Fulfilling National Aspirations

“Economic Prosperity for all”, is an overarching aspiration of any independent nation. Fifty years on, independent Trinidad and Tobago (T&T) has made substantial progress towards realizing this goal. Much of this sense of accomplishment we feel as a nation comes from the relatively high level of industrialization that we have achieved over the last fifty years, particularly since 1975.

Industrial activity is not new to Trinidad and Tobago. This country was one of the world’s first oil producers, with commercial production beginning in 1908 and the first refinery starting up in 1913.  For three quarters of the 20th century, oil was the mainstay of the economy. Arguably, the most significant change in the Trinidad and Tobago economic landscape post independence has been the emergence of the natural gas sector, and the eventual transition from oil to gas as the main driver of the economy. Today, citizens are justifiably proud of the country’s economic achievements  including a  high-middle-income country status, per capita income of US$ 18,000/yr, ranking 45th among 191 countries (2010), and perhaps most significantly, our top ten ranking among  the world’s  leading exporters of ammonia, methanol and LNG.  In short, the economic accomplishments of Trinidad and Tobago over the last fifty years have been linked inextricably to the performance of the energy sector.

The National Gas Company of Trinidad and Tobago Limited (NGC) and its fully-owned subsidiary, the National Energy (NEC) have contributed to this developmental process in several ways. Perhaps the most important are gas market development; pipeline, industrial estate and port development; energy conservation; payment of taxes and dividends; human development and corporate social responsibility.

Market Development 

Natural gas based industrialization has been the dominant economic development strategy in Trinidad and Tobago since 1974.  The rationale for this approach was best captured in the words of Prime Minister, Dr. Eric E. Williams:

“Blessed as we are with hydrocarbon resources we have a choice to make. There have been attempts to persuade us that the simplest thing to do would be to sit back, export our oil, export our gas, do nothing else and just receive the revenues derived from such exports and, as it were, lead a life of luxury–at least for a limited period.

This the Government has completely rejected, for it amounts to putting the entire country on the dole. Instead, we have taken what may be the more difficult road and that is–accepting the challenge of entering the world of steel, aluminium, methanol, fertilizer and petrochemicals, in spite of our smallness and in spite of our level of technology.” (Dr. the Honourable Eric E. Williams: Opening of ISCOTT 1977)

The establishment of NGC (1975) and NEC (1978) were key components of the institutional infrastructure built to pursue the gas-based industrialization strategy. Over the first 15 years of expansion, NGC had a fairly narrow remit of gas transmission, distribution and compression.

On the other hand, the NEC functioned as the implementation arm for the Government strategy. NEC focused on business and infrastructural development work, as well as direct management of newly-established industrial enterprises. Windfall incomes earned in the oil-boom years enabled the State to finance major investments in pipelines and the Point Lisas Industrial Estate and Port to accommodate new industrial plants. Through a combination of state equity and foreign direct investment, Trinidad and Tobago witnessed the expansion of the ammonia industry, and the birth of the steel (Iron and Steel Company of Trinidad and Tobago (1980)) and methanol (1984) industries. Natural gas utilization increased from 14 million standard cubic feet per day (MMScf/d) in 1975 to 510 MMscf/d in 1990, at nine per cent annual average compounded growth rate. Poor economic returns in the initial years of these new industries raised concerns about their viability among citizens and policymakers alike. In the last few years of this period, Government sought to limit its exposure, by scaling down operations of the NEC and divesting its equity in steel.  In the wake of a gloomy forecast for further downstream petrochemicals, NGC shifted its investment focus to mid and upstream opportunities. In 1989, NGC made equity investments (51 per cent) in the Phoenix Park Gas Processors Limited (PPGPL) and  took a 20 per cent stake in Trintomar–the state-owned operator of the South-East Coast Consortium acreage. The Trintomar project was undermined by an unfortunate exploration accident. However, PPGPL endures as a highly profitable entity.

In short, the economic accomplishments of  Trinidad and Tobago over the last fifty years have been linked inextricable to the performance of the energy sector.

