The country is well experienced in exploration, production, refining and other process plant type operations, for example, petrochemicals. Gas is presently used for electricity production, petrochemical, heavy industrial and light industrial use. Expansion into liquefied natural gas production is taking place. There are possibilities for aluminium smelting. By the year 2000, Trinidad & Tobago is expected to be the world's largest exporter of ammonia and methanol.
In this article, Senator Philip Hamel-Smith (Senior Partner in M. Hamel-Smith & Co.) and Mr. Grantley L. Wiltshire (formerly the Vice President, Corporate Services at the National Gas Company and currently one of the Partners in M. Hamel-Smith & Co.'s Commercial Department with responsibility for Energy Sector transactions) provide potential 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. Today, it accounts for approximately 23% of the country's gross domestic product, generates 26% of Government revenues, and (including petrochemicals) represents 72% of the country's exports.
Crude oil production commenced in 1908 and the first oil refinery was established in 1912. Production of natural gas has been increasing rapidly. Gas is now more important to the economy than oil. The gas is used primarily for electricity generation, petrochemical manufacture, steel and metal production, cement manufacture and light industry.
RESERVES
Proved natural gas reserves are stated to be approximately 12.3 trillion cubic feet as at January 1, 1996 with discounted probable and possible reserves totalling approximately 5.6 trillion cubic feet for a total reserve base of 18.3 tcf providing a reserve to production ratio of 28 years. Condensate reserves (associated with natural gas production) are estimated to be 69 million barrels (proved) with 126 million barrels in the probable and possible category as at January 1, 1995. Natural gas in Trinidad & Tobago is "sweet" gas (0.1% - 0.35% Carbon Dioxide and negligible Sulphur).
Proved oil reserves are stated to be 490 million barrels as at January 1, 1995. Probable and possible reserves total approximately 840 million barrels. However, there are estimates of heavy oil reserves in excess of 2 billion barrels. These reserves are not considered to be necessarily economically recoverable under current market conditions, although recent technological advances 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 there is a large number of people trained in process plant type operations as well as in oil and natural gas production.
There are a significant number of service companies which provide support services to the major producers. In addition, a large number of experienced qualified individuals, firms and companies exist to provide services in fields such as architecture, engineering (civil, mechanical, electrical, petroleum) geology, contracting (all types). In fact, all major projects in Trinidad have been constructed with the significant involvement of local contracting companies including high pressure pipeline construction, steel fabrication and erection, civil works etc. All the local organisations involved in the sector are quite comfortable dealing with international organisations.
NATURAL GAS
The importance of natural gas to the economy has increased rapidly over the last 20 years. It has attracted by far the most significant amount of foreign investment during this period.
The present use of natural gas (excluding for gas lift in oil production) is just under 700 million cubic feet per day. This is expected to rise to approximately 1.1 bcf by the turn of the century. This figure does not include the approximately 450 - 500 million cubic feet a day required to support the liquefied natural gas (LNG) plant at Point Fortin commencing in 1999. This project, to liquefy approximately 425 mmscfd for export to the North East U.S.A. and to Spain will be owned by Atlantic LNG, a joint Venture Company owned by Amoco, NGC, British Gas, Cabot LNG and Repsol. The offtakers will be Cabot LNG and Enagas. A second LNG train has been mooted.
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) is presently purchased from producers (Amoco, Enron, British Gas/Texaco) by The National Gas Company of Trinidad & Tobago Limited (NGC), a state enterprise. It is transported by NGC and resold to consumers. Some gas is also produced by NGC's compression platforms from low pressure associated gas which would otherwise have been flared. This is expected to represent 8% of total supply by the year 2000. However, gas intended to be used by the LNG plant will be sold directly by offshore producers to the LNG facility.
Natural gas is used in the production of petrochemicals (ammonia, methanol and urea), iron and steel, electricity, natural gas liquids (propane, butane and natural gasoline), cement, iron carbide and for a host of light industrial manufacturing purposes. There are existing plans for additional ammonia and methanol plants and a strong possibility of an aluminium smelter project. There are also advanced plans for additional metal plants. There is a potential for further projects downstream of methanol and ammonia as well as for ethylene and ethylene based projects.
