Caribbean Islands - Trinidad and Tobago Industry

Industry

Trinidad and Tobago possessed an industrial base that was unmatched in the Caribbean in the late 1980s and, for a country of about 1.2 million people, perhaps in the world. As new heavy industries came on-stream in the early 1980s, Trinidad and Tobago was a producer of oil, asphalt, natural gas, ammonia and urea fertilizers, methanol, iron, and steel. Petrochemicals based on natural gas became the center of the industrial strategy envisioned in the 1970s to diversify away from oil and export agriculture. In 1985 the petroleum sector accounted for 24 percent of GDP and nearly 70 percent of export earnings, and it affected most major sectors of the economy. The country also contained a large construction sector. Large industrial projects, asphalt roads, and government housing projects were responsible for the sector's prominence for decades, frequently making it a barometer of the economy's general health. The manufacturing sector was relatively small compared with the rest of the economy. Manufacturing, historically linked to agricultural processing, was very modern by the 1980s and comprised the assembly of automobiles, televisions, and refrigerators and the production of steel. Light manufacturing was less significant, as Trinidad and Tobago tended to import many smaller consumer items.

Petroleum and Asphalt

Petroleum and its derivatives has been the major sector of the economy since World War II, achieving its greatest importance during the boom of the 1970s, when it accounted for as much as 40 percent of GDP and more than 90 percent of export earnings. Oil output peaked in 1978 with the production of 84 million barrels. Output then declined from 1979 to 1983 but rebounded to 64 million barrels by 1985. Although the earliest oil fields were located on the southwestern peninsula of Trinidad, significant reserves were later tapped off the island's southeastern coast and off Point Fortin in the Gulf of Paria. Since 1974, however, there have been no major oil discoveries, causing a slow decline in the country's ratio of reserves to production. Although proven reserves were estimated to last fewer than ten years at the 1987 rate of extraction, decreased production and anticipated new oil finds were expected to allow the country to produce into the twenty-first century. Proven oil reserves stood at 540 million barrels in 1987. It was estimated that over three-quarters of Trinidad and Tobago's crude oil reserves had already been found. Over 60 percent of reserves were located offshore. In 1985 approximately 77 percent of oil produced was drilled offshore. In the late 1980s, Trinidad and Tobago was not a member of the Organization of Petroleum Exporting Countries.

The first exploratory wells were drilled in Trinidad near Pitch Lake at La Brea during the 1850s and 1860s, making them some of the earliest wells in the world (see fig. 8). Commercially viable production did not flow from the wells, however, until 1909 (see Growth and Structure of the Economy, this ch.). The young oil industry suffered from many industrial hazards, making injury rather common, which helped create strong oil worker unions. Production expanded again during World War II and thereafter until it peaked toward the close of the oil boom in 1978. The output of oil was revived briefly in the mid-1980s because of a reduction in some production taxes, but dwindling reserves and low oil prices continued to restrict output (see table 5, Appendix A).

Oil production was historically controlled by large foreign companies, such as Shell, British Petroleum, Texaco, and Amoco, the latter also known as the Standard Oil Company of Indiana. By the late 1980s, however, the government had purchased all foreign operations except Amoco. In 1985 the government completed the purchase of the remaining operations of Texaco as well as the residual 49-percent share of a small Texan company, Tesoro, from a previous joint venture with the government. Nonetheless, even with the new government purchases, Amoco still produced over 50 percent of the country's oil, possessed most of the newer and more productive oil fields, and controlled over 70 percent of the natural gas reserves. As oil reserves and production continued to decline in the late 1980s, the government once again was considering inviting foreign oil companies to assist with the exploration and drilling of less accessible oil.

Amoco did not refine any of its oil locally, as both of the island's refineries, at Pointe-�-Pierre and at Point Fortin, were government owned. The Pointe-�-Pierre refinery, with a capacity of 220,000 bpd, was traditionally the main facility. Point Fortin's share of refining, however, climbed to 30 percent in 1985 because of the installation of a pipeline connecting the two refineries to improve efficiency. Total refinery capacity was 310,000 bpd. For decades crude oil was imported by Trinidad and Tobago from Saudi Arabia, Venezuela, Iran, Indonesia, Nigeria, and Ecuador and then refined and reexported. Refinery activity, however, was reduced more than 50 percent in the first half of the 1980s; after 1983 refining of the imported oil ceased altogether as a result of the depressed world oil market. The percentage of domestically refined crude diminished as well. By the late 1980s, only 20 percent of refinery capacity was in regular use, making operations very inefficient and entailing large financial losses by the government.

