This Selected Issues paper analyzes the energy sector and labor market developments in Trinidad and Tobago. It discusses monetary and exchange rate policy and describes the institutional setting and economic structure within which monetary and exchange rate policy is conducted. The framework under which monetary policy is formulated and implemented is outlined. The paper also reviews the evolution of monetary and exchange rate policies, and presents some comments on the effectiveness of monetary and exchange rate policy.


This Selected Issues paper analyzes the energy sector and labor market developments in Trinidad and Tobago. It discusses monetary and exchange rate policy and describes the institutional setting and economic structure within which monetary and exchange rate policy is conducted. The framework under which monetary policy is formulated and implemented is outlined. The paper also reviews the evolution of monetary and exchange rate policies, and presents some comments on the effectiveness of monetary and exchange rate policy.

I. The Energy Sector1

A. Background

1. Trinidad and Tobago has had a long history of oil exploration and production. As early as 1855, the first geological survey was undertaken so as to map possible areas for oil exploration. Early attempts to develop the oil industry were all carried out by private entrepreneurs, mainly from the United States and the United Kingdom. In 1911–12, Trinidad Oilfields Limited made a successful oil strike, and the first shipment of oil took place in 1910. Oil production received a strong boost in 1914, as a result of World War I, with oil production surpassing the 1 million barrel mark for the first time. In 1917, the first refinery was established.

2. The energy sector has since taken on a central role in the economy of Trinidad and Tobago. In 2003, it accounted for nearly 40 percent of GDP, 83 percent of exports of goods, 41 percent of central government revenues, but contributed only about 3 percent to employment (Table 1). Since the late 1970s, the energy production structure in Trinidad and Tobago has shifted from primarily oil-based to natural and gas-based petrochemical production. Natural gas production increased from 346 million cubic feet per day (mmcf/d) in 1975 to 2,594 mmcf/d in 2003. The expansion of the gas sector received a major boost in 1999, when the Atlantic Liquefied Natural Gas Company (ALNG) began operations. Trinidad and Tobago has developed its petrochemical and liquid natural gas (LNG) mainly for exports.

Table 1.

Trinidad and Tobago: Economic Contribution of the Energy Sector, 1999–2003

(In percent unless otherwise specified)

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Sources: Trinidad and Tobago authorities; and Fund staff estimates.

The value added refers to crude oil and gas extracted, and exports refers only to crude oil.

This includes refined petroleum, liquefied natural gas and natural gas liquids.

This refers to all other energy related e.g., petrochemicals.

B. Structure of the Sector

3. Proven oil and gas reserves were estimated to be around 4,500 million barrels of oil equivalent. Of this, gas accounts for more than 80 percent. If, however, probable and possible reserves are also included,2 oil and gas reserves amount to almost 9,000 million barrels (Figure 1). In 2003, oil production in Trinidad and Tobago was approximately 134,000 barrels of oil per day (bopd), and 500,000 boe of gas per day. Based on reserves to production ratios, the country’s energy resources could last for almost 40 years.3

Figure 1.
Figure 1.

Trinidad and Tobago: Structure of the Energy Sector, 2003

Citation: IMF Staff Country Reports 2005, 006; 10.5089/9781451837636.002.A001

Source: Ministry of Energy and Energy Industries.

4. Trinidad and Tobago’s energy sector is dominated by large international companies or their affiliates.4 The government’s involvement mainly stems from the existence of large state-owned companies, such as the Petroleum Company of Trinidad and Tobago (PETROTRIN), the Natural Gas Company (NGC), and the National Petroleum Marketing Company (NPMC), as well as the government’s minority shareholding in private companies (Table 2). The energy companies are involved in extracting, refining or condensation, processing and distribution (Figure 2).

Table 2.

Trinidad and Tobago: Energy Extraction Companies, June 2004

(In percent)

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Source: Ministry of Energy.
Figure 2.
Figure 2.

Trinidad and Tobago: Sources and Uses of Energy Resources, 2003

Citation: IMF Staff Country Reports 2005, 006; 10.5089/9781451837636.002.A001

Source: Ministry of Energy.
  • British Petroleum and PETROTRIN are the main crude oil producing companies accounting for 45 and 50 percent of total, respectively. British Petroleum is the only exporter of crude oil. PETROTRIN has a refining capacity of 175,000 bopd and is the sole refinery in Trinidad and Tobago. It complements its crude oil production with purchases from the smaller producers, and imports more than half of its requirement from Venezuela. NPMC is the main company distributing refined petroleum in the domestic market.

