[A-List] Trinidad & Tobago: gas explosion

["Michael Keaney" <michael.keaney@xxxxxx>]

When life, and not just carnival, is a gas
By Andy Webb-Vidal
Financial Times: January 26 2005

Tourists in the twin-island nation of Trinidad and Tobago will gyrate boldly
to the endless soca and calypso melodies hammered out by steel-bands at next
month's carnival.

But inhabitants of the former British colony will be grooving to a new
rhythm, as the Caribbean country's economy pulsates in tune with an energy
boom.

"We have gas out there," says Anthony Cummings, a labourer from Port of
Spain, the capital. "I haven't seen it but the government says it's going to
help us."

The world's top energy companies have been flocking to Trinidad and Tobago,
eager to position themselves to satisfy rising demand--and surging
prices-for liquefied natural gas (LNG) in the US.

In just a few years, Trinidad has been transformed into the biggest supplier
of LNG in the Americas, producing almost 80 per cent of US imports and
shipping about 15m metric tonnes per year. Trinidad has benefited from its
proximity to the US compared with other gas rich countries, such as Qatar
and Nigeria.

However, companies such as British Gas and Spain's Repsol also see Trinidad
as more stable and open to investment. In contrast, the much larger gas
reserves of Venezuela to the south remain untapped as a result of the
government's unwillingness to open up the sector to foreign investors.

In Trinidad, Atlantic LNG--a consortium of BP, BG, Spain's Repsol and
Belgium's Tractebel-operates three giant production units called "trains".

"Trinidad and Tobago is of core geographical importance for BG Group," says
Craig McKenzie, president of BG Trinidad and Tobago, who sees further growth
in the country centering on more acquisitions, exploration activity in
existing acreage and development of current and future trains.

But if LNG is a profitable business for the companies, the jury is out on
whether Trinidad and Tobago will be able to manage its gas bonanza for the
lasting benefit of its 1.3m people.

Wisely, say economists, a fund was set up in 2000 to save income from energy
exports when prices are high, and to disburse the money when income drops. A
similar mechanism designed to smooth out the impact of the boom-bust price
cycles inherent in commodity markets has been used successfully, for example
in Chile, the world's biggest copper producer.

Today the Revenue Stabilisation Fund holds about $460m (£244m), which is
being held at the central bank, separately from reserves. Analysts predict
the fund could approach $1bn by the end of 2005.

But Trinidad has yet to establish legislation that defines not only how much
money should go into the fund but also what justifies withdrawals.

"There are no regulations in place, just guidelines," says a senior finance
ministry official. Economists say it is remarkable that, given the absence
of legislation, Trinidad's political leaders have been able to save any
money at all.

Prime Minister Patrick Manning's government said last October it would
funnel revenue derived from the energy industry into social projects. About
12 per cent of Trinidadians survive on less than $1 a day.

Because Trinidad's proven gas reserves of 20.8 tcf (trillion cubic feet) are
estimated to last only 20 years at the current rate of extraction,
economists say the country needs to take steps to develop its non-energy
sectors for when reserves are exhausted.

"The present government has decided . . . to bring in legislation, which is
positive," says Ronald Ramkissoon, chief economist at Republic Bank of
Trinidad and Tobago, the country's largest bank. "But we also need to have a
kind of heritage fund for the day when our resources are totally exploited."

Meanwhile, Eric Williams, energy minister, said he wants to reform the tax
system, which was designed to tap revenue from oil--it was discovered in the
1970s but has been eclipsed by gas.

Government royalties are still much lower in gas than in the stagnant oil
sector. But, even as tax looks likely to rise, becoming a greater burden for
LNG producers, ever bigger projects are coming to fruition.

Atlantic LNG is building what it says will be the largest LNG train ever
constructed, with output capacity at 5.2m tonnes per year.

Analysts are upbeat about future prospects. "In 2003 in particular the
energy sector grew by an astonishing 31.2 per cent," says Beat Siegenthaler,
analyst at Commerzbank in London. "Trinidad and Tobago looks set to continue
to benefit from favourable oil and gas prices."

Whatever music is playing, come carnival time locals would seem to have
plenty of reason to party through the night.