In addition to its oil reserves, Pitch Lake at La Brea contained the world's largest source of natural asphalt. The lake, considered by some to be one of the wonders of the world, had been producing asphalt for decades. Asphalt production continued its slow decline in the 1980s, however. In 1985 only 21,400 tons of asphalt were produced, in contrast to the figure of 128,300 tons achieved in 1970. Although most asphalt was exported, it was also used domestically for paving roads and in the construction industry. Roughly 80 percent of asphalt output took the form of dried asphalt, whereas the remainder was asphalt cement.

Petrochemicals

In the late 1980s, Trinidad and Tobago became the world's second leading exporter of fertilizers behind only the Soviet Union. Three fertilizer plants constructed during the late 1970s and early 1980s nearly tripled fertilizer production between 1980 and 1985. Two of these plants, Trinidad Nitrogen Company (Tringen) and Fertilizers of Trinidad and Tobago (Fertrin), produced liquefied anhydrous ammonia, whereas the third plant processed granular urea. Fertilizer production reached 1.6 million tons by 1985, of which over 90 percent were exported. In 1985 about 82 percent of all fertilizers were anhydrous ammonia, and 18 percent were urea. Although fertilizer exports were on the rise, declining prices as a result of market oversupply actually reduced export revenues. In the late 1980s, the government was also considering projects to process and export liquefied natural gas and ethanol (an octane enhancer derived from sugarcane).

The Tringen and Fertrin ammonia plants were both government joint ventures that provided the government with a 51-percent equity share in each plant. The minority share of the Tringen plant was owned by the conglomerate W.R. Grace, whose subsidiary, Fedchem, operated the 800,000-square-meter fertilizer complex inside Point Lisas. The profitable Tringen plant expanded its capacity in the late 1980s. By 1988 its original capacity was expected to more than double to 900,000 tons of ammonia per year. Fertrin, a joint venture between Amoco and the government, did not come on-stream until the early 1980s, with a two-unit plant of 2,000-tons-per-day capacity. Although large cost overruns occurred in the construction phase, ammonia production was expected to be profitable during the 1980s and 1990s as long as fertilizer prices stabilized.

The first full year of urea production occurred in 1985 at the fully government-owned plant at Point Lisas. The plant had a 580,000-ton capacity per year and produced 339,800 tons in 1985, or about 60 percent of capacity in its first full year. Capacity utilization was expected to increase by the end of the 1980s as the plant's exports entered large foreign markets, such as India and China. In the late 1980s, however, the EEC accused Trinidad and Tobago of dumping urea on the West European market and was considering taking action against the islands. Urea production accounted for roughly a fifth of total fertilizer production in the country. In 1987 Trintoc was also building a plant to produce urea and formaldehyde adhesives inside the Point Lisas complex. The future profitability of the recently opened plant was perceived to be dependent on world price changes and the government's ability to find markets.

Trinidad and Tobago's first methanol plant also experienced its first full year of operations in 1985. Approximately 358,200 tons of methanol were produced in 1985, and the plant averaged a 90- percent capacity utilization rate. Over 360,000 tons of methanol were exported in 1985, which included stocks from the previous year. The government-owned methanol plant turned a profit in its first full year of operation; continued profitability was dependent on the expansion of the world methanol market. Doubts over the rate of expansion of methanol appeared in Trinidad and Tobago during 1986 when the construction of a second methanol plant, involving a joint venture between a British firm and the government, was canceled because of continued uncertainty about energy prices. All methanol was produced for the export market in the late 1980s, and it was estimated that in 1985 Trinidad and Tobago supplied approximately 18 percent of United States imports of methanol. As in the case of urea, however, the EEC was studying allegations that Trinidad and Tobago was dumping low-priced methanol on its regional market.

