Trinidad & Tobago is a regional energy giant, with the largest oil reserves in the Caribbean and enough gas to make it one of the world's most important exporters of liquefied natural gas (LNG). These energy resources power the country's economy by creating jobs and providing huge export earnings. Yet, like many countries that depend on hydrocarbons, it is facing a serious problem in trying to maintain its reserve levels.

Over most of the past decade, the country's oil reserves have been in decline, falling from a high of 1.1 billion barrels in 2002 to 830 million barrels at the end of 2009, according to BP's Statistical Review of World Energy. Gas reserves have also fallen, even as production levels have risen. Trinidad's proven gas reserves peaked in 1999 at 605 billion cubic metres, but the figure is now down to 435 billion. Over the same period, annual production has risen from 12 billion cubic metres to 40.6 billion.

If no more reserves are discovered and the current production rate is sustained, the country will run out of gas in little more than 10 years. This unsettling prospect has prompted the government to embark on a concerted effort to discover new fields, particularly in the deep waters around the islands.

"Our reserves are declining, which is unhealthy for an economy such as ours," says Carolyn Seepersad-Bachan, Minister of Energy & Energy Affairs. "We are committed to arresting the decline in our oil and gas reserves by encouraging increased and periodic exploration of our resources.

"Easy gas is over now and the likelihood of finding gas is going to decline. We have the deepwater area which is totally unexplored. It is high-risk and capital intensive, but it could bring great returns for both investors and for our country."

Trinidad & Tobago needs assistance to find and develop such new reserves, but in recent years it has been struggling to attract the interest of major international energy firms. The government of Prime Minister Kamla Persad-Bissessar, which was elected in May 2010, has been taking steps to encourage more oil and gas companies to bid in exploration rounds, altering the fiscal terms of the production sharing agreements it offers and making the process much faster.

"The previous administration was very unsuccessful in the bid rounds for the past eight years and has not managed to create sufficient interest," says Seepersad-Bachan. "This is why the fiscal regime reform was the first decision that was taken as soon as we came to power."

The most recent round of bidding, for seven shallow water contracts, closed in September 2010 and attracted interest from a number of international companies, including RWE of Germany and the UK's Centrica. The latter is already heavily involved in the country's energy industry, having stakes in four offshore blocks.

"Trinidad offered everything that Centrica was looking for," says Ko Jacobs, Country Manager for Centrica Trinidad, explaining his company's enthusiasm for investing in the country. "It is politically very stable and they are very successful with energy development here."

A further bid round, for 11 deepwater blocks, is due to close in January 2011 and, according to industry executives in Trinidad, will provide an even more important test of the government's ability to draw in global energy giants.

"The fiscal incentives have been the initial focus for the Ministry; whether it was enough remains to be seen," says Charles Percy, President of the Energy Chamber of Trinidad & Tobago, a group that represents both local and international energy companies operating in the country. "The deepwater round is really when we will see if the incentives being put into place will have some effect, whether we will see giants such as BP and BG participating."

Successful exploration efforts would allow the country's LNG industry to expand further. Globally, this has been a growth industry in recent years, as countries from Australia to Qatar have taken advantage of technology breakthroughs to export supercooled gas in liquid form to customers all over the world by ship.

Trinidad & Tobago has the advantage of being the only producer of LNG in the Americas and, despite the increasingly global nature of the market for the fuel, being closer to key customers in the US, Brazil, Chile or Argentina still carries a very real advantage. In 2009, Trinidad & Tobago sold LNG to customers in 21 countries, with the US buying the largest share at 6.7 billion cubic metres.

"One of the advantages of Trinidad is that it is the only LNG plant on this side of the Atlantic Ocean," says Oscar Prieto, Chief Executive Officer of the Atlantic LNG Company of Trinidad & Tobago. "It's very strategically located to play an arbitrage [role] in the Atlantic basin in terms of gas. It used to be that most of the gas went to the US, but lately the markets have diversified and there's an increasing demand from Latin American countries."

Atlantic currently runs four LNG trains, as the production units are called, but its Port Fortin site in the south-west of Trinidad was originally developed with the potential to have six trains and there are discussions over the possibility of adding a fifth train in the coming years.

"I'm pretty sure new reserves will be developed over time," adds Prieto. "We have everything we need to expand in any way or manner."

