Crude oil

2. Trinidad and Tobago is a small oil producer in the Caribbean and South American region, accounting for less than 1½ percent of the region’s total oil production and less than 1 percent of the region’s total reserves.² As of January 1, 1999, the country’s total oil reserves are 2,550 million barrels of oil, of which 550 million barrels are proven reserves, 400 million barrels are discounted probable reserves, and 1,600 million barrels are discounted possible reserves³. The reserve life is 57 years at the current extraction rate.

3. The importance of crude oil in the economy has decreased over the past two decades as a consequence of economic diversification and declining oil production. In the 1970s crude oil production was equal to 30 percent of GDP, whereas in 1998 it represented only 12 percent of GDP. Crude oil production in Trinidad and Tobago has been declining at an average annual rate of 2.7 percent in recent years, partly owing to the decline of mature fields and insignificant new oil findings. Average production in 1998 was 122,622 barrels of oil per day, about half the peak production of 240,000 barrels of oil per day achieved in 1978. For 2003, the Ministry of Energy forecasts production of only 108,900 barrels of oil per day, 11 percent below the 1998 level, as shown in Figure 1.

Trinidad and Tobado: Crude Oil and Condensate Production (BOPD)

Citation: IMF Staff Country Reports 1999, 067; 10.5089/9781451837599.002.A001

Source: Ministry of Energy of Trinidad and Tobago.

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Trinidad and Tobado: Crude Oil and Condensate Production (BOPD)

Citation: IMF Staff Country Reports 1999, 067; 10.5089/9781451837599.002.A001

Source: Ministry of Energy of Trinidad and Tobago.

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Trinidad and Tobado: Crude Oil and Condensate Production (BOPD)

Citation: IMF Staff Country Reports 1999, 067; 10.5089/9781451837599.002.A001

Source: Ministry of Energy of Trinidad and Tobago.

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4. In 1998, the decline of mature fields was exacerbated by the low price of oil experienced during the year, which made exploitation of some fields uneconomic. In particular, Amoco Energy Company of Trinidad and Tobago, the main oil producer in the operating rigs in 1998. Absent the discovery of new fields, it is expected that the declining country, is planning to reduce its production in mature oil fields, after closing one of its three trend will continue in the future, despite improvements in recovery and exploitation techniques currently being applied in Trinidad and Tobago’s oil fields.⁴

5. In order to stimulate exploration and partly offset the decline in production described above, offshore exploration areas were divided into blocks and offered to petroleum companies through an aggressive competitive offshore bidding program launched in 1995. During 1995-98, 19 blocks were put up for competitive bidding and 13 production sharing contracts (PSC) were signed. In 1999, three additional blocks will be offered to interested international companies.

Natural gas

6. Trinidad and Tobago currently accounts for 8 percent of total natural gas production and 6 percent of the total reserves in the Caribbean and Latin American region.⁵ The reserves are estimated at 30 trillion cubic feet, of which 21.3 trillion cubic feet are proven reserves, 6.3 trillion cubic feet are discounted probable reserves, and 3.1 trillion cubic feet are discounted possible reserves, with an expected life of 92 years at the current extraction rate. However, it is expected that reserves will increase in the future, as new explorations concentrate exclusively on gas. As an illustration, in 1998, significant discoveries made by British Gas and Enron added 1.5 trillion cubic feet in proven reserves.⁶

7. The relative importance of natural gas in the energy sector will increase in the future as oil production declines. The economic value of the gas reserves depends on whether they can be delivered to end-user markets, where the gas is used as an input for a number of petrochemical processes or to generate energy for other industrial uses. The only two economical ways to move gas itself to markets are through pipelines, in its natural state, or by liquefying it and then shipping it. Therefore, given Trinidad and Tobago’s geographical position, the rational utilization of the natural gas reserves required a two-pronged strategy: the development of a strong industrial base in the country and the construction of a liquefied natural gas (LNG) processing plant.

8. Considerable progress is being made in achieving both objectives. The government has attracted foreign investments to establish petrochemical and industrial plants for the last 30 years, among them four world-scale methanol plants and eight world-scale ammonia plants. Most of these plants are located in the Point Lisas Industrial Estate, where gas is supplied through a pipeline transmission system. In April 1999, the largest LNG processing plant in the Western Hemisphere came onstream and started shipping LNG to Spain and the United States.

