Can Trinidad and Tobago Escape the Oil Trap?

For decades, Trinidad and Tobago has relied on oil production to bring in revenue to the small Caribbean state. However, as its oil reserves begin to dwindle, the outlook is less certain, despite ongoing investment in new auctions for further exploration. The country is now at a crossroads, as the government decides whether to support more invasive exploration practices or to shift to alternative energy sources and pursue economic diversification.

In recent years, the neighbouring South American state of Guyana has attracted attention from oil majors worldwide looking to invest in exploration and production activities in the new oil region, where its vast reserves are largely untapped. This has also drawn attention to Trinidad and Tobago, as oil firms hope that similar reserves may still be found through more invasive exploration activities.

Trinidad and Tobago has long been the largest oil and natural gas producer in the Caribbean and is the 17th-biggest natural gas producer worldwide. The small Caribbean country is home to one of the Western Hemisphere’s largest natural gas processing facilities – the Phoenix Park Gas Processors Limited, with a processing capacity of almost 2 billion cubic feet per day (bcf/d). Trinidad and Tobago’s upstream oil and gas market is expected to grow at a CAGR of 4.4 percent between 2020 and 2030, according to Mordor Intelligence, with giant oil firms such as BP, Repsol, and Shell continuing to operate in the country.

However, following the introduction of sanctions on neighbouring oil giant Venezuela by the United States, Trinidad and Tobago’s oil industry has also suffered. In April, the U.S. government’s Office of Foreign Assets Control decided to revoke two special licenses for the Dragon and Cocuina gas fields in the maritime boundary between Venezuela and Trinidad and Tobago, with Trump stating plans to further restrict Venezuelan oil production.

In September, an auction of Trinidad and Tobago’s deepwater oil and gas exploration and production blocks did not attract much interest from foreign investors, which saw bids submitted on only four of the 26 areas on offer. China’s CNOOC bid on three areas, while a consortium of smaller energy firms bid on another block. With few deepwater energy players in the region, the government has instead been encouraging producers to increase natural gas output to allow it to boost its gas processing capacity and exports.

Trinidad and Tobago has a separate agreement with American oil major Exxon Mobil to explore an area equivalent to seven ultra-deepwater blocks, which is expected to bring as much as $21.7 billion to the country if reserves are found. This marks Exxon’s return to the country after a 20-year hiatus, having left Trinidad and Tobago in 2003 after an unsuccessful offshore exploration. Exxon has conducted successful exploration and production operations in Guyana’s Stabroek block in recent years, which appear to have made the oil major reconsider Trinidad and Tobago’s potential. Guyana has become the fifth-largest oil exporter in Latin America in less than a decade, with output growing from 400,000 bpd to over 660,000 bpd in just a few months.

At present, Trinidad and Tobago does not have any production from its deepwater acreage. However, BP and Shell recently completed seismic work at three deepwater blocks in the region, and Woodside Energy said it is considering the development of its Calypso gas discovery.

Trinidad and Tobago’s oil production has fallen to less than 54,000 bpd, from over 278,000 bpd of crude oil at its peak in the 1970s. Its only petroleum refinery closed in 2018, due to years of mismanagement and a significant fall in production by the state-owned company Petrotrin. A recent report suggests that the country’s energy revenues fell by 48.4 percent to $14.7 billion in the last fiscal year, in which its non-energy revenues increased by 26 percent to $32.7 billion, suggesting greater economic diversification.

Trinidad and Tobago established its Heritage and Stabilisation Fund in 2007, aimed at enhancing economic diversification using its oil wealth to ensure long-term economic security. However, the significant drop in oil revenues in recent years has made the fund far less successful than other oil funds, such as those of Norway and the UAE. In 2022, the government launched a green hydrogen strategy, aimed at diversifying and adding value to the country’s energy sector; however, this is in the nascent stage of development.

It is uncertain what Trinidad and Tobago will do to ensure the future of its economic stability while also considering the viability of new, uncertain oil development. A 2019 report by a U.S. consultancy estimated there were 10 years of gas reserves left. While new investment in deepwater exploration could potentially boost this figure, there are no guarantees, and the environmental implications are big. However, only greater economic diversification will alleviate the pressure for the government to continue drilling, which is all the harder to achieve without the oil revenues needed to finance emerging industries.

By Felicity Bradstock for Oilprice.com

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