I'm a title. Click here to edit me.
The Great Crash of 2020
As of today, Monday 20th April 2020, the fall in the West Texas Intermediate (WTI) oil price has been precipitous. Don’t understand the extent? Take a look at the graph below. This graph from Bloomberg shows the WTI price between 31 December 2019 to 20 April 2020, plotting Time (x axis) vs Price in US$ per barrel (y axis). We can see the STEEP drop to the right end of the graph. We can also see that there has been a steady decline in the price from December to now. THE PRICE OF OIL: WHY IS THIS HAPPENING: LAW OF DEMAND: A DECREASE IN DEMAND = A DECREASE IN PRICE = AN INCREASE IN SUPPLY LAW OF SUPPLY: AN INCREASE IN SUPPLY WITHOUT AN DEMAND TO SUSTAIN IT = THE MARKETS BEING FLOODED/OVERSUPPLY = A DECREASE IN PRICE COVID-19: Due to the COVID-19 pandemic, global operations have halted. This means the demand for energy commodities would have decreased. This would then cause an increase in market supply. Storage: Since the demand for oil has decreased. US oil producers now have to consider storage which can be very limited and will eventually run out. As storage capacity is running out, it will result in a drop which occurred today. The US is in a rush to get rid of their stored supply. THINGS TO NOTE FOR TRINIDAD AND TOBAGO: Different prices in oil: The two which are mostly discussed are WTI and Brent Crude. The price which crashed today was WTI which is mostly part of the US oil market. Most of the world transitioned to Brent Crude during the Shale Revolution, where the US became an exporter of energy commodities, instead of an importer. Most of the oil in T&T is sold in accordance with the Brent Crude prices. Though Brent Crude prices are higher than WTI (US$ 25.95 as of the current date and time), both prices are the lowest the world has seen in about (rough estimate) 20 years. This means that even though we deal in Brent Crude prices and not WTI, we will still be affected negatively. The latest budget of Trinidad and Tobago was based off an oil price of US$60 per barrel, in March 2020 it was then amended to US$40 per barrel. The price of natural gas: While T&T depends on oil revenue, it must be noted that we have a natural-gas based economy. This means that most of our energy revenue comes from the sale of natural gas. The price of natural gas is closely related to the price of oil. The Henry Hub gas price (as of right now) is roughly US$ 1.90. In T&T, however, we utilize the wellhead price of gas. According to the American Gas Association (AGA): “The wellhead price is the wholesale price of natural gas at its point of production. It is not regulated and the most important factor affecting natural gas wellhead prices is the competitive marketplace. Factors that affect wellhead gas prices include the available supply of natural gas, weather, overall gas demand, the prices of competing fuels (primarily coal and oil) and competition between gas companies for the supplies.” The latest budget of Trinidad and Tobago was based off a gas price of US$3.00 per mmbtu, in March 2020 it was then amended to US$1.80 per mmbtu. Production of oil and gas: Locally, we have seen a decline in the average production of both oil and gas between 2019 and 2020. Oil production in October 2019 – January 2020 stood at roughly 60 000 barrels per day. Oil production in March 2020 stood at 55 120 barrels per day. A decrease in oil and gas production = A decrease in energy revenue = A decline in the economy In early March 2020, the Minister of Finance announced that we are expecting a revenue loss of $5 billion for the year 2020. A figure of $3.5 billion was then added to that as time progressed and markets worsened, resulting in a projected loss of $8 billion for 2020. IMPACTS ON T&T: Potential loss of jobs Decreased revenue Economic instability Regional instability (particular attention must be paid to Venezuela. WHAT IS BEING DONE? GLOBALLY The Organization of Petroleum Exporting Countries (OPEC) has strike a deal where OPEC producers and allies have agreed to cut global oil output by 10%. This is the equivalent of roughly 9.7 million barrels of oil per day. This is the largest cut in oil production to have ever been agreed. The deal is scheduled to begin on 1st May 2020. DOMESTICALLY In early March 2020, the Minister of Finance announced the following steps to deal with the energy issue at hand: Tapping into the Heritage and Stabilization Fund (HSF) The HSF was established with the purpose of saving and investing surplus petroleum revenues. It is considered as our “rainy day” stash. According to the Office of the Prime Minister, the purpose of the HSF is to: (a) Cushion the impact on or sustain public expenditure