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When life, and not just carnival, is a gas *LINK*

When life, and not just carnival, is a gas

By Andy Webb-Vidal, The Financial Times
Published: January 26 2005 02:00
Last updated: January 26 2005 02:00

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 (352m, 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. This is the first of four articles ahead of Sunday's OPEC meeting

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