Commencing in 1988, NGC has 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
Oil production peaked at 230 thousand barrels per day in 1978 and has been declining since. At the current production rate of approximately 48 million barrels per year, existing proved reserves of oil will last for approximately 10 years. However, should substantial reserves of heavy crude become economically recoverable then the reserves to production ratio will improve significantly. Further, the State has been granting Licences for the exploration of large offshore areas and the resultant activity should translate into increased reserves and ultimately enhanced production levels.
AMMONIA
The present players in ammonia are Hydro Agri Trinidad Ltd. (owned by Norsk Hydro) (one plant), Trinidad Nitrogen Co. Ltd. (a joint venture between the State and Norsk Hydro) (two plants), Arcadian (recently purchased by Potash Corporation of Saskatchewan) which recently started up its third plant and is constructing a fourth. A further plant in the construction process is owned by Farmland MissChem Limited, a joint venture between Farmland Industries Inc., and Mississippi Chemicals.
METHANOL
At present methanol plants are operated by Trinidad & Tobago Methanol Company Limited (two plants) formerly a wholly state owned company in which the State recently divested some of its interest to foreign companies and Caribbean Methanol Company Limited (one plant) a joint venture between a local private enterprise company and foreign companies. There are at present firm plans for the construction of two additional plants, one by Methanol IV Limited, a joint venture between local and foreign private sector interests which are already involved in the petrochemical sector in Trinidad & the other by Titan Methanol Ltd., a joint venture of several U.S.A. investors. The latter plant will be one of the largest in the world.
UREA
Arcadian owns one Urea Plant (previously State owned). The possibility of a new Plant is being pursued by another investor.
METALS
Caribbean Ispat Limited owns a plant for the production of direct reduced iron, steel billets and wire rods. Nucor has constructed a pilot plant for the production of iron carbide for use as a premium substitute for scrap iron in the manufacture of high quality steel in mini mills in the United States. There are plans for the construction of at least two additional iron carbide plants. Another project is planned by Cliffs and Associates to come on stream in 1998 which will produce reduced iron briquettes by a Lurgi process.
Caribbean Ispat Limited has also recently announced that it will soon commence construction of a new worldscale HBI/DRI Plant. An aluminium smelter is also being considered by other parties.
NATURAL GAS LIQUIDS (NGL'S)
An N.G.L. Plant capable of processing 750 mmscfd of natural gas, currently extracts 10,700 barrels per day of propane, butane and natural gasoline. It is owned and operated by Phoenix Park Gas Processors Limited, a joint venture of N.G.C., Conoco and Pan West. It is capable of expansion into Ethane extraction.
With the expected significant increase in natural gas utilisation over the next few years, there will be opportunity to deepen the value added to these products by going into downstream development.
THE ROLE OF THE GOVERNMENT
In the 1970's, Government stimulated development of the energy sector by participating as a equity investor either on its own or in joint venture. More recently, the State has been divesting itself of its interests except where these interests are seen as being of strategic importance.
The Government has announced its intention to publish in the very near future a "Green Paper" on Energy Policy for public comment.
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). The current rate is 50%. 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 will with effect from 1st January, 1997 be 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. The current rate is 35%.
RELIEFS
Certain reliefs from taxes may be applicable for new projects under various facilities and incentives provided by law. For example, under the Petroleum Profits Tax Act several incentives are available, including:
- initial allowance on tangible expenditure of 20%
- first year allowance on tangible expenditure of 20%
- annual allowance on tangible expenditure of 20%
- expenditure on development of a dry hole shall with the Minister's approval be written off in the financial year that the dry hole is plugged and abandoned.
- workover allowances of 100%.
- heavy oil allowance - 100% of capital expenditure on drilling wells.
Additionally, under the Income Tax (In Aid of Industry) Act the following concessions are available:
- Initial allowances of 10% on erection of buildings and structures.
- Initial allowances of 50% on purchase of plant and machinery reduced in certain industries to 20%.
- Annual allowances equal to 1/50 of the expenditure on building structures or 1/20 of the expenditure where a person carries on petroleum operations under licence issued after 1st January 1970.
- Annual allowances of a reasonable amount for wear and tear on plant and machinery.
- Oil refineries - annual allowances calculated by manufacturer on 120% of the expenditure.
- Investment allowance for capital expenditure in respect of production business on land equal to 150% of the expenditure, that is, 40% in year 1 and 20% in the following five years.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.