Private Equity and the
Energy Market in
Trinidad & Tobago
Kristine Gibbon-Thompson, Prometheus Energy Partners.

A drive through Trinidad’s Point Lisas Industrial Estate takes many visitors by surprise. The estate is now home to 25 world scale petrochemical plants, including the largest methanol train in the world. Journeying further south along the coast to Point Fortin reveals four liquefied natural gas (LNG) trains. It becomes clear that something big is happening in this most southerly of the Caribbean islands.


Trinidad & Tobago’s Economic Boom

Between 2002 and 2007, the Trinidad & Tobago economy expanded at an average rate of 9%. Real GDP more than doubled over the period and per capita income in 2007 was estimated at US$16,000. Unemployment fell from 10.4% to 5.9%, public debt as a percentage of GDP declined from 58% to 28% and foreign direct investment exceeded US$6 billion. A Heritage and Stabilization Fund designed to insulate fiscal policy from fluctuations in revenue from the energy sector and provide savings for future generations was established in 2006, and its balance now stands at US$12 billion.


The Energy Sector

There is no doubt that energy is the engine of this economy, accounting for 43% of GDP, 56% of Government revenue and 89% of total exports in 2007. While the country has benefited substantially from the increase in commodity prices globally, there has also been a significant expansion in gas production. Trinidad & Tobago has transitioned from an oil-based economy as little as 10 years ago to a gas-based one, and on a barrel of oil equivalent basis, gas exceeds oil production by 5:1. The country now produces almost 4 billion cubic feet of gas per day, which is consumed 60% by the export-oriented LNG industry and 40% by the domestic market, in downstream industries such as ammonia, methanol, metals, power generation and heavy and light manufacturing. Trinidad & Tobago now accounts for approximately 70% of U.S. LNG imports, 32% of global methanol exports and close to 25% of global ammonia exports. This expansion of the downstream sector has been driven by attractive domestic gas prices, supported by the country’s strategic location vis-a-vis North and South America and its stable political and social environment. The upstream (exploration and production) sector is dominated by multinationals such as BP, British Gas, BHP Billiton, EOG Resources and Repsol YPF, who have invested billions over the last 30 years. Petro Canada and Canadian Superior made a late but welcome entry. Smaller independents are also flourishing through joint ventures with the state-owned oil company, Petrotrin, to explore and produce state- wned acreage.


The Future

So what does the future hold? The Government’s “Vision 2020” strategic plan calls for the achievement of “developed country status” by 2020, which includes an ambitious industrial development programme. However, a gas reserve audit by independent consultants Ryder Scott in 2006 raised concerns among many analysts of a tight gas reserve position, which the Government dismissed. The fact is that for the last four years or so, there has been little exploration activity and therefore insignificant additions to the reserve base. According to the multinationals, this was in large part due to the Government’s fiscal regime. The Government has recognized this as a problem and has committed to fiscal reform in the short term. While reserves are becoming more difficult to find and to produce commercially, it is widely believed that the country still has massive potential in terms of its reserve base (it shares its geology with Venezuela) and there is significant exploration activity planned for 2008, which has already begun to yield results. Furthermore, it is expected that more exploration and production acreage will be put on the auction block, and in some cases, it will be accompanied by recent seismic data. In particular, the ultra deep water (Trinidad Deep Atlantic area) which lies beyond the continental shelf, is considered the next frontier. This bodes well for continued investment on the part of the multinationals as they race to the negotiating table on the next LNG train, encouraged by the promise of better fiscal terms. The smaller independents are also expected to benefit from this growth by having the opportunity to acquire “marginal fields” from the multinationals as they seek larger prospects, and parts of the Petrotrin portfolio as they pursue a planned divestment programme. Increased upstream activity also creates other related investment opportunities, for example in the area of onshore and offshore support services. In terms of future energy projects, the Government has announced its intention to pursue almost US$10 billion in new projects, with a focus on moving further downstream from ammonia and methanol. These include an ammonia/urea/nitric acid/melamine/UAN complex, an aluminium smelter complex, an integrated iron and steel complex, a polyethylene complex, a gas to polypropylene complex, a calcium chloride/caustic soda facility and a maleic anhydride complex. Most of these projects will come on stream on or before 2012, and will serve as nuclei for a myriad of manufacturing spinoffs further downstream. Examples of these include decorative laminates and resins from melamine; rims, wire, cable from aluminium; and plastic containers, pipes, appliance parts from polyethylene.


The Government has announced its intention to pursue almost US $10 billion in new projects...


In the medium to long term, the developmental focus will be on further diversifying the gas-based downstream sector into areas such as i) bio chemical industries based on natural gas, ammonia and methanol, ii) other specialty chemicals, iii) other derivatives of ammonia and methanol such as  acetic acid, formaldehyde resins and methyl amines, iv) renewable and alternative energy industries such as solar cells and fuel cells and v) non-traditional hydrocarbons such as tar sands and methane hydrates. Two new industrial estates will house some of these new projects, as well as three new power plants (the smelter alone requires a new, dedicated generation facility), a number of new desalination plants and an expanded water treatment facility. In the midstream sector, a number of pipelines are under development. The sub-sea Eastern Caribbean Gas Pipeline will transport natural gas from Tobago to Barbados , St. Lucia, Dominica, Martinique and Guadeloupe. Domestically, the National Gas Company is building a number of pipelines to support increased exploration and production in Trinidad and to provide power generating capacity to Tobago.


The Private Equity Opportunity

The private equity opportunity here is significant. Apart from the deal pipeline described above, which can be accessed at various points in the investment life cycle, there exist numerous opportunities to add value to the installed industrial base, so that deal flow is not dependent on finding new reserves. The domestic financial system, with a few notable exceptions, has neither the capacity nor the risk appetite to play a meaningful role in these projects, so that competition for deals has not yet heated up. Having said that, the sector has started to attract international private equity attention, but remains a bit of a well kept secret. Unlike many other industries in the Caribbean, the energy sector is global, as are the exit opportunities. Currency risk, though not a real concern in Trinidad & Tobago, is minimized through US dollar denominated projects, and the country rating is strong enough to attract international lenders.

Kristine Gibbon-Thompson is the Fund Manager of Prometheus Energy Partners, a private equity initiative of the Guardian Holdings Group, based in Trinidad & Tobago. Prometheus is currently in the process of raising additional capitalfrom external sources for a second fund. attract international lenders.