The seeds sown in the 1975-1985 period would begin to bear fruit in the next decade and a half to produce a period of unprecedented economic growth in Trinidad and Tobago. Between 1996 and 2006 the economy grew at an average of 8.3 per cent per annum. While most economic sectors showed increases, the greatest contribution came from the energy sector where real GDP growth averaged 12.7 per cent, more than double that of the non-energy sector (6.05 per cent). Per capita GDP grew from US$4,540 in 1996 to US$16,736 ten years later. Several important policy initiatives stimulated the resurgence in the industry and economy post 1990. The first was the acquisition of NEC by NGC to form a powerful, integrated entity mandated by Government to be the prime mover in gas-based development. Secondly, in order to broaden the range of investment possibilities, the Government removed a long-standing ban on the export of natural gas as LNG. Thirdly, Government liberalized the foreign exchange regime making the country more attractive to foreign investment.

Consistent with the new mandate, NGC crafted a vision to make Trinidad and Tobago a major player in the global natural gas business. In pursuit of this vision, the marketing strategy adopted by NGC focused on six key attributes:

• a new competitive pricing regime
• readily available natural gas supply
• geographic location in proximity to major markets
• ready-to-use built infrastructure
• stable, low-risk political climate and
• a facilitative business environment

Market promotion included trade missions and conferences both at home and abroad. NGC partnered with the Gas Technology Institute to host the inaugural Natural Gas in the Americas Conference in 1994. In all, six such conferences were held between 1994 and 2002, setting the stage for the mushrooming of conferencing activity in Trinidad and Tobago.

Total gas utilization increased from 550 MMscf/d in 1991 to 3,760 MMscf/d in 2006 at a compounded annual growth rate of 14 per cent, with growth in every subsector.  The largest contribution came from new LNG subsector. Along with the producers bpTT (then Amoco), British Gas, and international LNG buyers, Cabot and Repsol, NGC played a pivotal role in the development of the joint venture project, Atlantic LNG Train 1, in which it holds a ten per cent stake. When Train 1 loaded its first cargo in May 1999, it was the first LNG facility opened in the western hemisphere in 30-plus years. The availability of reserves  and forecasts of a looming lucrative market for LNG in the USA and Europe stimulated investment in Trains 2 and 3 in 2002/2003 respectively and Train 4 in 2006.  By the latter year, LNG accounted for 54 per cent of total gas consumption. NGC also holds an equity position in Train 4 which gives the company processing rights and cargo to sell in the international market.

To give an idea of scale, an incremental netback price to the borders of T&T (FOB) of US$1.00 per MMBTU is equivalent to about US$800 million per annum in sales revenues from all local LNG production, to be apportioned amongst the various parties in the onshore segments of the LNG chain (Government included). 

Growth in the domestic industry was equally explosive at nine per cent per year between 1991 and 2006. Methanol capacity grew from 480 thousand metric tonnes in 1991 to 6,620 thousand metric tonnes in 2006, while ammonia, with annual tonnage of 2,170 thousand in 1991 expanded by 131.33 per cent to 5,020 thousand tonnes in 2006. Iron and steel production climbed from 1,497 thousand tonnes to 3,229 thousand tonnes per annum. By 2006, Trinidad and Tobago was well-recognized in the global arena as the world’s leading exporter of both ammonia and methanol and the fifth biggest exporter of LNG with the largest slice of the US market.

While there were other contributory factors, NGC’s innovative and competitive pricing strategy was considered to be the most significant stimulus to growth of the petrochemical industry. First introduced in 1993, the product-related pricing mechanism, pegs the price of gas sold to petrochemical customers to the international market price of methanol and ammonia. The gas price, therefore, fluctuates with the price of the commodity, allowing the customers to benefit from lower prices in lean market conditions, while the NGC shares in the windfall when prices are high, a win-win situation. Some gas producers have partially embraced product-linked pricing in some of their supply contracts.