  • British Petroleum is also the major natural gas producer, accounting for 70 percent of total gas output, British Gas and four smaller companies produce, respectively, about 23 percent and 7 percent of the total natural gas output.

  • Approximately 60 percent of all gas produced in Trinidad is exported directly as LNG (the country is the fifth largest exporter of LNG in the world). There are currently three LNG plants in operation—ALNG Train I, ALNG Train II, and ALNG Train III. With the exception of Train I, in which the government holds 10 percent of the shares, these trains are owned mainly by multinational companies such as BPTT, BGTT, and Repsol.

  • The remaining 40 percent of the natural gas output is used by NGC, established in 1975 to spearhead the country’s natural gas-based industrialization efforts. NGC compresses, transports, and distributes natural gas to companies on the Point Lisas Industrial Estate for use in the larger petrochemical and other smaller plants. The petrochemical industry mainly produces methanol, ammonia, and urea.

C. Growth Prospects

5. Significant further expansion is expected in the energy sector over the next few years. This is predicated on expansion underway in the LNG sector, potential contribution of the newly discovered oil and gas fields, and the expected growth in the downstream petrochemical industry.

  • In addition to the already established Trains—I, II and III—a fourth plant (Train IV) is currently under construction, and is expected to be completed by end-2005/early 2006. This plant will have an annual production capacity of 5.2 million metric tons of LNG (45 million boe).

  • In 2001, BHP Billiton announced the discovery of a major oil field located in the northeastern coast of Trinidad. This has a potential to produce of up to one billion barrel of oil and about 2.5 trillion cubic feel of natural gas (450 million boe). Production from this discovery is scheduled to begin in December 2004.

  • In mid-2004, production in the petrochemical sector was further enhanced and expanded when an ammonia plant and a mega-methanol plant began operations. An additional methanol plant is expected to come on stream in late 2004/early 2005.

D. Economic and Fiscal Contribution

6. While direct employment generated by the energy sector remains relatively small, its contribution to value added and investment have increased rapidly in recent years. The energy sector accounts for less than 4 percent of direct employment as the related projects are highly capital-intensive. However, its contribution to real GDP growth reached 80 percent in 2003 as LNG trains II and III came on stream. The share of the energy sector in total GDP rose to above 40 percent in 2003

7. Trinidad and Tobago has production-sharing agreements in both the oil and natural gas sectors. Most new contracts for oil and gas development are production-sharing contracts, following global trends in this area. Under these contracts, the government accepts cash payments for its share of production rather than actually taking possession of the natural resource. As set out in the contracts, the share may vary from year to year, depending on the cost of production, output prices, and other factors. No royalties apply to these production-sharing contracts.

8. The government budget is heavily dependent on revenues from the energy sector. In FY 2002/03, energy-based revenues constituted slightly more than 40 percent of total budgetary revenue (Table 3). The relative tax burden of the energy sector (i.e., tax share relative to the sector’s share in total value-added), increased from 64 percent in 1998 to 76 percent in 2003, More than 50 percent of energy-based revenue is in the form of receipts of the petroleum profit tax and supplemental petroleum tax. Notwithstanding the expansion in the gas processing and petrochemical subsectors, contribution to revenue from these remains low as a number of entities operate under tax holidays and/or are allowed to offset their tax liabilities against capital costs. Accordingly, their tax contribution is expected to increase in the future with the expiration of tax holidays and the recovery of capital cost.5

Table 3.

Trinidad and Tobago: Energy-Based Government Revenues

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Source: Trinidad and Tobago authorities.

9. The tax regimes that apply to oil and gas are different, though both are based on production and income taxes. For oil, production-based receipts consist of: (i) royalties of 10 percent on onshore oil sales and 12.5 percent of offshore sales; (ii) a petroleum production levy, at a maximum rate of 3 percent; and (iii) a small petroleum impost, which is used to cover administrative expenses of the Ministry of Energy. Income-based taxes consist of: (i) a petroleum profit tax, levied at a 50 percent rate on profits from oil production; (ii) an unemployment tax levied at a 5 percent rate on profits from oil production (this tax is not deductible against the profits tax); and (iii) a supplemental petroleum tax levied on crude oil sales (less certain allowances for exploration and investment), at a sliding rate that varies with the price of oil, when the development license was granted, and when production began. For gas production, companies are liable to pay royalties at a rate negotiated with the government. These companies (including petrochemical companies) also pay the corporate income tax at the standard rate of 35 percent on profits, and the petroleum impost.

