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Trinidad and Tobago has been blessed with significant oil and gas reserves and not surprisingly there appears to be considerable debate about the use of those reserves, how long they will last, and how the revenue should be spent.

These oil and gas reserves are the real national patrimony and must be used very carefully. It is almost like cash in the bank that once spent will be gone forever. Two issues are uncertain. The first is how much oil and gas do we have that can be exploited at current and future prices. Economic reserves are those that can be produced at a profit and so for the same reservoir the actual quantity of reserves change as the price changes. Hence with the current spike in oil and gas price reserves that were previously uneconomic are now worth producing and consequently our proven reserves increase in size and value.

The second uncertainty is of course the value. Some of us are old enough to remember the oil price at US$2 a barrel back in 1970. This price rapidly increased in the "money is not the problem" era and peaked at about US$38 a barrel in the early 1980s. Oil prices then collapsed to as low as US$8 per barrel as Trinidad and Tobago was plunged into a financial crisis. It must be clear to all of us therefore that energy prices are unpredictable and cannot be assumed to increase indefinitely.

Truth is that these two major uncertainties are largely beyond our control. The current view of our government is that there is really no point leaving oil and gas in the ground and certainly at current prices we should try to maximise revenue from production and sales. This is a view that is hard to disagree with, but still of course requires planning as to what is the most valuable use of oil and gas to Trinidad and Tobago and how much should be used in what industry.

When the Point Lisas Estate was being built the Government gave significant incentives to foreign investors (and local investors) to build ammonia, urea and methanol plants. These incentives included tax holidays and subsidised gas. The first train of Atlantic LNG also received fiscal incentives.

The current demand for oil and gas and pricing suggests however that it would be extremely hard to justify any subsidy or fiscal incentives in the use of our energy resources. One key issue now is the best and most profitable use of the reserves and sustainability of the enterprises we build. The second key issue is how do we spend the money that is produced by the energy windfall in a way that is sustainable. i.e. we must exchange this asset for another of equal or greater value so that the wealth of the country does not diminish. This is easier said than done. After the first oil boom 1972-1982 Trinidad and Tobago was not in a position to withstand the downturn and quickly was forced to go to the IMF. We had saved nothing and still had excessive debts. That disaster must not be repeated.

It is the IMF view that our considerable windfall profits from energy must be conserved by large budget surpluses. The surpluses can then be invested to provide revenue if and when energy prices fall. There is a considerable body of opinion that believes some projects like the Tarouba stadium, new Carnival centres and extended gardens for the Prime Minister do not fall into that category (because they have little or no tangible return) and we are in grave danger of repeating the errors of the 1970s. It is possible to produce the energy reserves and save and invest the surplus in a way that will not inflate the economy and will protect us from any future setbacks.

Even more controversial than government spending is the utilisation of energy resources, and in particular the decision to go ahead with two aluminium smelters. There has been widespread concern expressed about the environmental impact of these smelters and their toxic waste.

It is not just from an environmental position that the Government must justify these plants but also from the position that it is the most productive and profitable use of our energy resources at this time. Quite frankly Alcoa, ALNG and other plants must now compete for our energy production and demonstrate that they will provide the greatest cash flow to the country at least cost. In the interests of transparency it is necessary that the Government provide the public with their energy plan and its economic justification. Experience has shown the Government does not believe it needs to listen to any Tom, Dick, Harry or businessman about how it spends our money so perhaps we need to ask louder.

William Lucie-Smith is a columnist in the Trinidad Express. Petroleumworld not necessarily share these views.

Editor's Note: This commentary was published by Trinidad Express, on Monday, March 6th 2006 . Petroleumworld reprint this article in the interest of our readers.

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Petroleumworld 03 12 06

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