The natural gas industry in Trinidad and Tobago

TIlE NATURAL GAS INDUSTRY

IN TRINIDAD AND TOBAGO

THE NATURAL GAS INDUSTRY IN TRINIDAD AND TOBAGO Richard Jobity and Robert Pantor

Formerly seen as a useless by-product in the search for oil, natural gas is now seen as the fuel of the future. While oil maintains the backbone of the Trinidad and Tobago economy, gas has assumed an important role over the last two decades.

by

Natural gas is now the principal feedstock used in electricity generation and provides the base for downstream petrochemical industries. Over the next decade, ilatural gas will supersede petroleum as the driving force behind the Trinidad and Tobago economy. This paper attempts to describe and analyse the natural gas .jndustry in Trinidad and Tobago. with particular emphasis on markets. gas pricing and legal

Richard Jobity and Robert Pantor Central Bank of Trinidad and Tobago

issues, WId concludes with the future outlook for the Trinidad and Tobago gas industry.

July 1995

185

TIlE NATURAL GAS INDUSTRY

Trinidad and Tobago's energy supply rose from 57 per cent in 1975 to 84 per cent by 1994.

IN TRINIDAD AND TOBAGO

Similarly, the share of gas-based industries in exports increased from 2.7 per cent in 1975 to 36.4 per cent in 1994. This trend will continue in the medium term as the country seeks to

Richard Jobity and Robert Pantor •

monetize its reserves of natural gas to offset reduced revenue from the petroleum sector. The discovery of new gas fields. the development of reserves and setting up of additional gasusing industries such as LNG and iron carbide, will help to offset the long term decline in oU

I.

INTRODUcnON

production. As a result, the-natural gas industry is poised to supersede petroleum as the driving force of the Trinidad and Tobago economy.

For several reasons) natural gas is yet to attain the same high status globally as The problems associated with transportation and storage of natural gas has

However, within the country there is no universal agreement on exactly what

restricted both the usage and the quantum of inter-regional trade in the commodity. In

constitutes the natural gas industry. Several definitions are used to define the gas industry,

addition, the world·s concentration on crude oil resulted in many natural gas deposits being

depending on the agency involved. For instance, the Central Statistical Office (CSO) utilizes

flared or abandoned as uneconomic. However, developments in shipping and progress in the

the Trinidad and Tobago System of National Accounts (TISNA) value-added approach

production of liquefied natural gas (LNG), has increased interest in gas. Moreover, it is the

which narrows the industry to incremental input related solely to gas production. In its

politically correct choice in countries where environmental concerns and energy security are

estimation of the Quarterly Real GDP (QGDP), the Central Bank of Trinidad and Tobago

dominant themes.

employs a similar approach but assigns a proportionately larger weight to petrochemicals

petroleum.

manufactured from gas. In contrast, the National Gas Company applies a more holistic. approach encompassing the range of gas-based activities from the wellhead to the export

Over the past two decades, natural gas has assumed an increasingly important role in

flange. This paper utilizes the latter approach.

the Trinidad and ,Tobago economy. Natural gas provides the base (fuel and feedstock) for downstream petrochemi~s and heavy industry including ammonia, urea, methanol, natmal gas liquids, iron and steel and iron carbide. In addition, gas has been the principal fuel used

This paper is an attempt to analyze the natural gas industry in Trinidad and Tobago.

in electricity generation since the mid-1960s. As a result, the market share of natmal gas in

The paper contains five sections. Section II provides a general overview of the commodity and the history of the industry, while Section

authors are Economists in the Research Department of the Central Bank of Trinidad and Tobago. Views expressed are those of the authors and not necessarily those of the Central Bank of Trinidad and Tobago. This paper is extracted from the forthcoming paper "The International Market for Natural Gas" by the authors.