Iron and Steel

Iron and steel production was the core industry in the new heavy industry strategy of the 1970s and 1980s. Unfortunately, the state-owned venture, Iscott, was the most unprofitable industry located at the Point Lisas complex. Although the modern plant was technically sound and well integrated into the energy resources and deep harbors of the complex, it faced serious marketing and management problems. Iscott's marketing problems were exacerbated in 1983 when five United States steel companies filed an antidumping suit against it. The government's deep involvement at Point Lisas in general, especially its provision of cheap inputs to iron and steel production, made for a difficult defense against claims that the government subsidized the steel industry. After paying countervailing and antidumping duties for several years, in 1987 Trinidad and Tobago signed a voluntary export restraint agreement with the United States to limit iron and steel exports to 73,000 tons per year for a three-year period. Management problems, particularly in the steel mill's melt shop, caused steel production to fall for the first time in 1984 and 1985. Declining production and large financial losses persuaded the government to hire two West European firms to manage Iscott's operations under a two-year contract. Production did increase in 1986, signaling the early success of the outside management contract.

Iscott's modern facilities at Point Lisas included two direct reduction plants with a combined capacity of 900,000 tons a year. The US$500 million plant used imported iron ore from Brazil in processing its steel. Iron and steel production reached 522,900 tons in 1985, marking the second year of declining production and the first year of a fall in exports. Exports reached 143,200 tons in 1985, only 27 percent of production, but exports were expected to expand again in the late 1980s. Output included direct reduced iron, steel billets, and wire rods. Direct reduced iron accounted for 42 percent of the subsector's output, the greatest share of iron and steel production, and 45 percent of exports. Production of steel billets represented 33 percent of the subsector's output, followed by wire rods with 20 percent. Over three-fourths of all wire rods were exported, whereas under 10 percent of steel billets were exported in the first half of the 1980s. A large portion of iron and steel was used domestically because of Iscott's marketing difficulty.

Natural Gas

In the late 1980s, Trinidad and Tobago had proven reserves totaling approximately 481 billion cubic meters of natural gas, as well as a further 566 billion cubic meters that were likely to be recovered. Trinidad and Tobago contained about 0.3 percent of world gas reserves and contributed about 0.2 percent of world gas production. A large percentage of Trinidad and Tobago's gas was not associated with oil production and was located in separate fields off both the southeastern and the northern coasts. Although gas deposits were discovered in the 1940s, significant production did not get underway until the 1950s, when natural gas was needed to supply the small Federations Chemical (Fedchem) fertilizer plant. From 1973 to 1986, proven reserves of natural gas more than doubled during oil explorations off the country's southeastern shores. These discoveries encouraged the natural gas-based development strategy that evolved in the 1970s. The production of natural gas nearly doubled in the 1970s and expanded rapidly in the 1980s to meet the growing demand of the petrochemical industries that were coming on-stream. Gas production reached a record 7.6 billion cubic meters in 1985. The efficiency of production also increased, reaching a utilization rate of 78 percent by 1985. Amoco possessed approximately 72 percent of natural gas reserves and produced over 80 percent of the gas in 1985. Whereas oil fueled the country's economy throughout the twentieth century, the nation was expecting the same from natural gas and related industries into the twentyfirst century.

By the 1980s, natural gas was becoming increasingly integrated into the national economy. Natural gas feedstock was the most important input to the anhydrous ammonia, urea, and methanol plants that commenced operations at the Point Lisas industrial park in the early to mid-1980s (see Role of Government, this ch.). Natural gas also fueled over 70 percent of the country's generators of electricity, powered the new mill of the Iron and Steel Company of Trinidad and Tobago (Iscott), and was piped into Port-of-Spain residences. New gas pipelines along Trinidad's southern and western coasts were a decisive factor in the country's greater utilization of its gas resources during the 1980s. The steady supply of natural gas to the Point Lisas industrial park became essential to efficient operations, as demonstrated by the production problems that resulted from supply shortages in 1982. The National Gas Company (NGC) was the prime purchaser and distributor of natural gas. The NGC allocated over 60 percent of all gas to fertilizer production during the mid-1980s. The methanol plant, the steel mill, and oil companies in general consumed most of the balance of gas production. The NGC sold the gas at a wide range of prices, which included generous subsidies to the infant petrochemical industries.

More about the Economy of Trinidad and Tobago.

