Investment in the Energy Sector in Trinidad & Tobago

8/8/2019 Investment in the Energy Sector in Trinidad & Tobago

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Investment in the Energy Sector

Trinidad & Tobagos hydrocarbon resource and, in particular, its natural gas have

enabled it to become the most industrialised Caribbean nation. Foreign investment in theEnergy 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 electricityproduction, 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. Otherprojects, 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

firms 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 forapproximately 50% of the countrys gross domestic product, and represented over 90% of

the countrys 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, petrochemicalmanufacture, LNG production, steel and metal production, cement manufacture and light

industry.

Reserves

As at 1st January, 2009, the countrys 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 frommost 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:


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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 acreagewhich 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; thuslarge 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 purchasedfrom 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 LNGfacility and transported by NGC.

Natural gas is used in the production of LNG, petrochemicals (ammonia, methanol andurea), iron and steel, electricity, natural gas liquids (propane, butane and natural


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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 formallycommissioned 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 anadditional 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 ofindexed 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 periodsof unfavorable market conditions.

Oil

Oil production peaked at 230 thousand barrels per day in 1978 and has been declining upto 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 inApril 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 productionratio 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 shouldtranslate into increased reserves and ultimately enhanced production levels.


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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 twoplants;

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 productionof 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 theLNG 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


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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 LNGs 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 1970s, 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 Statehas 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). Thereis also a Supplemental Petroleum Tax at scales based on oil prices.

Marketing business which was previously charged to tax under the Petroleum Taxes Acthas, 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 Investfor more information.

Additional

Further information on the Trinidad & Tobago energy sector is available atwww.energy.gov.tt
http://www.energy.gov.tt/http://www.energy.gov.tt/

Investment in the Energy Sector in Trinidad & Tobago

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