Hydrocarbon Exploitation in Trinidad and Tobago

Sonja S. TeelucksinghSonja S. TeelucksinghEconomics DepartmentEconomics Department

The University of the West IndiesThe University of the West IndiesTrinidad and TobagoTrinidad and Tobago

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LocationLocation

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Basic Facts (2006)Basic Facts (2006)• Twin island republic • Land size = 5130 square kilometres• Population size = 1.3 million• Population growth = 0.25% • GDP per capita = $13 340 TTD• Real GDP growth rate = 12%• Headline inflation = 10%• Food price inflation = 22%• Unemployment rate = 5%• Exchange rate = $6.31 to 1 USD

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Economic SectorsEconomic Sectors• Tobago dominated by the tourism and eco-tourism

industries• Dominated by the Energy sector (20.6% growth in

2006, 41.5% of GDP in 2006) • Non-Energy sector growth of 6.5% in 2006, down from

8.5% in 2005• 11.8% growth in Manufacturing, led by “food, beverages

and tobacco”• Services sector grew by 5.9%, led by the construction

sector due to state investments in housing, and ongoing energy sector projects

• Weak performance by Agricultural sector (declining by 0.6%) due to the shrinking of the sugar industry

• Ongoing plans to diversify to reduce dependence on energy sector

• Agricultural sector of particular current importance given recent rising food prices

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Recent DevelopmentsRecent Developments• Rising crime levels, illegal guns, illegal drugs• Ongoing concerns over security and safety• Issues with health, education, transport,

social services, inflation• Perceived political interference in the judicial

system• Rising perception of political corruption and

mismanagement of resource rents• Huge national protests over proposed

establishment of two aluminium smelters in the south

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Hydrocarbon ExploitationHydrocarbon Exploitation• Crude oil (initial mainstay)• Natural gas (at present dominating the

national economic landscape, 4 times that of crude oil)

• Downstream industries– Methanol (7 plants)– Ammonia (10 plants)– Urea (1)– Steel (5)– Direct reduced iron modules (3)– Hot briquetted iron plants (1)– Gas processing plant (1)

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Oil and Gas ProductionOil and Gas Production19801980--20012001

(source: Ministry of Energy and Energy Industries)(source: Ministry of Energy and Energy Industries)

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Oil and Gas Production ProjectionOil and Gas Production Projection(source: Ministry of Energy and Energy Industries)(source: Ministry of Energy and Energy Industries)

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Energy Sector HighlightsEnergy Sector Highlights• Oldest energy industry in the world (1857)• Producer of crude oil, centre for refinery

exports, natural-gas based petrochemical and LNG products

• 5th largest exporter of LNG in the world• Largest supplier of LNG to the US (70% of

US imports)• Largest world exporter (from a single site) of

ammonia (29%) and methanol (18%)• 56% of US ammonia imports, 77% of US

methanol imports• Home to the world’s largest methanol plant

(M5000) and the biggest LNG train (Train 4 of Atlantic LNG)

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Ownership and ExploitationOwnership and Exploitation• Initial crude oil production in onshore

acreage in South Trinidad and in shallow waters of Gulf of Paria

• Since 1960’s, production focusing on offshore assets off east and north coasts

• Significant inputs of capital and technology required – multinational companies (BP, BG, BHP Biliton, EOG)

• Minority (non-operator) stakes held by other MNCs such as Texaco, Total/Fina Elf and Repsol

• Other MNCs such as Shell have actively explored

• Total of 82 offshore platforms

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Offshore Platforms Offshore Platforms (source: Energy Magazine)(source: Energy Magazine)

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Types of LicensesTypes of Licenses• An Exploration (Public Petroleum Rights) Licence

– grants the licensee the non-exclusive right to carry out the petroleum operations provided for the licence.

• An Exploration and Production (Public Petroleum Rights) Licence– grants the licensee the exclusive right to explore for,

produce and dispose of petroleum in accordance with the terms of the licence.

• An Exploration and Production (Private Petroleum Rights) Licence

• A Production Sharing Contract – For the conduct of petroleum operations relating to

the exploration, production and disposition of petroleum within a prescribed contract area.

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Production Sharing ContractsProduction Sharing Contracts• An agreement between a contractor and a host

government whereby the contractor bears all exploration risks, development and production costs in return for a stipulated share of the production resulting from this effort

• The use of PSCs in Trinidad and Tobago began in 1974 • As a result of a World Bank study conducted in 1991, a

model PSC was developed• This improved some of the terms and conditions obtained

under an Exploration and Production licence, such as the encouragement of immediate work on the blocks, definite periods for exploration and guidelines for relinquishments.

• It also added flexibility to the method of sharing economic rent between the contractors and the Government

• This model contract was successfully utilized in the Competitive Bid Round 1995-98

• Currently under review

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Fiscal RegimeFiscal Regime• The petroleum taxation system was revised in 1992 to

enhance its competitiveness by providing additional relief to new investors, and the introduction of an S.P.T. rate structure sensitive to oil price variation.