Construction

During the mid-1980s, construction activity declined sharply as the major public sector investment programs of the 1970s and early 1980s were completed and as tight monetary conditions reduced the availability of credit. From 1983 to 1985, the construction industry's output fell some 21 percent annually, reducing its share of GDP from 15 percent in 1982 to 11 percent in 1985. Total output in 1985 equaled US$792 million. Most construction activity in the late 1980s was limited to minor road building, housing and factories, and some hotel construction. Although the Robinson government in the late 1980s was proposing that the construction sector be the catalyst of new economic activity, it remained unlikely that the industry would regain the prominence it held in the 1970s. The sharp decline in construction, the major employer of the economy, was expected to exacerbate the worsening unemployment rate.

In the late 1980s, Trinidad and Tobago was becoming less dependent on imports in the construction industry as increased steel and cement capacity was attained. The low quality of locally produced cement also encouraged the introduction of higher grade cements in the 1980s. Housing projects were also becoming more sophisticated, including self-help schemes, after improper design and construction had made government housing projects unpopular in previous years.

Manufacturing

Although the manufacturing sector remained relatively small in the 1980s, it spanned a wide range of activities from sugar processing to automobile assembly. In 1985 manufacturing output reached approximately US$542 million, or 7 percent of GDP. Light manufacturing in particular experienced sharp declines of over 10 percent annually during the mid-1980s; nonetheless, the sector as a whole was growing by the late 1980s because of the inclusion of petrochemical and steel production in manufacturing data.

Historically, manufacturing was an insignificant sector in the economy, dwarfed by agriculture and oil. In the postwar era, however, import substitution industrialization development strategies provided generous fiscal incentives toward new investment in manufacturing. The Aid to Pioneer Industries Ordinance of 1950 provided accelerated depreciation allowances and duty-free importation of machinery and raw materials, which was instrumental in attracting foreign investment to Trinidad and Tobago. Likewise, the establishment of the Industrial Development Corporation (IDC) in 1959 served to expand the sector's role in the economy. By the 1960s, producers of manufactured goods were protected through increased tariffs as well. These measures encouraged the establishment of over 100 new manufacturing operations by the mid-1960s. Increasingly, the sector moved beyond agricultural processing and easily substituted goods toward the assembly of consumer durables, such as televisions, refrigerators, and automobiles. By the 1980s, most locally manufactured goods remained protected through quantitative import restrictions.

The structure of manufacturing in the 1980s was a highly protected, inward-looking industry that produced mostly for the domestic and Caricom markets. Exports of manufactured goods in the early 1980s, before petrochemicals and steel manufacturing were in full force, accounted for as little as 2 percent of domestic exports. Since the manufacturing industry tended to emphasize mixing, bottling, and assembly, the value added of the final product was generally low. As such, these activities often did little to link various sectors of the domestic economy. Price controls were also used by the government to reduce the power of a few local producers, who faced minimal competition as a consequence of import controls. The implementation of a heavy industry strategy changed manufacturing by the late 1980s. Although light manufacturing declined with the economy's general contraction in the mid-1980s, it was believed that Trinidad and Tobago was consuming more locally produced goods because it could not afford the import splurge of the 1970s.

The manufacturing sector was broken down into six principal subsectors: assembly, chemicals and nonmetallic products, food processing, beverages and tobacco, printing, and wood products. Discussion of manufacturing generally excluded oil and sugar, which if included would have accounted for 45 percent of manufacturing in 1985. Assembly was the most important subsector, contributing more than a quarter of manufacturing's output. Assembly included radios, televisions, refrigerators, gas stoves, vehicles, batteries, tires, and boat building. Less than 1 percent of assembly manufacturing was exported. The second most important subsector was chemicals and nonmetallic products, contributing 19 percent of the sector's output and consisting of petrochemicals, paints, pharmaceuticals, bricks, cement, and glass. This subsector grew rapidly in the 1980s with the development of petrochemicals and new cement factory capacity. Food processing, such as edible oils, feeds, meat, baked goods, and dairy products, was the third most important subsector, accounting for 16 percent of manufacturing. Trinidad and Tobago continued to produce its world-famous flavoring, Angostura Bitters. Beverages and tobacco, textiles, printing, wood products, and miscellaneous manufacturing followed in importance, all contributing between 5 and 10 percent of total manufacturing.

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