The period 1991-2006 also featured some interesting developments in the Light Industrial and Commercial sector (LIC).  This market segment is often overlooked because of its small scale with regard to both volume sales and revenue. However, its impact on overall economic activity is not insignificant, in terms of export earnings and employment creation. The value proposition of the gas sold to the LIC sector meant that goods could be produced at a competitive price relative to extra-CARICOM imports.  By offering competitive pricing options and expanding the gas distribution system to new industrial estates, NGC increased its number of customers in this market from 44 to over 120 in 2011. NGC also promulgated the use of compressed natural gas for vehicles and gas-fired air conditioning systems to boost natural gas utilization within the domestic economy. In 1998, the Company won the Rising Star award for natural gas cooling from the American Gas Cooling Centre.

The growth rate in the energy sector has slowed considerably over the last five years. This has been due to a confluence of the global economic crisis, changing international market conditions, and a change in Government priorities. However, the establishment of the Ammonia Urea Melamine (AUM) complex represents a significant step towards further downstream expansion to consumer products from melamine.

Gas Conservation

The year 2012 marks the 30th anniversary of the commissioning of NGC’s gas compression platforms, the company’s first major capital investment.  In 1979, the Government, using its authority under the Petroleum Act, authorized NGC to invest in two compressor platforms at Amoco’s Teak and Poui fields to collect and compress associated gas which was being flared.  The project commenced operations in March 1982, and gas was projected to last ten years on a declining basis.

The gas compression project at Teak and Poui has surpassed wildest expectations. Thirty years on, they continue to produce around 60-70 MMscf/d, thanks to the heroic efforts of the dedicated staff. There can be no doubt that the initial investment of approximately US$105 million was extremely successful.  It is estimated that over the life of the project more than 900 billion standard cubic feet of gas was saved, compressed and utilized, or sold. Moreover, it has provided NGC and the country with considerable economic benefit. For many years, the compression volumes provided a tranche of cheap natural gas for use in power generation, the price of which redounds to the benefit of all electricity consumers. Since 2005, operations have been supplying gas for secondary recovery to the TSP oil operations in which NGC holds a 15 per cent equity stake.

 Infrastructure Development 

Concomitant with the growth of the market, over the period 1991–2006, the NGC Group has expanded the pipeline network, and built new industrial estate and port infrastructure. Gas-based industrialization was initially centered on the Point Lisas industrial estate (860 hectares). However, as Point Lisas approached full capacity in the late 1990’s, several potential new sites were identified.  Subsequent expansion into La Brea (LABIDCO, 400 acres of fully developed land), Union Estate (400 acres) was completed in the last decade. A brown-field site in Point Fortin was further developed to host the LNG trains. Additional sites including Point Lisas North have been identified for expansion.

A total of 482 kilometres of transmission pipelines were laid over the period, thereby increasing transmission capacity from 750 Bcf/d in to 4.2 Bcf/d in 2010. Table 1 contains a listing of the major gas pipeline expansion projects undertaken over the last twenty years.

Building local content is one of the strategic objectives of NGC. Recent research has shown that the degree of local content possible varies with the location of the pipeline–land or in water–and is limited by the proportion of pipe costs in total project costs.   Data shows that if the cost of pipe is excluded, the pipeline projects on land can have local content component ranging from 60 to 70 per cent. The local contribution comes from civil and mechanical works, surveying, project management, construction supervision and environment.

Economic and Fiscal Impact

Over the 37 years of its existence, NGC has made significant direct and indirect contribution to its shareholders–the Government and citizenry. Direct payment of taxes and dividends totalled TT$17 billion over the entire period, with the bulk of such payments occurring over the last ten years. In the period 2001 to 2011, NGC’s direct fiscal payment amounted to TT$12.76 billion, or 7.6 per cent of total energy sector revenues. NGC’s fiscal contribution was equivalent to 1.06 per cent of total GDP at market prices.  Between 1991 and 2007, the energy sector attracted US$9.7 billion or 88 per cent of the total direct foreign investment in Trinidad and Tobago. New energy sector exports also accounted for over 70 per cent of incremental foreign exchange earnings since 1991.

NGCs indirect contribution can also be accessed from the multiplier effects of its capital expenditure programme.

Over the last 20 years, NGC/NEC is estimated to have spent in excess of (TT$10) billion on major capital projects. The multiplier effect is estimated to be between 1.5 and 2 which suggest that the expansion in the gas sector was a significant contributor to the low levels of unemployment  experienced during that period.

