Falling Oil Prices and Its Implications: Lets Face the facts

Transcription

1 Falling Oil Prices and Its Implications: Lets Face the facts Mr. Gregory McGuire Senior Consultant/Director Association of Caribbean Energy Specialists Ltd

2 Review Context Oil vs Gas Economy Short Term Threats Long Term Threats Required Response Presentation Outline

3 Context What has happened

4 WTI and Brent Trends over time Cushing, OK WTI Spot Price FOB (Dollars per Barrel) Europe Brent Spot Price FOB (Dollars per Barrel) Cushing, OK WTI Spot Price FOB (Dollars per Barrel) Europe Brent Spot Price FOB (Dollars per Barrel) Source: EIA

5 LNG Japan CIF (US $/mmbtu) Source: BP Statistical Review of World Energy 2014

6 Gas price Dec 30, 2004 Henry Hub Natural Gas Spot Price (Dollars per Million Btu) Dec 30, 2005 Dec 30, 2006 Dec 30, 2007 Dec 30, 2008 Dec 30, 2009 Dec 30, 2010 Dec 30, 2011 Dec 30, 2012 Dec 30, 2013 Dec 30, 2014 Source: EIA

7 Oil production/consumption by region Million barrels daily Production by region Consumption by region Source: BP Statistical Review of World Energy 2014

8 US Natural Gas Production Forecast

9 OIL ECONOMY VS GAS ECONOMY

10 Oil and gas relative share Oil and gas share by million tonnes of oil equivalent (2014) Oil and Gas estimated Share of Tax Revenue 10% 90% Oil Gas 0.57; 58% 0% 0.42; 42% Oil Gas

11 Oil Market Gas Market Price formation Marketing arrangements Commodity value (comparative) Tax types Tax implications Price taker in global markets; local oil sales based on pricess of global comparator crudes (API value) spot sales, contract sales $80/ Bbl SPT (sliding scale, at current prices zero %); PPT (50%) Unemployment levy (5%); Impost (3%) Significantly lower tax collections (effective SPT of zero %), Price taker in global markets, based on negotiated contract and spot prices. Local prices based partially on commodity prices (sales), based on both cost plus and commodity (purchases) Long term contracts. Gas at 2.75/mmbtu is equivalent to just US$15.68 PER BBL OF OIL 35 % corporation tax Lower tax collections of gas based revenue

12 Other Metals TT Gas consumption Mmscf/d Power generation Methanol Ammonia and Urea LNG

13 Trinidad and Tobago oil production

14 Short Term Threats

15 Short Term Threats Decline on Government Revenue Constraints on Government Capacity to spend Increase in National Debt Deterioration of Foreign Exchange Position Rise in unemployment Inflatiion as the exchange rate slips.

16 The Fiscal Crunch Government Revenue and Expenditure , , , , , , , Total Current Expendiure Recurrent Revenue

17 MEDIUM TO LONG TERM THREATS Loss of competitiveness falling prices internationally, rising costs locally Entrenched spending patterns Falling Exchange Rate Unfavorable BOP Rising Fiscal Deficits and Debt

18 Competitiveness of TT as a location Natural Gas Short term Gas curtailments have led to perceptions of TT as nonreliable gas availability area for downstream production Long term Petrochemical producers will move to newer low cost gas locations (US Gulf, Middle East) Multinational response Adjust timing of maintenance, turnarounds. Shut in inefficient production Site elsewhere (back to USA) Mothball high cost or obsolete facilities Market structure Consolidation, divestments New players, enter, some players exit Policy implications Assure supply reliability at reasonable cost negotiate new long term contracts. New exploration and development to support new contracts. Diversification out of Trinidad and Tobago

19 Competitiveness of TT as a location Upstream economics Multinational response Short term Oil Develop existing acreage. No change Limit activity to committed projects that are profitable long term at current price levels Cost containment (deferral of non critical projects) Headcount reduction Reduction in noncompetitive activity Consolidations, acquisitions, mergers Long term Deepwater may be competitive, but contingent on discoveries. Other provinces more attractive, based on tax terms and resource potential Pursuit of projects that are economic at stable long term average price levels. Leverage efficiencies and new technologies Mergers, acquisitions, consolidations, closures

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25 Policy Response Realign Social Spending to meet needs Realign Capital Spending to meet real economic priorities Adjust reduce subsidies the rich use more of it than the poor. Get serious about Export Diversification tourism, Culture, Food Processing, Finance, IT Get Serious about Savings Heritage must be separate from Stabilization.

26 Diversification Policy The Need for a Diversified Economy

27 Development driven by Energy Sector The Context for Diversification Energy Sector 42% Energy Sector 54% Energy Sector 85% GDP Gov't Revenue Export Earnings Global Competitiveness Index # 83 in 2011 # 92 in

28 The Challenge Sustained growth of the national economy is required to achieve developed country status Increased export of goods and services Harnessing creativity Stimulating innovation

29 Role of the State Create an enabling environment Education & Training Fiscal incentives Innovation Quality infrastructure Enabling Environment Institutional Capacity State direct participation in industry Special attention paid to governance of state enterprises. Effective governance Efficient public service

30 Creating a National Economic Strategy A Simplified Framework Develop National Value Proposition The distinctive edge Build on unique strengths Address crucial constraints Prioritize and Sequence Projects

31 Building An enabling Environment Match supply to current demand for skills Helping workers change Build competencies for the future Education & Training Innovation Capacity Critical for economic transformation Emphasis on the holistic understanding of innovation Work Ethic Supporting Institutions & Infrastructure Public Service Efficiency Availability of economic size spaces to accommodate business ventures of all sizes Public service reform Establishment of service level standards

32 Playing to Our Strengths : Target Food and Beverage Sectors Industries Culture and Creative Information and Communication Technology Export earnings Employment Market for farmers Targeted incentives Institutional support Growth facilitation National ICT Plan Agriculture Maritime Industry SME Expansion Reduce food import bill Mega farms Maritime services cluster Workforce audit Facilitate growth Develop export capacity