Challenges in managing the T&T Economic ‘Plane’COTE Conference

Dennis PantinOctober 09, 2008

Content of Presentation

What type of Economic ‘Plane’? Type of ‘Engine’ Type of ‘fuel’ ‘ Clear air Turbulence’ already at hand ‘Turbulence’ within ‘Turbulence’ down the road Proposals for managing turbulence/avoidance of

another crash landing as in 1980s/early 1990s

Type of ‘Engine’?

1. Oil Exports 2.Natural Gas Exports

and their dominant role in Export earnings, Government Revenue, GDP

How Dependant ?Figure 4Hydrocarbon Exports as % of Total Exports

1981-2006

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

Years

$bill

ion

TT Total Exports

Hydro-Carbon Exports

Source: Table A 3

How Dependant ?

0

10

20

30

40

50

60

70

80

90

100

%

1981 1984 1987 1990 1993 1996 1999 2002 2005Years

Figure 2Hydrocarbon Share of Government Revenue 1981-

2006

Hydrocarbon Rev.% Other Revenue%

Source: Appendix Table 2

Petroleum’s Contribution %ITEM 2002 2003 2004 2005 2006r 2007p

GDP 26.2 33.9 37.1 42.9 46.8 43.0

Gov’t Revenues 27.8r 42.8r 42.4r 53.6r 61.9 56..5

M’dise Exports 75.9 83.3 85.8 85.9 91.0 86.7

Employment 3.4 3.2 3.6 3.4 3.3 3.3

Notes: p- provisional , r – revised Source: Annual Economic Survey, 2006: www.central-bank.org.tt

Growth in the Energy and Non Energy Sectors

0

5

10

15

20

25

30

35

2001 2002 2003 2004 2005

per

cent

Energy Non Energy

Source: Central Statistical Office

How Dependant ? Figure 1

Changes in Total GDP Energy and GDP

-10

0

10

20

30

40

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

years

%

-10

0

10

20

30

40

% change in GDP at Constant Prices% Change in BOE

Source: Appendix Table A 1

Types of ‘fuel’

1. Foreign Direct Investment and behind this foreign technology and know how

2. Together with Foreign Demand and hence Prices

How Dependant Figure 7

Oil Share of Foreign Direct Investment

-40.00%

-20.00%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

140.00%

Years

% s

hare

FDI Petroleum Industries FDI All other Industries

Source: Appendix Table 4

Map of T&T Gas Market

Nominal Oil Prices: 1986-2008

0

20

40

60

80

100

120

86 87 88 89 90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 6 7 8

Years

US$

/bbl

Source: Appendix table 6

Real Oil pricesReal Oil Prices 1980-2008 ( 2006 dollars)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

Years

US$

/bbl

.

Source: US EIA. Annual Energy Outlook 08

Rising Gas Prices Figure 6

US Natural Gas Prices 1994-08 ( Henry Hub) US$/MMbtu

0

2

4

6

8

10

12

94 95 96 97 98 99 0 1 2 3 4 5 6 7 8Years

US$

/MM

btu

Source: Table 6

Methanol & Ammonia Prices

0

50

100

150

200

250

300

350

400

450

500

Years

US$

/Ton

ne

Ammonia Methanol

‘Clear-air’ Turbulence

US/Canada, Europe/OECD recession and with outside probability of a global depression as a result of:

A. the US financial crisis and its spread effects internationally;

B. Its coincidence with a US Pres. Elections and the role of partisan politics;

C. Fact that ‘greed’ has long overwhelmed regulation

Turbulence Within

‘Extremists’ on the ‘plane’ who threaten to ‘crash land’ it as a result of ‘Mr. Big’ and the drug lords and the impact of the space made available to them by : A. weaknesses in security system;

And B. failure to fully grasp and treat as an emergency the underlying neglect of communities and groups which create the substrate for guns, gangs and a culture of violence and death

Turbulence Ahead but on the ‘Radar’

Climate Change Ageing of the T&T Population exacerbated by

impact of HIV-AIDs on working age population now and to come

Decline in Reserves of Oil and natural Gas Inadequate National Savings in light of above

projected forms of turbulence and End of this hydrocarbon boom

Long Term Production DeclineFigure 13

Crude Oil Production (000bbls/d)

0

50

100

150

200

250

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Years

"000

bbl

s/da

y

Source Table A8

Oil Producers 2008 (YTD)Crude Oil Producers (2008 YTD)

Petrotrin44%

BP19%

BHP17%

Repsol10%

Others10%

Refinery Output Figure 14Refinery Product Slate ( 2006)

Gasoline 17%

Reg Gasoline7%

Unf Gas/Ref Feed6%

Kerosene11%

Gas Oil / Diesel23%

Fuel Oil 32%

Other 4%

Source: Petrotrin

Petrotrin Sales Figure 15

Petrotrin's Sales By Channel 2006

In'national31%

Non Caricom Extra Regional

25%

Local13%

Caricom 31%

Souce: Petrotrin

How Long?Figure 9

Crude Oil Proved Reserves and RTP ( 1976 - 2006)

0

200

400

600

800

1000

1200

Years

MM

bbls

0

5

10

15

20

25

year

s

Proved Reserves

RTP Years

Source: Appendix Table 7

Natural Gas DemandHistory & Projections(1965-2016)

0

200

400

600

800

1000

1200

1400

1600

1800

2000

1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016

Bcf

p.a

.