186

m outlines the characteristics of the

gas

industry in Trinidad and Tobago. Section IV summarizes natural gas pricing and taxation

and water. Natural gas usually contains paraffinic compounds distinct from methane such as

issues while Section V concludes the paper with projections for the future.

ethane, propane, butane, pentane and other heavy hydrocarbons. Though methane is an odourless gas, associated elements present in natural gas may result in a distinctive odour. For example, the presence of hydrogen sulphide can impart a sulphuric odour to natural gas.

n

OVERVIEW

2.1

Physical Properties

Table 2{a) shows some chemical properties of the hydrocarbons present. in natural gas.

Despite these similarities. in its innate state natural gas is not a

h~mogenous

Natural gas is a mixture of naturally occurring gaseous and highly flammable

commodity. The proportions of the hydrocarbons present in natural gas differ from field to

It is recoverable as gas in

field, depending on the level of exploitation and age of the field. The proportion of paraffinic

atmospheric surface conditions and can exist in anyone of three states. Natural gas present in

hydrocarbons determines the overall calorific value of the natural gas and ultimately the end

a reservoir may be dissolved in petroleum; altematively~ it occurs in conjunction with crude

value oftb.e gas. This is illustrated in Table 2(b).

hydrocarbon compounds present in underground reservoirs.

oil but compressed in a geological formation known as a gas cap. In both cases, the gas is TABLE2(a)

'associated' with oil. Gas can also be present in a predominantly gaseous form, but with other

PARAFFINIC HYDROCARBONS IN NATURAL GAS ~ydrocarbons

apart from methane, the main constituent of gas.

When this occurs it is

classified as non-associated or 'wet' gas. However. when the primary compound present in

Chemical formula

NlIme

the gas is methane, it is known as non-associated or 'dry' gas. In most cases, natural gas occurs in association with condensate Oiquid hydrocarbons sometimes found in natural gas reselVoirs) or with other hydrocarbons such as butane, propane and ethane.

Methane

CH4

-161.S

Gaseous

C2 H6

-88.6

Gaseous

Propane

C3Hg

-42.1

Gaseous

Isobutane

C4H IO

-II.;

Gaseous

Normal Butane

C4 H IO

-0.5

Gaseous

CSHI2

27.9

Liquid Liquid Li'luid

CSHI2

Hil

Normal Hexane

C6 H 14

68.7

Normal Heptane

C7 11 '6

98.4

Liquid

Normal Octane

CglllS

125.7

1.i.,l1id

Normal Pentane

Chemical Properties

~ The

The major hydrocarbon present in natural gas is methane, a colourless and odourless gas. Other components of natural gas include nitrogen. carbon dioxide. hydrogen sulphide

187

Condition lit normal temperature and pressure

Ethane

lsopenlane

2.2

Boiling point at atmospheric pressure (oq

Petroleum Handbook. Ro)al Dutch/Slu:lI Group ofCompanu~s. 1983

--

TABLE2(b)

FIG.2(i)

CONSTITUENTS OF NATURAL GAS FROM SELECTED AREAS

TYPICAL PROCESSING OF NATURAL GAS

Percentage o/total volume l no

hydrogen sulphide and other impurities

TRINIDAD ANBTOIlAGO

AI...,,;,.

CONSTITllENT

Ullp

UI'\JQCi

NAI1ilSea

bu.

Nedtt:r'I8ada

AW....

(G*",~)

(Elmr.,,)

E.ut0l1Olt

Eut

Nel1il

Aaadaled

c.ut

Cout

Ca

'wd'

..,.,.

ltV

c..

86.3

66.11

&8.0

BS.9

96.3

11.3

IIU

89.7

92..6

99.4

~

1.11

19,4

S.l

II.!

U

2.9

0,9

4.()

4.J

0.1

Mclluine PrcpoDc

3.2

9.l

4.1

2.1

0.4

05

0.0

2.1

1.5

0.1

BiIIJmI:

0.6

U

U

0.9

0.2

0.1

0.0

1.]

