas production) were as follows:
Moreover, there are estimates of considerable heavy oil reserves and oil sands acreage which have not previously been considered economically recoverable or exploitable under then market conditions, although recent technological advances and current market conditions may suggest otherwise.
Identification and exploitation of reserves are by means of Exploration and Production (E&P) licenses or Production Sharing Contracts. These are issued by, or executed with, the State, usually based on competitive bidding rounds.
Given the maturity of Trinidad and Tobago’s energy sector, its natural resources are supported by many skilled and well-trained people. Oil refining operations commenced in the country in 1912 and petrochemical production in 1959, thus large numbers of people have been trained in process plant type operations, as well as in oil and natural gas production.
There are significant numbers of service companies which provide support services to the major producers. In addition, many experienced qualified individuals, firms and companies exist to provide services in fields such as architecture, engineering (civil, mechanical, chemical & process, electrical, petroleum) geology, and contracting (all types). In fact, all major projects have been constructed with the significant involvement of local contracting companies, including high pressure pipeline construction, steel fabrication and erection and civil works. In recent years the construction of off-shore platforms have been taking place.
The importance of natural gas to the economy has increased rapidly over the last twenty-five (25) plus years, and it has attracted by far the most significant amount of foreign investment during this period.
Natural gas production in 2018 was recorded at 3.80 billion standard cubic feet per day. All of the natural gas used in Trinidad and Tobago, with the exception of “own use” gas (i.e., gas used by producers for their own purposes) and gas for LNG production, is presently purchased from producers (primarily BP, EOG, Shell) by the National Gas Company of Trinidad and Tobago Limited (NGC). It is transported by NGC and resold to consumers. However, gas used by the LNG plants is sold directly by offshore producers to the LNG facility or to others to be tolled through the facility.
Natural gas is used in the production of LNG, petrochemicals (ammonia, methanol and urea), iron and steel, electricity, natural gas liquids (propane, butane and natural gasoline), cement, scrap iron substitutes and for a host of light industrial manufacturing purposes. An ethylene plant remains an item for consideration as does the possibility of an additional LNG train (“Train X”). This will be dependent however, on the proving up of additional reserves or the settlement of unitization issues to allow the exploitation of cross-border reserves.
Daily gas utilization by sector during 2017 averaged as follows in millions of standard cubic feet per day (mmscf/d):
Commencing in 1988, NGC moved rapidly to a system of indexed gas pricing, particularly in the petrochemical sector. With the price of gas, a main cost component, tied to product price, producers are better able to ride out periods of unfavourable market conditions.
Oil production peaked at 230,000 barrels per day (bpd) in 1978 and declined in 2001. As a result of discoveries, production increased to approximately 145,000 bpd in April 2007. However, since then, production has declined rapidly; with oil production falling to an average of 64,000 bpd in 2018 (up to November 2018) compared with 73,800 bpd in 2016. It is expected that oil production will reach around 85,000 bpd in the year 2020.
Should substantial reserves of heavy crude and the recovery of hydrocarbons from oil sands be demonstrated to be economically recoverable, then the reserves to production ratio will further improve. In addition, the State is inviting bids for the exploration of large offshore areas including deep water blocks off the South Coast of Trinidad and the resultant activity should translate into increased reserves and ultimately enhanced production levels.
The current players in ammonia are:
At present methanol plants are operated by:
At present urea plants are operated by:
In March 2016, Arcelor Mittal closed its operations following local and international challenges. Another project for the production of reduced iron fractionates NGLs extracted from natural gas by the LNG trains. The Plant is capable of extension into Ethane extraction. The Plant has gone through several expansions. For some time, the opportunity to deepen the value added to these products by going into downstream development has been considered.
NATURAL GAS LIQUIDS (NGLs)
An NGL Plant for the processing of natural gas, and fractionating the liquids into propane, butane and natural gasoline streams is owned and operated by Phoenix Park Gas Processors Limited. The Plant also fractionates NGLs extracted from natural gas by the LNG trains. The Plant is capable of extension into Ethane extraction. The Plant has gone through several expansions. With the expected significant increase in natural gas utilization over the next few years, there will be opportunity to deepen the value added to these products by going into downstream development.
LIQUEFIED NATURAL GAS (LNG)
Atlantic LNG’s Train One achieved full production in 1999. Train Two started up in 2002, Train Three in the first half of 2003 and Train Four in 2005. At full production, these plants have a total gas demand of approximately 2.3 billion cubic feet per day. Total LNG production fell sharply by 14.7% to 443.5 trillion British Thermal Units (btu) during the period October 2015 to June 2016 from 51.9 trillion btu during October 2014 to June 2015. From January 2017 to November 2017, the total production of LNG from Atlantic LNG’s four trains amounted to 22,486,167 cubic meters (m3) which when converted to British Thermal Units, amounted to 507,423,622 mmbtu.
THE ROLE OF GOVERNMENT
In the 1970’s, Government stimulated development of the energy sector by participating as an equity investor either on its own or on a joint venture basis. More recently, the State has been divesting itself of its interests except where these interests are being of strategic importance.
Companies involved in the business of petroleum production and refining pay taxes on profits from the business under the Petroleum Taxes Act (Petroleum Profits Tax). There is also a Supplemental Petroleum Tax at scales based on oil prices.
Marketing business which was previously charged to tax under the Petroleum Taxes Act has, with effect from 1st January, 1997 been taxed under the Corporation Taxes Act.
Most other Companies in the sector, (Petrochemicals, metals etc.,) will be liable to taxation under the Corporation Taxes Act. For further information, please see the section on Taxation.
Certain reliefs from taxes may be applicable for new projects under various facilities and incentives provided by law. See the section: Incentives to Invest for more information.