9. The current domestic demand for natural gas is over 1 billion cubic feet per day (Figure 2). It can be broken down as follows: 70 percent is used by the petrochemical industries such as methanol, urea and ammonia; 20 percent is used in power generation; and the remaining 10 percent is used by the metals, cement, light manufacturing, oil refining and gas processing industries, according to estimates by the Ministry of Energy. By the year 2003, it is expected that total gas demand would have increased by almost 80 percent, with the petrochemical industries accounting for 50 percent of total demand, LNG processing for 24 percent, power generation for 12 percent, the metals industries for 10 percent and the remaining 6 percent divided among cement, light manufacturing, oil refining and gas processing industries.

Trinidad and Tobago: Natural Gas Demand - End Users

Citation: IMF Staff Country Reports 1999, 067; 10.5089/9781451837599.002.A001

Source: Ministry of Energy of Trinidad and Tobago.

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Trinidad and Tobago: Natural Gas Demand - End Users

Citation: IMF Staff Country Reports 1999, 067; 10.5089/9781451837599.002.A001

Source: Ministry of Energy of Trinidad and Tobago.

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Trinidad and Tobago: Natural Gas Demand - End Users

Citation: IMF Staff Country Reports 1999, 067; 10.5089/9781451837599.002.A001

Source: Ministry of Energy of Trinidad and Tobago.

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Trinidad and Tobago: Natural Gas Demand (MMSCF/D)

Citation: IMF Staff Country Reports 1999, 067; 10.5089/9781451837599.002.A001

Source: Ministry of Energy of Trinidad and Tobago.

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Trinidad and Tobago: Natural Gas Demand (MMSCF/D)

Citation: IMF Staff Country Reports 1999, 067; 10.5089/9781451837599.002.A001

Source: Ministry of Energy of Trinidad and Tobago.

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Trinidad and Tobago: Natural Gas Demand (MMSCF/D)

Citation: IMF Staff Country Reports 1999, 067; 10.5089/9781451837599.002.A001

Source: Ministry of Energy of Trinidad and Tobago.

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Liquefied natural gas (LNG)

10. In the second quarter of 1999, the Atlantic LNG Company of Trinidad and Tobago (ALNG), a joint venture by Amoco Trinidad, British Gas, Repsol, Cabot, and the National Gas Company (NGC) of Trinidad and Tobago, started operations of a one-train LNG facility, with a total capacity of 3 million tons per year. The production of the first LNG train has been sold for the next 20 years, with Cabot, a U.S. firm, buying 60 percent of the production to supply the northeastern market of the United States, and Enagas (Spain), purchasing the remaining production to supply the Spanish market. This agreement was reached partly as a result of the participation of Cabot and Enagas, which partially owns Repsol, both as producers and consumers.⁷ The first LNG shipment to Boston took place in April 1999.

11. The potential importance of LNG production in the economy is large. If ALNG operates one train at its planned capacity, LNG will account for 2½ percent of GDP in 1999, and for roughly 4½ percent of GDP from 2000 onwards, according to Fund staff estimates. The current site, however, can accommodate up to three trains, so the contribution of LNG to real GDP could reach 10 percent in the next few years, provided that the investments are made and the additional production can be sold entirely.

12. Currently, the construction of the second train seems plausible. Cabot and Enagas, which have rights of first refusal, appear to be interested in purchasing the second train production. Even if they exercise their refusal rights, ALNG should not find difficulties finding other purchasers in Brazil, other European countries, and especially Puerto Rico. In fact, EcoElectrica of Puerto Rico, a 50-50 joint venture of the Enron Corporation and Kenetech Corporation, has signed a 20-year contract with Cabot to purchase part of Cabot’s share of the first train of gas, EcoElectrica’s output is close to 2 percent of the total power generation in Puerto Rico, but if the company’s market share increases as expected, its demand for LNG will also likely increase.⁸

Petrochemicals

13. The petrochemicals industry in Trinidad and Tobago is concentrated in three products: ammonia, urea and methanol. Currently, there are eight ammonia plants in operation with a total production capacity of 3.54 million tons per annum, one urea plant with a capacity of 0.58 tons per annum and four methanol plants, with a total capacity of 2.1 tons per annum. By the end of 1999, methanol capacity will increase to 2.96 million tons per annum by the expected coming onstream of a new plant owned by Titan Methanol Company a joint venture of Amoco Trinidad, Saturn Methanol, KingWood/Texas Investment Fund and Beacon Group.

