Path-breaking Analysis and the Generation of Demand

• Author: Wendell Mottley
• Profession: New York-based Investment Banker having previously served as executive director of the company which eventually became the pivot of Trinidad and Tobago s natural gas-led industrialization and as Minister of Finance, credited with playing a decisive role in setting Trinidad and Tobago on a sustained path of growth from 1994 onwards
• Pages: 60-65

60

TRINIDAD AND TOBAGO INDUSTRIAL POLICY 1959–2008

Trinidad and Tobago’s main energy products — ammonia,

methanol and LNG — are gas derivatives. These products target

both the U.S. and European markets. All the sales contracts between

the NGC and its export-oriented customers reference both U.S. and

European Union (E.U.) pricing hubs. However, Trinidad and

Tobago’s proximity to the U.S., compared with its Middle Eastern

and African competitors and recent extremely buoyant gas pricing

in the U.S. market have caused the U.S. to become the dominant

market for Trinidad and Tobago’s gas derivative exports. Indeed,

developments in the U.S. gas market have been critical in shaping

the nation’s energy industrial policy.

The first ammonia plant built in Trinidad and Tobago in 1959

by W.R. Grace successfully established a model for arbitraging the

difference between U.S. gas prices and a price for gas in Trinidad

and Tobago. Gas prices in Trinidad and Tobago have been an artificial

construct, with the price requirement of a sufficient spread to U.S.

gas prices. The first gas sold was associated gas that otherwise was

flared and so had a low opportunity cost. Later, gas from pure gas

fields was priced on obtaining an economic rate of return over a 15-

year period, again with the premise that a sufficient spread from

U.S. gas prices be maintained. In 1987–88, the feature of a six per

cent per annum escalation clause in Trinidad and Tobago gas

contracts eliminated that spread and the model broke. W.R. Grace

sold its operations, but the potential buyer, Norsk Hydro, would

not close but the purchase until the problem was rectified. Caribbean

Methanol (CMC) was the latest local company to petition the

government and the NGC on the escalation clause. This, ultimately,

led to modification of the clause.

PATH-BREAKING ANALYSIS AND

THE GENERATION OF DEMAND

Chapter Four