We are on the verge of Budget 2025/26, and hopefully in the presentation the government of the day will seek to reverse what I consider to be Trinidad and Tobago’s cardinal economic sin.
Of course, different groups push their recommendations but from where I sit, when you try to do too many things at the same time you end up achieving little to nothing. I prefer to work in threes because if you have more than three priorities then you effectively have none.
Over the past few months, I have highlighted the issues that must find their way into the national budget if we are to stand any chance of economic recovery. The first is the need to develop and leverage the capital markets in order to remove the burden of economic growth and development from the shoulders of government. I made the point that without capital market development and allowing the forces of the market to percolate through the economy, it will be difficult to achieve meaningful economic development.
The second is the urgent need to address our approach to managing our foreign exchange position, with the warning that no meaningful economic diversification will take place, regardless of how many budgetary provisions and pronouncements are made, unless and until we address this issue.
Now we get to the third and most pressing issue, because it creates the space for everything else that we want to happen. It may come as a surprise to you but we must correct the cardinal sin of positioning T&T as a predominantly natural gas economy. This framing, which arose in the early 2000s, eventually became strategy, and that strategy ended up having a deleterious impact on the local economy.
Of course it worked spectacularly well for a time. Even now, natural gas underpins the export base and public finances, with LNG, ammonia and methanol delivering the bulk of export revenues. But the choice to be a gas economy, rather than an oil and gas economy, carried an opportunity cost that we are only now beginning to fully appreciate.
Capital was aligned on that basis, and instead of running with two horses in the race, we are now stuck as a one-trick pony, soliciting gas supplies from other countries in the region. The problem isn’t the push to natural gas in and of itself. It’s that crude oil was relegated to a legacy business. This was happening while leading local energy experts were talking about new drilling and enhanced oil recovery methods that could make mature onshore and near-shore assets investable again. Now the gas supply has tightened and the one-sided portfolio has left the country exposed. It didn’t have to be this way and now it must be fixed.
Petrotrin
The gas first era coincided with catastrophically expensive bets at the state oil company, Petrotrin, that diverted scarce capital away from exploration and field development. I recently wrote about the almost US$ 2 billion in upgrade expenditure that did not produce the intended results.
Then there was World GTL, the gas-to-liquids venture that never reached commercial operation and ended in arbitration. You are justified in asking what an integrated oil company was doing with a gas-to-liquids plant in the first place. Then you can fully appreciate the point of this colunm.
Eventually, from these missteps, Petrotrin was shuttered and the upstream business reorganized into Heritage Petroleum. The reality is the oil exploration was systematically underfunded while management, political attention and capital were absorbed by failed megaprojects.
The lack of political attention to the oil sector showed up most clearly when you realize that T&T went fifteen years without an onshore bid round for oil exploration. The 2013 onshore bid round was the first dedicated land round since 1998.
Then after 2013 there was again next to nothing. Apart from some activity in 2018, there were no meaningful land or near shore bid rounds from 2014 through 2021. Essentially 22 years of apathy with one meaningful bid round sends a clear signal.
It says to the market that T&T was not really interested in oil development on land or in shallow water. A belated attempt to reverse course came when the government relaunched an onshore and near shore round in July 2022, closing in January 2023, which to the best of my knowledge, drew 16 bids across 11 blocks.
The main takeaway is that onshore and near shore is where T&T can move the fastest and where we have the most meaningful control over our hydrocarbon resources. The further take away is that our attention, much to our detriment, has drifted too far away from oil and while we await the outcome of the ExxonMobil exploration, there is a lot we can do in the interim.
Fiscal terms
The relevance to the 2026 budget is that we really need to ensure that the fiscal framework is properly aligned with the economics of mature, heavy oil prospects. An across the board 12.5 per cent royalty was imposed from December 2017 on oil, condensate and gas. Whatever the rationale, layering a fixed royalty on top of other levies increased the government’s take precisely where margins are thinnest, on older, lower productivity oil assets.
The Supplemental Petroleum Tax (SPT), belatedly, now includes a small onshore producer schedule with 0 per cent SPT below US$75 per barrel and 18 per cent between US$75 and US$90 per barrel, stepping up thereafter. This represents progress. However, the overall issue is that our taxation regime in this sector must leave sufficient room for reinvestment otherwise we will continue to be left waiting and wanting.
The Stone Age didn’t end because people ran out of stone. Leaving the oil in the ground when the world is moving deeper and deeper into alternative energy solutions makes little sense, yet we have persisted with these polices that made little sense.
Energy companies in general operate a portfolio of assets and when the incentives are misaligned the result is predictable. Companies will ration capital toward short-cycle projects or shift to overseas portfolios.
Here is the underlying truth: T&T holds substantially more oil opportunity than recent production volumes suggest. The official energy map shows total oil reserves of approximately 455 million barrels as at end 2018 and best estimate prospective resources of approximately 3.2 billion barrels. Not all sits onshore or near shore, but a significant enough portion is on land and in the Gulf of Paria where infrastructure and experienced personnel already exist.
Production of crude and condensate are at the lowest levels in decades and are a fraction of what the mapped reserves and resources could support. Many an energy source has suggested that this is not a geology problem but a policy problem. The time to address this problem is now.
Recent results prove the potential remains real. In the last five years, six onshore fields were discovered offering up a potential 18 million barrels of oil equivalent. Most came from Ortoire, one of the blocks licensed in 2013-2014 before the eight year drought. This is meaningful scale for a mature land province.
Heritage Petroleum, the country’s largest oil producer, averaged approximately 34,400 barrels per day between October 2023 and June 2024, working largely mature onshore and near shore assets. Imagine what they might be able to do if their capital wasn’t sunk into failed mega projects. A concerted effort now can materially move the national needle.
We are sitting on millions of barrels of prospective resources while producing less than 60,000 barrels per day, rationing foreign exchange to citizens, and importing refined products at international prices. We have the geology, the infrastructure, the workforce and the technical knowledge. What we lack is policy alignment that treats oil development as strategically important rather than as a footnote to our-gas focused model.
This is where the capital markets discussion connects to the foreign exchange discussion connects to the energy discussion. Without oil production growth, we remain dangerously exposed to gas supply fluctuations. As a result of the foreign exchange frictions, we cannot attract the capital market development we need. Without capital markets, we cannot fund the infrastructure and development programmes that drive diversification. These issues are not separate.
The upcoming budget must reverse the cardinal sin of the gas economy framing. We need to be an oil and gas economy, running with two horses instead of betting everything on one.
Gas projects will help over the medium term, but they operate on long development cycles. Land and near shore oil can deliver faster, with lower capital requirements and using existing infrastructure. It may sound paradoxical but what I have outlined here and over the past couple months is the actual path to economic diversification.
Ian Narine is a financial consultant wishing we can repent from our sins. Please send your comments to ian@iannarine.com