Despite the myriad benefits that the country's oil and gas legacy has offered it in terms of export earnings and job creation, Trinidad & Tobago also faces a challenge in trying to move away from its reliance on energy revenues. The energy sector accounts for nearly half the country's gross domestic product and the vast majority of export earnings, but the need for a more diversified economy was made clear in 2009, when the country was hit by the combination of a fall in global energy prices and the international financial crisis.

However, in the short term at least, it is the energy sector that is likely to be the source of greater economic development as the country tries to expand its downstream industrial base.

"Our natural competitive advantage has to do with our price and the availability of gas, which is something that we recognise and which will continue to be, for the foreseeable future, a major competitive advantage," says Winston Dookeran, Minister of Finance. "So any projects that require feedstock, gas feedstock, both here and abroad will find it useful to be here."

"Some 60% of the natural gas we produce is exported," adds Percy. "We have not taken the opportunity to use it to our best advantage and use our resources to create downstream industries. We are expecting this government to change the policy and implement changes in that sense, to develop our downstream sector."

Even in the longer term, if the country is to succeed in its efforts to attract a more diverse range of industries and companies to the islands, international investors will want to be confident that the country will have enough feedstock and fuel to keep their plants running for several decades.

"If we want to boost investment in our downstream sector, those companies investing need to know for a fact that we have at least 20 to 30 years of reserves," adds Seepersad-Bachan. "Talking about a 10- or 11-year reserve position is unacceptable. Those plants have to create guaranteed revenue for the next 20 to 25 years."

There have been some setbacks in the industrial expansion initiatives, notably with proposals for an aluminium smelter rejected last year over concerns about the potential environmental damage it could cause.

Notwithstanding the problems with the aluminium plant, the country's track record of attracting major international firms to its energy sector suggests that it may be able to succeed in boosting investment in the coming years. Oil majors such as BP and Repsol YPF are already heavily involved, as are services companies that work in the energy sector, such as Worley Parsons and Wood Group.

In many cases, the international firms have come together with local companies by partnering them on projects or becoming major shareholders. Phoenix Park Gas Processors, for example, is majority owned by the National Gas Company (NGC), but the US' ConocoPhillips owns 39% of the company and another US firm, Texas & Pan West Engineers & Constructors, owns a further 10%.

In February last year, Centrica spent $380m buying a stake in the North Coast Marine Area 1 (NCMA 1) gas production area from Suncor Energy, a Canadian firm, along with equity interests in three other areas, blocks 1(a), 1(b) and 22. The NCMA 1 block supplies gas to Atlantic's LNG facilities. The deal marked a significant increase in Centrica's involvement in the Trinidad & Tobago energy sector, adding to its existing equity interest in the block 2(ab) exploration area, off Trinidad's east coast.

At the time Sam Laidlaw, Chief Executive Officer of Centrica, said, "This is a significant move into one of the world's most established LNG areas, providing us with access to both gas producing and development blocks."

It is not just a matter of international expertise, however. Local companies are also getting involved in exploration and some have even laid out plans to expand into other markets around the world.

"We have already started looking at some offshore investment," says Larry Howai, Chairman of NGC, which is headquartered in Port of Spain. "I want to see NGC refocus on its core business activities, which are producing and transmitting gas, and eventually evolve into a multinational in the area of oil and gas. I see NGC in 10 years having a portfolio of investments outside Trinidad & Tobago and generating significant and increased revenues."

Where NGC leads, others are likely to follow, given the expertise that Trinidad & Tobago has built up during the country's long history of oil and gas exploration.

"In my discussions with people from the oil sector, they see a great comparative advantage in Trinidad exporting technical expertise to other oil producing countries," says Dookeran. "We have been in oil production for over 100 years. Over that time, you develop a capability."

Percy backs up this view, saying, "our aim is to continue attracting global players in our national market and promote our services companies globally."

With those two strands of activity, Trinidad & Tobago's energy industry may yet have a brighter future than its current reserve levels would suggest.

INDUSTRY CHALLENGES

1. Develop deepwater fields:
Bids are due in January for deepwater blocks that hold the key to boosting energy reserves.

2. Attract international energy majors:
Trinidad has revised its contract terms to entice the foreign investors it needs.

3. Develop downstream industries:
Using gas resources at home rather than exporting them could create more wealth.