In 1998, Trinidad and Tobago’s world share of ammonia and methanol production capacity was less than 3 percent and 5 percent, respectively.

14. There are other plans to increase the capacity in the petrochemicals sector. The government is close to completing negotiations with Caribbean Nitrogen Company for the construction of an additional 0.62 million tons per annum methanol facility, Methanex, a Canadian methanol producer, has proposed the construction of a “methanol hub,” consisting of three 1 million tons per annum facilities that will be built over the years 2002, 2004, and 2007. Titan Methanol Company has proposed the construction of another methanol plant, named “Atlas,” with a total capacity of 1.5 million tons per annum.

15. Weighing against these decisions to expand production are the concerns about the short- and medium-run outlook for the petrochemicals sector owing to the depressed conditions in world markets. In the case of methanol, it appears that the drive to monetize natural gas reserves has created a supply glut as new plants come onstream during 1998-2001 in Trinidad and Tobago, Chile, Saudi Arabia, Qatar, Equatorial Guinea, and construction of new plants start in Kuwait and Argentina. Methanol prices dropped during 1998, as a result of low demand and oversupply, and the situation is expected to continue during 1999.⁹ This would be reflected in production cutbacks worldwide, that doubtlessly will affect production in Trinidad and Tobago as well. Operating rates of methanol plants are forecasted to be in the range of 72-77 percent and the industry will likely experience an annual growth rate of only 2% percent during 1997-2003.¹⁰ Similarly, ammonia prices have been sliding since the third quarter of 1998, as a result of increasing global supply. Finally, demand for urea is expected to weaken as one of the major importers, China, moves towards self-sufficiency.

Metal industry

16. Trinidad and Tobago’s metal industry is concentrated in steel production, which accounts for less than 10 percent of total gas usage.¹¹ With a share of less than ⅛ of 1 percent in world production, the country is a minor player in the world market. However, the government is placing special emphasis on the development of the steel and aluminum industries in order to diversify the country’s natural gas industrial customer base and reduce its exposure to the price volatility of a handful of petrochemical projects.

17. Currently, there is only one steel plant operating in Trinidad and Tobago, Caribbean Ispat Limited, with a total capacity of 0.9 million tons per annum of direct reduced iron (DRI) pellets, 0.7 million tons per annum of billets and 0.6 million tons per annum of wire rods. In January 1999, the Nucor Iron Carbide Company shut down its iron carbide plant after five years of operation. The plant was designed to produce 0.3 million tons per annum of iron carbide but it never achieved its capacity rating, and with the low prices for scrap and direct-reduced iron, operation became economically unfeasible.¹² An offset will be provided by the expected completion of the Circored DRI plant, a joint venture of Cleveland Cliffs, Incorporated (U.S.A.), LTV Corporation (U.S.A.), Lurgi AG (Germany), and Companhia Vale do Rio Doce (CVRD) (Brazil), with a production capacity of 500,000 tons per annum of reduced iron briquettes.

18. Two major projects are underway that will increase the production capacity in the steel and aluminum industry in the near future. Caribbean Ispat Limited (CIL) is currently working on a substantial plant upgrade and constructing a new DRI megamodule that will double the production capacity of DRI pellets from 900,000 to 2.4 million tons per annum. The second project, currently under discussion, is a two-train aluminum smelter, to be built by Norsk Hydro. Each projected train has a capacity of 235,000 tons per annum and if the project is approved, the first train would be completed in 2002 and the second in 2007. The project would include the construction of two dedicated electricity generating plants.

19. The long-run prospects for the steel and aluminum industries are strong and there is no shortage of new projects on the horizon. NASCO Limited is considering the construction of a hot briquetted iron plant, with a planned capacity of 1.5 million tons per annum. A more ambitious project currently being discussed by the government and the CVRD of Brazil is to develop a “Steel District” that will process iron ore from Brazil. If approved, construction will start in 2002 and last until 2008.