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Investment in the Energy Sector

Trinidad & Tobago’s hydrocarbon resource and, in particular, its natural gas have
enabled it to become the most industrialised Caribbean nation. Foreign investment in the
Energy Sector accounts for over 90% 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. One Gas to Liquids plant and one AUM complex are under construction,
and Government is curently promoting the construction of an aluminium smelter. Other
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 2008-2009 recession. Trinidad
and Tobago is the world's largest exporter of ammonia and methanol.
In this Chapter, Grantley L. Wiltshire, Partner and Nadia Henriques, Associate in the
firm’s Energy Practice Group provide investors with an overview of the Trinidad &
Tobago Energy Sector.
The Role of the Energy Sector in the Economy
The Energy Sector has long been important to the economy. As of 2008, it accounted for
approximately 50% of the country’s gross domestic product, and represented over 90% of
the country’s export earnings.
The first oil deposits were discovered in 1866 and serious drilling first undertaken in
1907. Crude oil production commenced 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 seventies. Gas is now more important to the
economy than oil. The gas is used primarily for electricity generation, petrochemical
manufacture, LNG production, steel and metal production, cement manufacture and light
industry.
Reserves
As at 1st January, 2009, the country’s non-associated natural gas reserves were stated by
Ryder Scott as:
Proved reserves - 15.3 tcf
Probable reserves - 8.4 tcf
Possible reserves - 6.2 tcf
Further, there are what are termed "exploratory resources" of 29.6 tcf. Natural gas from
most fields in Trinidad & Tobago is primarily “sweet” gas (0.1% - 0.35% carbon dioxide
and negligible sulphur).
According to the Ministry of Energy and Energy Industries oil reserves as at 1st January,
2007 are stated to be as follows:
• Proven - 605 million barrels

• Probable - 308 million barrels

• Possible - 1560 million barrels

• Condensate (associated with gas production) - 80 Million Barrels.


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) licences or Production Sharing Contracts. These are issued by, or executed with,
the State, usually based on competitive bidding rounds.
Human Resources
Given the maturity of the energy sector in Trinidad & Tobago, its natural resources are
supported by a large number of skilled and well trained people. Oil refining operations
commenced in Trinidad & Tobago 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 large numbers of service companies which provide support services to the
major producers. In addition, many experienced qualified individuals, firms and
companies provide services in fields such as architecture, engineering (civil, mechanical,
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 has been taking place.
Natural Gas
The importance of natural gas to the economy has increased rapidly over the last 25 plus
years. It has attracted by far the most significant amount of foreign investment during this
period.
Natural gas production averages approximately 4.1 billion cubic feet per day. All of the
natural gas used in Trinidad & 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, British Gas/Chevron) by the National Gas Company
of Trinidad & 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 and transported by NGC.
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. As of October 2009, a Gas to Liquids Plant is under construction. The first of
several planned plants in an AUM complex, an ammonia plant, is due to be formally
commissioned in October 2009. Construction of an aluminium smelter is proposed if
certain environmental approval issues currently before the court are resolved in its
favour. 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.
Gas utilisation by sector is approximately as follows:

• Petrochemicals 27%

• Power Generation 7%

• Iron & Steel 3%

• LNG 60%

• Own use (Field) 1%

• Gas Processing 1%

• Light industrial and others 1%


With the advent of the projects under construction, and those soon to be constructed, the
percentages above will change. 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 unfavorable market conditions.
Oil
Oil production peaked at 230 thousand barrels per day in 1978 and has been declining up
to recently. In 2002, production increased to an average of 130,467 bopd from the 2001
average of 113,353 bopd. As a result of discoveries over the last few years, production
further increased to approximately 140,000 bopd in 2005 and was 145,000 barrels in
April 2007.
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 has been granting licences or entering
into production sharing contracts 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.
Petrochemicals

Ammonia

The current players in ammonia are:

• Yara Trinidad Ltd. with one plant;

• Trinidad Nitrogen Co. Ltd. (a joint venture between the State and Yara), with two
plants;

• Potash Corporation of Saskatchewan (P.C.S.), with four plants;

• Point Lisas Nitrogen Ltd (formerly Farmland MissChem Limited), a joint venture
between Koch Nitrogen and Terra Industries, with one plant.

• Caribbean Nitrogen Co. Ltd., (“CNC”, a joint venture between several non-
Trinidad and Tobago companies and one local group already involved in
Methanol production), with one plant.

• N2000 Ltd with one plant (associated with CNC).


Methanol

At present methanol plants are operated by:


• Methanol Holdings Trinidad Limited with five plants;
• Methanex Trinidad (Titan) Unlimited with one plant.
• Atlas Methanol Company Unlimited (owned by Methanex and BP) with one plant.
Urea
P.C.S. owns one Urea Plant (previously State owned).
Metals
Arcellor Mittal owns three facilities for the production of direct reduced iron, steel billets
and wire rods and a new world scale HBI/DRI Plant. Another project for the production
of reduced iron briquettes by a Lurgi process which was owned by Cliffs and Associates
Ltd. and which was in a “cold idle” mode for some time, was purchased by ISG and put
back into operation for a while but is once more closed down. ISG was subsequently
acquired by Arcellor Mittal.
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 2006. At full production,
these plants have a total gas demand of approximately 2.3 billion cubic feet per day.
The Role of the 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 seen as being of
strategic importance.
Taxation

Petroleum Taxes

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.
Corporation Taxes

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.
Reliefs

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.
Additional
Further information on the Trinidad & Tobago energy sector is available at
www.energy.gov.tt