Total Gas Production

Total Consumption w /Lng

Total Consumption w /o Lng

Projected

Gas Reserves

  1993 1996 2003 2007

Proven 8.2 12.3 20.76 17.05

Probable 4.6 3.7 8.12 7.76

Possible 1.1 2 5.85 6.23

Total 13.9 18 34.73 31.04

Source: http://www.ryderscott.com

Gas .How Long?Figure 10

Natural Gas Proved Reserves and RTP(1976-2006)

0.0

50.0

100.0

150.0

200.0

250.0

300.0

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Years

Year

s( R

TP)

0.00

5.00

10.00

15.00

20.00

25.00

TCF(

Res

erve

s)

RTP YearsProved Reserves TCF

Source: Appendix Table 8

Oil and Gas RTP Compared

0

50

100

150

200

250

300

Years( Time)

Gas

Yea

rs( R

TP)

0

5

10

15

20

25

Oil

Year

s ( R

TP)

Gas RTP

Oil RTP

Medium Term Demand Outlook

MmscfdExisting Projects 4000

New Projects( Inclusive of Train X) 1800

Total 6000Do we have the resources to satisfy this level of demand over the next 20 years???

Gas Reserves discovery needed to maintain 12 year RTP

Optimal Depletion Scenario 4

0

1000

2000

3000

4000

5000

6000

7000

8000

Years

MM

SCFD

23

23.5

24

24.5

25

25.5

26

26.5

27

TCF

Total Demand Reserves

To maintain an RTP of say 12 years. The Optimistic Scenario requires reserves addition at rate of 2.27

TCF/yr to 2030. We need to find 50.6 TCF over the next 20 years!!!!!!

Inadequate Savings

Year US $million TT$ Million

Sept 2002 162.66 1015

Sept 2003 249.12 1566.9

Sept 2004 449.23 2830.2

Sept 2005 640.33 4034.1

Sept 2006 1354.13 8544.6

Sept2007 1,680.0 10,617.6

April 2008 1, 996 12,375.2

Country Fund Name AssetsUS$ B

Source Inception Year

UAE-Abu Dhabi Abu Dhabi Investment Authority $875.5 Oil 1976

Norway Government Pension Fund-( Global) $396.5 Oil 1990

Saudi Arabia SAMA Foreign Holdings $365.2 Oil

Kuwait Kuwait Investment Authority $264.4 Oil 1953

Russia National Wealth Fund* $162.5 Oil/ Gas 2008

Qatar Qatar Investment Authority $ 60 Oil/ Gas 2003

Libya Libyan Investment Authority $ 50 Oil / Gas 2006

Algeria Revenue Regulation Fund $47 Oil &Gas 2000

Alaska Alaska Permanent Fund $39.8 Oil 1976

Brunei Brunei Investment Agency 30.0 Oil 1983

Notes:*In 2008 Russia separated the National Wealth Fund from the Stabilization Fund. It is estimated that at the time of

separation the asset value was around US$ 300 billion Source: Sovereign Wealth Institute www.swfinstitute.org

Top Ten Oil and Gas Funds

Definitions in H&Stab Fund

Petroleum revenues means the aggregate of the supplemental petroleum tax, petroleum profits tax and royalties collected under the Petroleum Taxes Act .IT DOES NOT INCLUDE UNEMPLOYMENT LEVY, THE OIL IMPOST AND SIGNATURE BONUSES

Petroleum Business means the business of exploration for and the winning of petroleum and natural gas-IT DOES NOT INCLUDE THE LIQUEFACTION OF NATURAL GAS.

Rules of Withdrawal

Withdrawals may be made from the FUND when petroleum revenues collected in any financial year fall below the estimated petroleum revenues for that financial year by at least 10% -

Amount limited to – 60% of the amount of shortfall of petroleum revenues

for that year or – 25% of the credit balance of the FUND.

Rules of Withdrawal

No withdrawals may be made from the Fund in any financial year where the balance standing to the credit of the Fund would fall below US$ one (1) billion if such withdrawal were made.

Fund Update1 Board has approved an Investment

Plan.– Short term investments- US/Treasury bills– Longer term US Fixed income securities– US./developed countries’ equities

First Audited Report submitted to Minister and Parliament

1. Source: Governor Central Bank speech to Rotary Club of POS – May 8 th 2008.

Proposals for Managing Turbulence

Revision of oil price forecast to US $40-45. Multi-stakeholder Advisory Group drawn

from business, labour, NGOs, the university together with Central Bank and public service technocracy with mandate to prepare ‘Turbulence’ preparedness plan;

All party Committee to draw up consensus plan based on report of Advisory Group