0.1

0.0

PUlIaIIa ODd IlIhots

0.1

I.l

0.2

0,3

0.1

0.1

0.0

0.9

0.4

0.0

NiIrOpll

0.0

0.0

0.1

0.5

13

1404

0."

03

0.1

0.2

Carbaft Diaxidc Gross c.aonr..

OJ)

0.0

0,0

1.0

0.0

0.9

0.0

1.1

0.4

0.1

42,667.7

53,OSU

43,064.6

41.9$3.2

37,50(7.6

32,943.4

37,196..3

41,239.0,

38.no.o

31,66!l.0

gas.

gas

t Extraction of pentanes

and heavier pJJaffinlc

~~

sales galll.

I~:n 1

hydrocarbons.

~

i3=

I~

'Sour' reservoir 1----+1

_

Directuse

Upgrading via downstream

I

processing

LPG

'Gas Resources, Development and Utilization'. Richan1 Hymas, 1992.

Vlluc:

(KiIo,ioulcslm~

..

Blue Gold: The Polttical Economy ofNtl.tural Gas. J.D. DaVIS, 1981, Trinidad and Tobago, White PaperoD Natural Gas. 1981;

2.3

Uses of Natural Gas

Trinidad and Tobago, Natural Gas in Trinidad and Tobago; An investor's Guide. 19S5. 1 Totals may not add due to rounding.

In Trinidad and Tobago, the natural gas reserves exploited contain no sulphur and t

The versatility of natural gas regarding its proven applicability in direct and downstream utilization has confirmed its status as the prince of hydrocarbons.

consequently need less processing than in other regions. Via liquids recovery, the processed

For

natural gas is much 'drier and thus more suitable for downstream use. Table 2(c) shows the

downstream gas users, the removal of impurities such as sulphur that results in lower

difference made by extraction of medium and heavy paraffins, while Figure 2(ii) outlines the

efficiency fonns part of the overall processing sequence. In cases where natural gas contains

overall processing of natural gas in Trinidad and Tobago.

pentanes and other naturally condensing hydrocarbons, these compounds, which have value in themselves, can be removed from the natural gas stream. The resulting dry 'sales' gas can be utilized directly or upgraded via downstream processing. Figure 1 shows a simplified diagram of this process.

188

TABLE2(c)

limited funds available to the private sector in developing ~untries, most investments

EFFECT OF PROCESSING NATURAL GAS BY

in generating capacity remain the domain of the public sector. However, for such

NATURAL GAS LIQUIDS RECOVERY IN TRINIDAD AND TOBAGO

investments to be profitable, forecasts of demand growth must be high enough to ensure optimal operating capacity.

CONSTITUENT

Typical composition of inlet go

Typical COlDpolitiOIl of outlet

(mole%)

(residual) go (mole %)

Methane

93.7

95.9

Ethane

3.3

3.3

alternative fuel for heating and cooking. This can take the fonn of piped gas,

Propane

1.2

0.0

occurs in Mexico, or bottled LPG, in areas where logistical problems preclude the establishment of a pipeline network., as is the case in Trinidad and Tobago.

Butane

0.6

0.0

Pcntanes and others

O.S

0.0

Nitrogen

0.1

0.1

Carbon Dioxide

0.7

0.6

Domestic Fuel - In areas of abundant supply and low-cost, natwd gas is a low cost

as

Industrial Use - Another option for using gas is as energy, either as raw material feedstock or as a fuel for generation of low-cost electricity. The additional value

~ PhoenIX Parle Gas Processors LImited.

created through industrial use of gas denves from domestic and imported raw materials. For instance, following the establishment of a minimill at Point Lisas in FIG.2(ii)

1980, Trinidad and Tobago used its gas as fuel to process imported iron ore into direct

Processing of Natural Gas in Trinidad and Tobago

'Sweet'" reservoir gas (sourced from Amoco, Enron

Trintomar. NGC,

Natural gas

production

war

aal•• I _

gas.

olbers).