Human Resources Development 

NGC has played a major role in the development of human capital through targeted training interventions and as a collaborator in the development of new sector specific training programmes.  Government’s strategy for coping with the burgeoning demand for energy sector skills was to build on existing institutional capacity.  Government established the Trinidad and Tobago Institute of Technology (2001) and the National Energy Skills Programme (NESC) as a specialist institution providing training for nationals wishing to enter the industry. These complimented existing capacity at the Metal Industries Company (MIC) and the University of the West Indies (UWI). In 2004, TTIT was converted into the University of Trinidad and Tobago (UTT), with an initial programme focus on engineering technology and entrepreneurship targeting the gas-based industries in particular.

NGC was directly involved in foundation work that led to the establishment of NESC and TTIT. The Company continues to execute a series of training initiatives and support special programmes to build national capacity for scarce skills through its traineeship and internship programs with the NESC, TTIT, UTT and MIC. NGC supports nationals pursuing programmes of study at these institutions by providing hands-on training for periods of one to two years. Many of the students have been afforded the opportunity of temporary, contract and permanent employment upon successful completion of their periods of training. Over the past 18 years, nationals have benefited from training in various disciplines such as accounting, electrical, telecommunications, air conditioning and refrigeration, offshore operations, mechanical engineering, instrumentation and pipeline maintenance and operations.

Corporate Social Responsibility 

As a state corporation deeply involved in the exploration of a non-renewable natural resource, NGC is acutely aware of its obligation to conduct its business in the national interest. This relates not only to the commercial transactions but also to the impact its activities have on the environment, employees, stakeholder, fenceline communities and the wider national community.  NGC’s Corporate Social Responsibility model seeks to integrate its business with the lives of citizens in very tangible and sustainable ways. The major areas of emphasis have been youth training and development, arts and culture, education, sports, community facilities development, emergency awareness and environmental protection. Over the period 1991 to 2011, NGC  has expended over TT$ 300 million in CSR activity aimed at building sustainability in the community and country.  Some signature projects include-

• The CAER programme (Community Awareness and Emergency Response)–This programme focuses on building community awareness about the risks associated with living near natural gas installations and how to respond in the event of a natural gas leakage
• NGC Right on Track–The brain child of national hero Hasely Crawford, this programme seeks to identify young talent in track and field, through a structured, systemic, science-based development curriculum. Right on Track is supplemented by NGC’s continued support of the Primary School Track and Field Games, NGC Schools’ Basketball and the NAAA Track and Field Championships. Over the last two years, NGC has been the principal sponsor of the National Cricket team to the IPL Champions League.
• Science Education–NGC is the long standing sponsor of the National Science Centre.
• Reforestation–The construction of new pipelines results in the clearing of forested areas. NGC has demonstrated its care for the environment by adopting a “No Net Loss” policy with respect to cleared forests. This drives the Company’s reforestation project, which has resulted in the replanting of some 315 hectares with over 27,818 mixed hardwood seedlings. With a proven survival rate in excess of 88 per cent, the reforestation programme would completely reverse the loss due to industrialization.
• Community Economic Development (CED)–This programme aims at building sustainability in communities through skills and new business development. The programme provides persons with employable skills so that they can obtain sustainable jobs and/or develop their own businesses thus nurturing entrepreneurship within the communities.

In a study entitled “National Oil Companies and Value creation”, the World Bank posits that such enterprises should, in part, be assessed by national mission performance indicators–including fiscal contribution, forward and backward linkages.  On the basis of these parameters, NGC’s contribution over the last 37 years would likely be adjudged as outstanding. From its vantage position in the middle of the gas chain, NGC has shouldered its mandate, catalyzed the expansion of an industry which has generated unprecedented economic expansion and set the platform for long-term sustainability. In sum, NGC has been integral to a strategy that has changed the face of Trinidad and Tobago forever and continues to hold out hope for all citizens for a brighter tomorrow.

By Gregory mc Guire,
MSc Econ, RCGC
NGC’s Senior Manager, Office
Strategy Management (OSM)