T&T is no longer the jewel of the Caribbean. Described as a natural gas economy as it has more gas reserves than oil. In 2014 energy prices fell precipitously leaving a hole in government revenues that remains unplugged seven years later. Prices remain depressed, despite some short-term upward movement. Energy output volumes have also declined. Daily natural gas production for the period September to November 2020 averaged 2.6 billion cubic feet (bcf), down from 3.5 bcf in 2019, 3.6 bcf in 2018, and a high point of 4.2 bcf in 2011. Approximately 50 per cent of the petrochemical plants in Pt Lisas estate are now closed or “temporarily shuttered”.
These are alarming developments, exacerbated by the persistence of COVID-19 and the prospect that the pandemic will continue to disrupt economies by the social distancing measures adopted to contain the spread of the virus. The US Energy Information Administration (EIA) in its 2021 short-term outlook published on January 29 estimates that the world consumed 92.2 million barrels per day of petroleum and other liquid fuels in 2020, a nine per cent decline from the previous year and the largest decline in EIA’s series that dates to 1980.
That outlook projects increasing US natural gas production at a faster rate than consumption. Consumption is expected to remain steady for the next ten years because of slowing or slower industrial growth and will be used largely in energy generation. The EIA projects that this will lead to a growth in US exports of natural gas. This has tremendous implications for the prices at which natural gas will be traded on world markets.
Contemporaneously with this development, investment in renewable energy generating capacity (solar power, wind turbines) is expected to increase until it accounts for approximately 50 per cent of all power generation in 2050.
Recently announced investment decisions by major corporations give credence to this outlook. Both BP and Shell, global energy leaders, have planned to increase their investments in renewable energy over the next decade. General Motors has pledged to stop making gasoline-powered passenger cars, vans, and sport utility vehicles by 2035, marking a historic turning point for the iconic American carmaker and promising a future of new electric vehicles for American motorists. Toyota in December 2020 unveiled its plans for its entry into the electric vehicle market.
These developments have important implications for T&T’s economic future. They warn that the country cannot depend on income from the oil and gas sector to drive the economy in the future and that export earnings from new different sectors are required. This is a simple statement that has enormous policy implications.
T&T’s current economic growth model is predicated on continued foreign direct investment in the energy sector, the engine of growth. To drill new exploration wells, set up new plants and generally drive economic activity. In this model, 80 per cent of T&T’s foreign currency is earned by the energy sector. Everything else operates on energy’s shoulders. To maintain its standard of living, T&T must export to earn foreign exchange. If the energy sector is declining or its prospects limited, what sectors will compensate for this decline? This is the crux of the diversification argument.
The charade of the Petrotrin refinery sale process exemplifies this conundrum. There is no realistic buyer in sight. Hence the protracted dance with Patriotic/OWTU. Given the fall in fuel demand, many refineries around the world are in trouble or for sale, and buyers have the upper hand. In Parliament on January 19, 2021, the energy minister stumbled over a simple LPG (cooking gas) pricing decision. His confusion exemplified the primacy of political calculation, the avoidance of any decision that could affect retaining political office. How is he going to resolve the more complex business of sorting out the gas pricing issue in the petrochemical sector?
The finance minister has recently changed his tone. Gone is the heady “optimism” of a quick turnaround in energy prices or increased gas output. The Dragon and Manatee gas fields are stuck in the imbroglio of Venezuela’s politics, domestic and international. New T&T finds when brought on stream in 2024/5 will not have the intended effect. The debt ratio is over 80 per cent and borrowing more accelerates the certainty of an IMF programme. He cannot plug the holes in the budget by borrowing forever.
The objective reality requires a new paradigm, a more proactive approach in partnership with the private sector. The ease of doing business indicators are not improving and neither is private sector investment. Human capital does not rust; it emigrates. Fiscal incentives which direct investment to real estate cannot drive the long-term development needs of the country. Nor can state enterprises drive the economy’s growth. The fate of Petrotrin exemplifies the State’s incapacity to manage businesses with a profit motive.
The country is looking back, not forward, wanting to recreate its past. Indira Gandhi, former prime minister of India put it simply…“A nation’s strength ultimately consists in what it can do on its own, and not in what it can borrow from others.” A nation is not a government, and developing that strength requires people engagement.