Extrec:tion of propane, butane, andheaviet pal1tffins at Phoenix Parle

I

reduced iron, billets and wire rods.

-Electricity genellIItion

Automotive Use - The escalation in oil prices over the past two decades led to greater

-+ Fuel for Industry -+ Downstream gas gas. processing

. interest in natural gas as an automotive fuel in the fonn of compressed natural gas

'--- -+ Transport (eNG)

(eNG) and liquefied petroleum gas (LPG) esnecially among oil importers. In areas

LPG

where reserves are abundant, or where travel distances are short, natural gas can

'Dry'

1-

salel

provide a cost-effective alternative to gasoline. .sm.IW::E.; Adapted from Hymas (1992).

The downstream processing of natural gas is vastly different from domestic use. Processed natural gas is utili:zed in two ways: by direct use in captive markets, and in Major features of downstream industries include worldscale plants and significant foreign the manufacture of downstream gas derivatives for export. Direct utilization of natural gas exchange earning potential. However, in developing countries, downstrea.!ll gas industries occurs in four ways: usuaUy operate as enclaves divorced from the rest of the economy. As such, benefits in the fonn of enhanced employment opportunities and import substitution remain minimal. Power Generation -' The conversion of natural gas to electricity remains one of the Downstream uses include:

most attractive options open to developing countries for using this resource. However. this requires large initial investments in capital equipment. Due to the

189

Liquefied Natural Gas (LNG) - The most profitable use for natural gas is its

FIG.2(ili)

liquefaction and subsequent export as LNG. Prior to an investment decision, project

DOWNSTREAM PROCESSING OF NATURAL GAS

sponsors must address several issues.

These include the location of reserves to

support an LNG facility, the feasibility of gas liquefaction and long.-term contracts and markets.

Liquefied Petroleum Gas (LPG) - The presence of heavier paraffinic compounds in natural gas enhances its value. The major products 1raded include propane, butane and derivative products. Downstream uses for propane include the manufacture of propylene via the dehydrogenation process. Polypropylene, a principal raw material in the plastics' industry is the major derivative of propylene. Butane, as a finished product or dehydrogenated into n-butanes and butadiene, remains essential to the manufacture of synthetic rubber and plastics.

It also provides the base for

SOI.lRCB.:. Adapted from Hymas (1992).

petrochemicills used to increase the octane rating of gasoline. These include methyl tertiary butyl ether (MTBE) and tertiary butyl alcohol (mA).

2.4

Synthesis Gas Derivatives - The majority of natural gas processing globally takes the

History of the Natural Gas Industry in Trinidad and Tobago

form. of the production of synthesis gas. This involves the decomposition of methane to carbon oxides and hydrogen by steam reaction and the subsequent production of derivative products.

The presence of asphalt at the Pitch Lake in La Brea provided the impetus for

Ammonia, the basis for all nitrogen fertilizers, is the most The other major

exploiting hydrocarbon reserves in Trinidad and Tobago. In 1595, Sir Walter Raleigh used

derivative obtained from this reaction is methanol, used directly and downstream in

the asphalt from the lake to caulk his ships, commenting favorably on the high quality of the

widespread synthesis gas derivative created by this process.

the production of MTBE. formaldehyde, and acetic acid.·

Figure 3 gives a

pitch. Notwithstanding this development, natural gas did not achieve significance until the

diagrammatic representation of the downstream uses of natural gas. first half of the twentieth century. Like many other countries, attempts at using natural gas in