10. The royalty rate for gas production in Trinidad and Tobago is extremely low by international standards. Most of the gas production (about 70 percent) is subject to a specific royalty of only TT$0.015 per mcf if used domestically, and TT$0.02 per mcf if exported. In ad valorem terms, the royalty is less than 0.3 percent of the value of the natural gas. For some time, the government has been considering ways to increase revenue from the natural gas resources. Options to adjust the gas royalty under the existing exploration and production contract are somewhat limited, since royalty rates are specified in the license agreements. Altering these long standing agreements would be viewed by the concerned companies as reneging on contractual commitments. Moreover, a significant volume of the natural gas produced is sold to the state-owned NGC under long term contracts that contain pass-through arrangements. As such, any increase in the royalty rate would be passed on to NGC, and thus could indirectly result in lower government revenue. These issues have constrained government’s ability to change policy not only with respect to natural gas royalties, but also with respect to other levies on the production of gas.

E. Contribution to the Balance of Payments

11. In recent years, the performance of the energy sector has been the main determinant of the external current account balance (Table 4). The current account surplus rose sharply by about 12 percentage points of GDP in 2003, to 13 percent of GDP, reflecting high oil and gas prices and increased volume of gas exports. The share of energy sector exports in total merchandise exports rose from an average of 78 percent in 2000–02 to 83 percent in 2003. This was largely a result of the expansion in the extracting and refining industries, as ALNG Trains II and III began production. Investment income payments abroad by the energy sector, which averaged 5 percent of GDP in 2001–02, declined to 3 percent of GDP in 2003, reflecting increased re-investment by the energy companies.

Table 4.

Trinidad and Tobago: Energy-Related External Flows

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Sources: Central Bank of Trinidad and Tobago; Central Statistical Office; and Fund staff estimates and projections.

Crude oil.

This includes refined petroleum, liquefied natural gas, and natural gas liquids.

This refers to all other energy related e.g., petrochemicals.

12. The United States is the largest market for Trinidad and Tobago’s crude oil and natural gas exports. The share of exports to the United States in 2003 was 100 percent and 86 percent, respectively, for crude oil and LNG. Other export markets for energy-related products include Spain, Japan, and some countries in the Caribbean region.

13. The energy sector has a major impact in the capital account of the balance of payments through the related FDI. Cumulative foreign direct investment in the energy sector over the last five years has been about US$4 billion, nearly 50 percent of the country’s average GDP over the same period. Indeed, the energy sector of Trinidad and Tobago is financed mainly through foreign direct investments. This reflects the ownership structure of the sector, and the large amounts of capital required relative to the size of the economy. The domestic financial system’s involvement in the energy sector is through loans given mainly to locally owned companies that provide services to the foreign firms. Less than 10 percent of domestic bank’s outstanding loans are directed to the energy sector.


Prepared by Phebby Kufa and Saqib Rizavi (WHD). The authors benefited from extensive comments by Ms. Sandra Racha (CBTT) and Ms. Carol Bikram (Inland Revenue Board).


According to the Ministry of Energy and Energy Industries (MEEI), this estimate is based on the following probabilities: 90 percent for proven oil reserves; 50 percent for probable oil reserves; 10 percent for possible oil reserves; 100 percent for proven gas reserves; 60 percent for probable gas reserves; and 20 percent for possible gas reserves.


Given that the reserves-to-production ratios are based on existing reserves and current extraction rates, and do not take into account the possibility of any new discoveries, these figures should only be treated as indicative.


For example, British Petroleum, British Gas, BHP Billiton, Chevron Texaco, Total, Talisman, and Repsol.


Trinidad and Tobago’s fiscal regime also offers significant tax incentives to energy producers. The main incentives are an income tax holiday spanning a period of 5–10 years on new investments; exemption from import duties and value-added tax on imports; and exemption from withholding taxes.

Trinidad and Tobago: Selected Issues
Author: International Monetary Fund