Home' Trinidad and Tobago Guardian : June 11th 2015 Contents JUNE 2015 • WEEK TWO www.guardian.co.tt BUSINESS GUARDIAN
ENERGY | BG9
To any casual observer, Trinidad and Tobago
is a striking example of a developing country
that has made good use of its natural resource
endowment, oil and gas, to increase its level
of development and raise the living standards
of its population. However, notwithstanding
various attempts over the past few decades,
"to sow the oil", the development of a com-
petitive, dynamic and innovative non-energy
export sector has been illusive.
Trinidad and Tobago is, by international
standards, a very small oil producer. At its peak
in 1978, oil production averaged 230,000 barrels
per day. Oil gave way to natural gas in the
1990s and in 2006, oil and gas output reached
800,000 barrels per day oil equivalent.
While the new gas discoveries, combined
with the surge in international oil prices, resulted
in a major economic boom from the late 1990s,
these factors also significantly increased the
economy s dependence on oil and gas.
Heavy dependence of an economy on one
sector has always been recognized as a major
source of economic vulnerability. The risk is
compounded if the dominant sector is mineral
resource-based. In such circumstances, the
case for diversification rests on several grounds:
• Diversification provides some insurance
against the inherent volatility of mineral resource
• Mineral resources are not large employers
of labour and create few sectoral linkages.
• Perhaps the most compelling reason, is
that, at some stage, the natural resources will
be fully depleted and the economy will need
to have alternative growth engines.
Point Lisas: Expanding energy frontiers
As far back as in 1969, stated strategy of
the First Comprehensive Five-year Development
Plan was "to convert the rents from the offshore
economy to build a vibrant, internationally
competitive onshore economy."
Following failed attempts to establish a viable,
globally--competitive light manufacturing sector,
around the middle of the 1970s, the Government
of the day embarked on a strategy which essen-
tially involved using the new discoveries of
natural gas to expand the frontiers of the energy
sector. This strategy, which gave rise to the
creation of the Point Lisas Industrial Estate,
has come to be considered as a model of down-
stream energy sector development for small
As a result of this strategy, Trinidad and
Tobago is now a major exporter of methanol,
ammonia and urea. With our four Liquified
Natural Gas (LNG) plants, Trinidad and Tobago
was up to recently, the major supplier of LNG
to the East Coast of the US. For many, the
Point Lisas complex remains our most visionary
economic decision since Independence.
Unfortunately, however, this impressive petro-
chemical complex has made our a economy
even more dependent on oil and gas. Moreover,
the vulnerability of the economy has remained,
given the dependence of the petrochemical
sector on gas and the high degree of price cor-
relation between oil and gas.
Running Out of Time
The uncertain outlook facing our energy sec-
tor, because of both external and domestic fac-
tors, now makes the need for the diversification
of the economy both urgent and critical.
Global energy markets have recently under-
gone major structural changes, which have con-
tributed to a decline of about fifty per cent in
world prices over the past nine months or so.
While not as dramatic, gas prices have also
seen an appreciable decline.
As regards domestic supply, oil production
is now a mere 85,000 barrels per day and
natural gas output has also been on the decline.
In fact, the current shortage of natural gas sup-
plies has raised questions about the future via-
bility of the petrochemical sector.
To compound the situation, since 2002, there
has been a steady fall in the level of proven oil
and gas reserves. The 2014 Scott-Ryder report
puts the level of proven gas reserves at the
equivalent of 8.5 years, and for oil 12 years .
Admittedly, interest in oil and gas exploration
has been on the increase.
Even if ongoing exploration activities are
successful, however, the changing global supply
situation, reflecting the boom in shale gas pro-
duction could seriously alter the global
supply/demand balance with negative conse-
quences for long-term oil and gas prices and
the profitability of the domestic petroleum
It is worth noting that T&T is a high cost
oil and gas producer and that deepwater explo-
ration is a high-cost business. If oil prices
plateau at around US$ 60 per barrel, as many
analysts expect companies, would certainly
need to re-assess their exploration plans and
some will certainly shift investment to lower-
cost producers -- the newly-emerging oil and
gas producers. The future is indeed stacked
against our energy sector.
At the very least, an intensification of the
diversification effort is urgently needed to
protect against the downside risk of imminent
oil and gas depletion and/or the radical changes
that are likely to be faced by the domestic
A reasonable conclusion is that while oil and
gas have been mainly responsible for the high
living standards enjoyed by Trinidad and Tobago,
it would take a more diversified economy to
ensure that these living standards are maintained
or enhanced. In the jargon of the economists,
economic diversification has now become a
precondition for medium-term sustainability.
The next article will discuss the role of an
International Financial Center as one pillar of a
feasible diversification strategy.
Disclosure: The authors, Ewart S
Williams and Richard P Young, are
part-time consultants who are
working on a project that explores the
deepening of T&T's International
The Diversification Imperative
AND RICHARD YOUNG
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