Fabulous wealth lies buried beneath the surface of the sparkling blue waters surrounding Trinidad and Tobago. With its vast offshore reserves, Trinidad has become one of the world’s largest and most sophisticated producers of gas. Foreign companies operating these fields have pumped nearly $5 billion into the country since 1998. Trinidad has 23 trillion cubic feet (tcf) in proven gas reserves and an additional 60 tcf of probable and possible reserves. Trinidad also boasts a further 2.6 billion barrels of oil in proven, possible and probable reserves. The country is one of the top five natural gas producers in the world and the industry is beginning to drastically change the country’s economic landscape.
Trinidad’s Atlantic LNG project, a massive liquefied natural gas processing plant founded by state-owned National Gas Company of Trinidad and Tobago (NGC) and US-based Cabot LNG, exports nearly half the liquefied natural gas used in the US. Frank Look Kin, president of NGC, says that following the discoveries of natural gas off the country’s east and north coasts, Trinidad put off further development of these natural gas reserves for an LNG market. Instead, it invested in the ammonia and methanol industries and facilities for the reduction of iron ore. Several initiatives to build an LNG plant in the 1970s and 1980s failed until Cabot LNG, North America’s largest importer of LNG, agreed to buy natural gas from NGC. Enagas, a subsidiary of Spain’s Repsol, wanted to diversify its LNG sources away from Algeria, Nigeria and Norway, and also agreed to purchase gas from the first LNG plant.
With buyers in place and several foreign oil companies eyeing its LNG market, Trinidad decided to push ahead with the project. By 1996, Bechtel International began construction and in 1999, the first shipment of LNG left Trinidad. Today, Trinidad has tripled its LNG exports. Atlantic LNG shareholders include NGC, British Gas, BP Trinidad and Tobago, Tractebel and Repsol. Completion of Atlantic LNG in 1999 enabled Trinidad to successfully monetize its natural gas resources and created a first-class LNG market in the Atlantic basin.
In 1999, Atlantic LNG’s processing system, known as a train, began converting raw natural gas into liquefied natural gas. A train consists of a series of 17-story concrete storage and processing tanks. The raw gas is extracted from deep offshore fields, transported onshore through a 40-inch pipeline and moved 50 miles over land to Atlantic LNG in Point Fortin, Trinidad. There the gas is processed, purified and liquefied through an extensive cooling process. Once it is liquefied, natural gas takes up 600 times less space than its gaseous form and is easily transported. Atlantic LNG stores the liquefied gas in tanks reinforced with concrete, carbon steel and nickel steel. The LNG is transferred to special carriers, equipped to keep the gas at -161 degrees Celsius and shipped to the US and Spain.
The addition of a second processing plant last September and a third this year, will triple the country’s natural gas exports. By mid-year, Trinidad will be processing the equivalent of 9.6 million tons of LNG a year.
Growing Demand
Eric Williams, Trinidad’s minister of energy and energy industries, predicts demand for LNG in key markets such as the US and Europe will keep pace with an increase in global supplies, allowing prices to remain steady at current levels. “Our projections are based on forecast annual LNG growth of 15%,” says Williams. Look Kin, of NGC, says, “There is a gas shortage projected in the US because of increased demand by electricity plants fired by gas. Right now the North American market is the most attractive.” Significant oil discoveries in the last couple of years will allow Trinidad to rebalance its export profile. “The recent oil discoveries in 2001 and 2002 will permit the government to have diversity in revenue sources, as well as increase overall revenues,” says Look Kin. Working with partners TotalFinaElf of France and Canada’s Talisman Energy, Australian BHP Billiton has made four major offshore oil discoveries in the last few years. Its most recent discovery, in December 2001, is expected to contain hundreds of millions of barrels of oil.
Foreign companies have invested more than $2 billion to develop the three LNG trains. Investors in Trinidad enjoy considerable stability and transparency, particularly when compared with other oil- and gas-rich countries such as Angola, Nigeria or neighboring Venezuela. BP Trinidad and Tobago (BPTT) owns 34% of Atlantic LNG. It also holds production and exploration licenses for 904,000 acres in offshore blocks and supplies all the natural gas for the first train. British Gas owns 26% of Atlantic LNG. Tractebel Trinidad LNG holds a 10% stake.
The Trinidadian government raked in TT$3.37 billion ($541 million) in oil and gas taxes and royalties in 2002, providing 25% of the national budget. The government agreed to a 10-year tax holiday to attract foreign investment for train one. But the government wants to adjust current royalty and tax rates Ewart Williams said, “We urgently need to review the energy sector tax regime to ensure that the country is getting an adequate return on its most precious, and non-renewable asset.” Energy Minister Williams says, “It is clear that the present rate is quite unacceptable particularly as we are producing natural gas at such high levels.”
Intensive Investment
Foreign companies spend billions on upstream projects such as exploration and development, a particularly capital intensive and costly part of the industry. When oil and gas is extracted from the ground, mid-stream companies such as National Gas Company of Trinidad buy the gas, transport it onshore and then sell it to a refinery. NGC buys gas from BPTT, EOG Resources, and British Gas. It sells two-thirds of the gas to petrochemical companies, 19% to power generators and 8% to metal ore producers.
While multinationals dominate most of the industry, local companies are entering downstream industries that are growing rapidly as the upstream sector expands supplies. Trinidad uses gas as a fuel for electricity plants and as a feedstock for petrochemical companies and oil refineries to produce gasoline, diesel and other liquid fuels and is the largest exporter of ammonia and methanol in the world. These industries are also important because they create jobs and give local banks an opportunity to finance the energy industry. The unemployment rate in Trinidad is 10% and the country has few skilled, high-paying jobs. “Our main driver is investment in human capital as we seek to become a developed nation,” says Williams. “We are committed to promoting the involvement of more indigenous businesses in the energy sector and to find more ways to distribute wealth and revenues to the people of Trinidad.” He points out that the country’s proven energy reserves are equivalent to 3.4 million barrels of oil for each Trinidadian citizen. At current market prices, this equals more than $100 million per citizen. Although the government reaps the benefit of the oil and gas industry through taxes and royalties, the more revenue it earns, the more money on social programs and infrastructure it has to spend. In the 2003 budget, the government has increased spending on health, education and social services. It has also lowered corporate and individual tax rates.
Phoenix Gas Park Processors, 51%-owned by NGC, fractionates 10,000 barrels of LNG a day. Fractionation removes propane, butane and natural gasoline from the natural gas streams for use in ammonia, methane and steel plants. Phoenix Park also processes gas from Atlantic LNG and has long-term contracts to process gas from the two other processing plants. In 2002,it financed an expansion by raising $41 million in 15- year bonds giving local investors an opportunity to gain some exposure to the oil and gas industry.
NGC plans to build two additional pipelines, with a price tag of $345 million, to keep up with the increased offshore natural gas extraction. The company needs to raise $240 million in financing for the project. In the past, NGC borrowed money from its shareholder, the Trinidadian government, export credit agencies and the European Investment Bank. “We would like to see greater local funding for energy projects,” says NGC’s Look Kin. “Most of the funding in the past has been done by foreign lenders, but we want to provide more opportunities to the local banking sector.” Eutrice Carrington, manager of investment management services at Unit Trust Corporation, a national savings trust, says, “We need greater access to financing opportunities in the energy sector. Special arrangements need to be put in place for a portion of the capital for energy projects to be sourced domestically.”