Trinidad and

Toba~o

commenced with the extraction of the gas component from other

hydrocarbons: in this case, asphalt sourced from the Pitch Lake. At the request of the then governor Sir Ralph Woodford, gas was extracted from asphalt for illuminating

n •••

a beacon

Further information on the ammonia and methanol market$ and industries can be found in the papers The [merna/ional Nitrogen Fertilizer Industry: A Profile of Ammonia and Urea', by Richard Jobity, Central Bank of Trinidad and Tobago, mimeo, 1993; and The International Methanol Market', Robert Panlor, Central Bank of Trinidad and Tobago, mimeo, 1993. As a result, these commodities will not be discussed

placed in the tower of Trinity church". Although the resultant gas created by this process II...

in detail in this paper.

burnt brightly and steadily... ", the intolerable smell of the sulphur in the gas rendered the

190

experiment a failure. Eventually, an American scientist was successful in extracting odour-

Tabaquite, Fyzabad, Siparia. and other southern areas. The first cargo of oil (3,800 tons) was

free gas :from Trinidadian asphalt. However, the high costs incurred in extracting the gas

exported from La Brea in 1911.

made the process uneconomic. In the years immediately preceding World War I. British concer:ns over the security of "

The first attempt to find hydrocarbon reserves in Trinidad and Tobago proved 2

'

fuel oil supply led to the fonnation of Trinidad Oilfields Limited. This company commenced

Between 1858 and 1860, a detailed geological survey of Trinidad and Tobago

mining operations in the Guapo district. 5 The purpose of British involvement at that time was

was carried out as part of a wider survey of the British West Indies.3 The ensuing Wall and

to make Trinidad the principal source of bunker fuel in the Western Hemisphere for the

Sawkins report although inconclusive regarding petroleum deposits intimated the existence of

British Royal Navy. By 1912, twelve other private oil companies had begun petroleum

several natural gas fields in southern Trinidad. 4

operations in Trinidad, with thirty others being registered. Major obstacles to the exploitation

unsuccessful.

of petroleum included remote areas, nonexistent infrastructure, shortage of capital, lack of Despite the inconclusive findings of the Wall and Sawkins report, Walter Darwent

trained

staff,

unsanitary

health

conditions

and

complex

geological

structures.

remained convinced that petroleum deposits existed in Trinidad based on the analysis of mud

Notwithstanding these problems, prolific sources of oil (and gas) opened up in Tabaquite,

volcanoes in the Cedros area and cuttings at Aripero. Despite opposition by Wall and Conrad

Barrackpore and Forest Reserve by the outbreak of World War I in 1914.

Stollemeyer, a prominent landowner, Darwent and the Paria Oil Company drilled for

remained the largest source of petroleum under British control worldwide until exceeded by

petroleum at Aripero in 1866. Oil and gas were discovered when the well was tested in

British Borneo in 1949.

The colony

January 1867. However, cash flow problems among the investors led to the failure of the venture. Between 1901 and 1907 drilling at Guayaguayare, San Fernando, La Brea and Point

Early leases treated natural gas as a valid byprodu'::t of oil. with a specific market

Fortin also detected oil and natural gas. Furthermore, a systematic search for oil and gas in

value. According to a 50-year oil lease agreement granted in January 1914 between Trinidad

Trinidad and Tobago by oil-field engineer A. Beeby-Thompson confirmed the presence of

Leaseholqs Limited and the Crown concerning the exploitation of oil and gas concessions on

natural gas on land and hinted at the existence of natural gas reserves offshore. From 1907, a

Crown lands, the royalties for gas were 'Id. per 1,000 cubic feet of natural gas' (absolute

programme of large scale drilling commenced in the Point Fortin area. later spreading to

pressure of 1 atmosphere, temperature of 60°F).1i In addition, all crude oil, natural gas and

in the vicinity of the Pitch Lake, La Brea. C. P. Wall and J. G. Sawkins. 'Report oj Ihe Geology of Trinidad and Tobago or ParI I oj the West Indian Survey'. H. M. Stationary Office. 1860. " In fact. the report described in detail the presence of natural gas, mud volcanoes and naturally occuuring asphalt. Jaterproved as fairly reliable indicators of the presence of petroleum.