• An enhanced two-tier system consisting of :• Production based Royalty (charged at a rate of 12.5% of

all petroleum produced)• Production Levy (up to 3% of gross income from crude oil)• Supplemental Petroleum Tax S.P.T. (charged on production

of crude oil and based on an oil price sensitive rate structure. This ranges from 0% for crude prices under US$13.01 a barrel to a maximum of 35% for crude prices in excess of US$49.50 a barrel)

• A profits based corporation tax, the Petroleum Profits Tax P.P.T ( 50% of gross revenues from all sources less deductible expenses and allowances. )

• An Unemployment Levy (5%)

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Budget Statement 2007Budget Statement 2007• Energy sector accounted for 54% of total

government revenue • Aim to double GDP in the next 7 years via the

transformation of the energy sector:– a massive thrust to explore offshore and onshore

provinces via tax incentives– the move to further downstream natural gas

applications – review of the fiscal framework to ensure maximum

gain– a focus on ensuring maximum local value added– Meaningful linkages between energy and non-

energy sectors

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Upstream, 2007Upstream, 2007• Recent failed and costly exploration programmes,

both onshore and offshore• Significant discoveries needed• Ryder-Scott 2007 Audit (as yet unpublished):

– a 3.83 tcf decline since January 2005– the nation has 17.05 tcf of proved gas reserves– 7.76 tcf of probable reserves– 6.23 tcf of possible reserves – With current demand and no new exploration,

production, 9 years supply remain– However, potential for an additional 37 tcf of gas

awaiting discovery• Fiscal regime currently under review, to encourage

exploration and to possibly include “tax paying elements” into the PSCs

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Downstream Downstream PLansPLans, 2007 [I], 2007 [I]• Urea Ammonium Nitrate Plant – US$835

million (Ansa McAl Ltd)• Ammonia/Urea/Melamine Plant – US$1.5

billion (Methanol Holdings Ltd)• Ethylene Complex – US$1.5 billion (Westlake)• Malaeic Anyhdride processing facility –

US$64 million (ISEGEN (PTY) Ltd)• Aluminum Smelter – US$1.5 billion (Alcoa –

where?)• Aluminum Smelter – US$800 million

(Alutrint)

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Downstream Downstream PLansPLans, 2007 [II], 2007 [II]• New Industrial Estates:

– Union Estate, southwest Trinidad, to accommodate various industries in the energy sector including additional ammonia and methanol facilities and Aluntrint’saluminium smelter. Various other downstream ammonia and methanol products will also be produced including Urea Ammonium Nitrate (UAN) and Melamine.

– Cap-de-Ville, also in South Trinidad, has been identified as suitable for industrial development. Alcoa’s aluminiumsmelter was meant to be located here. However, with massive national protest, the smelter will not be established. Instead, there is talk of an offshore “industrial island” in the Gulf of Paria.

• an ethane based petrochemical complex • a gas refinery• a gas -to - liquids facility• an ethanol plant

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Outlook for the FutureOutlook for the Future• Ongoing revisions of tax incentives,

fiscal regimes and PSCs to encourage exploration in light of Ryder-Scott and recent failed exploration schemes

• Ongoing revisions of tax structure to ensure local benefits

• Huge future plans to establish downstream industries and new industrial estates

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Hydrocarbon PollutionHydrocarbon Pollution• Sustainable marine exploitation important to the

small island economies of the region• Marine pollution affecting regional fisheries• Transboundary aspects, non-point sources of

pollution• Short-term oil spills versus long-term chronic marine

pollution• Tankers and barges• - maritime accidents• - disposal of bilge, wastes and tank washing

offshore exploration and exploitation• - crude oil release from accidents• - ‘produced water’ release• oil refineries and petrochemical plants• natural seepage of petroleum hydrocarbons

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Environmental ConsiderationsEnvironmental Considerations• Small island economy• highly coupled marine and terrestrial

ecosystems• Economic/environmental interface• Socio-economic importance of marine

resources• Gulf of Paria coastline• Issues of sustainable development• Recent (controversial) establishment of

the “Heritage and Stabilisation Fund”

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Chapter Outline: Trinidad and TobagoChapter Outline: Trinidad and Tobago• Descriptive:

– Country facts– Main energy products and companies, ownership structures– Main export destinations– Latest energy sector output data and trends

• Future projects:– Current projects in construction– Future projects in planning stages

• Legislative framework, production-sharing contracts and taxation regimes for upstream, midstream and downstream industry : past, present, future

• Prices (??)• Environmental considerations in a small island economy:

– Hydrocarbon pollution and marine resources– Sustainable development

• The search for alternative energy (??)

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THANK YOUTHANK YOU