S At the time, the only oilfields of an) significance outside the United States and Russia were in Romania. the East Indies and Galka· none under direct BrilJ~h control. (, The basis fOT fixing Ihe royalties at Ihal amount was the philosophy that toyalty payments should approximate tcn per cent or the market value of the product. Even thou!.''' the philosophy applied explicitly to crude oil. if

2[n 1857. the Merrimac Company drilled one non-commercial well

3

191

lother bituminous material' used by the lessees were exempted from royalty: This type of

associated. gas fields. However, it was not until the late 1950's that commereial natural gas

lease Was typical, since the presence of natural gas remained incidental to the major concern

usage began in Trinidad. The American multinational W. R. Grace established the Federation

of the lessee - producing oil. Gas injection as a method of crude oil production, although

Chemicals Limited (FEDCHEM), plant at Savonetta in 1958. This marked the connllYs

patented in the United States in 1864, was not yet introduced into Trinidad and Tobago.

initial attempt to use natural gas in non-oil industIy; specifically. the manufacture of nitrogen

Nevertheless, the British government recognized the value of natural gas and the charging of

fertilizers. Fertilizer production commenced in 1959 with the establishment of three small

royalties on gas represented the first attempt to quantifY thls resource. In 1924, a new model

units producing ammonia, urea and ammonium sulphate. The plants used associated natural

for oil leases was adopted by the colonial govemment. Royalties on crude were increased

gas from the oil fields, with output from the plants geared towards the local, Caribbean and

from 2s. to 3s. per ton and natural gas from Id. to 2d. per thousand cubic feet. Despite this

metropolitan markets of the U.S.A. and the United Kingdom.

increase, however, royalty rates in Trinidad remained among the most lenient in the world.

production in 1964 and 1966 with the addition of two new ammonia plants and mea

Grace later expanded

pr09uction facilities. One of the latter plants is still in operation. Between World Wars I and

n. the oil and gas industry in Trinidad was marked by

steady growth and the consolidation of assets. Operating companies with a strong financial

In the early 1960s, exploration for hydrocarbons commenced off the east coast of

base. such as Trinidad Leaseholds Ltd., which operated in the Forest Reserve and

Trinidad and Tobago. Between 1961 and 1968, offshore leases were granted, seismic work

Guayaguayare area, and Apex Trinidad Oilfields (based in Fyzabad) became dominant forces

done and exploration carried out. Initial efforts, however. were fruitless. Meanwhile, gas

in the industry. From 1932 onward, growing awareness of the importance of natural gas to

production on land increased to such an extent that Shell Trinidad Limited, backers of some

oil production led to greater conservation and efficient usage. One year later, oil recovery

of the earliest oil operators operating in Trinidad, were able to enter into a long-term. contract

rates improved following the introduction of gas injection in the Forest Reserve area.

with the Trinidad and Tobago Electricity Commission (T&TEC). Under the terms of the contract, Shell agreed to supply natural gas to T&TEC at a rate of 'IT SO.10 per thousand cubic feet. The royalty paid by Shell under the terms of the production license was 'IT

In the early 19405, the Penal area, 1raditionally regarded as an oil zone, was the site of

$0.015 per mmcf.

the discovery of the country's first large dry natural gas deposit on land. By 1955, the :first offshore deposit, located 19 miles southwest of Port of Spain was discovered. Other gas

From 1968 onwards gas production and use took off. Amoco's discovery of a large

zones discovered during the period included the Mahaica dry gas field, and the Soldado

deep gas condensate field in the Offshore Point Radix (OPR-2) exploratory well marked the first gas find off the east coast of Trinidad (the Atlantic Province) later to become the most &

implies that natural gas was valued at· I0 d. per thousand cubic feet - more than is paid as royalty in some concessions at present

192

prolific gas source in the counDy. Later that year, the company found the South East Galeota.,

directly involved in the la