capacity during periods of revenue downturn whether caused by a fall in prices of crude oil or natural gas; (b) Generate an alternate stream of income so as to support public expenditure capacity as a result of revenue downturn caused by the depletion of non-renewable petroleum resources; and (c) Provide a heritage for future generations of citizens of Trinidad and Tobago from savings and investment income derived from the excess petroleum revenues. The fund can only be accessed after the fiscal year has concluded, so this is a long-term solution. In order to access the HSF earlier, withdrawal can take place under the Disaster Measures Act…the Disaster being COVID-19. For this to occur, the HSF Act needs to be amended to include global pandemics. Sale of assets The Minister did not specify which assets they have in mind to be sold, but he indicated that that is an option for the country. Borrowing Cease in oil exports Heritage Petroleum today announced that it will store their oil instead of exporting at low prices. According to the Trinidad Guardian, “The company confirmed it has the ability to store its present production for up to two and a half months and sources say it would prefer wait it out, hoping for better prices, rather than effectively give away its oil.” If it costs Heritage $25 to produce one barrel and sells it around roughly the same price, this means that it may not be economically feasible due to the lack of profits Please note, this is a very basic overview of the current energy crisis, with focus on the impact on Trinidad and Tobago. Feel free to share your comments, questions and concerns.
Trinidad and Tobago’s Energy Value Chain
A value chain is a chain of activities that processes raw material through a number of intermediate stages to a marketable end product. For instance, natural gas after production must pass through a chain of activities that add value to the original material such that it is more readily usable by the final consumer. Although there is a cost attached to adding value, it is important to distinguish ‘cost’ from ‘added value’. The process of deriving value from gas resources is called gas monetization. This process is not a single stage one, but involves a chain of related activities starting from the extraction of the natural gas from the ground to its transmission to various market destinations. Natural gas needs a dedicated energy market and significant infrastructure even before it can be extracted. As a result, the gas monetization process is more complex than that of oil which can be easily loaded into a tanker and traded in mature commodity market to a number of well-established market destinations. Broadly speaking, the natural gas value chain is comprised of the upstream, midstream and downstream. Forms of Value Value may be reflected in terms of either: 1. Economic or monetary value: The primary form of value to all parties involved in the gas value chain is monetary in nature. To local and foreign investors, this value is in the form of dividends which provide a rate of return on the investor’s investment. With respect to investment in gas-based industries, over the last thirty years or so, over US$5 billion has been invested in gas-based plants at Point Lisas, and a further US$3.25 billion just in the LNG plants. To Government, revenues are collected in various forms all along the gas value chain through dividends, taxes and royalties. 2. Social value: a) Job creation and skills development Key skills, new jobs and generally economic wealth generally would have resulted from extensive growth of the industry over its years of existence. These may include gas well services, project management, estate and marine infrastructure operation and management, plant and pipeline construction, plant maintenance and operations, gas pricing and sales negotiation, marketing, market research and corporate law. In addition a lot of new service and supply industries would have been developed as a result of having to service the main investment. These indirect or supporting economic activities are what could be referred to as the multiplier effect of the new industry. b) Positive impact on communities Energy sector companies have embarked on a wide range of social programmes, including development of community facilities, human capacity and skills development, enterprise development, health, safety and environmental awareness, as well as contributions to educational, social, cultural and sporting initiatives.
2018 Matura Beach Cleanup
Each year, between the months of March to September, Trinidad hosts some very special guests. More than 10, 000 leatherback sea turtles (Dermochelys coriacea) travel across the Atlantic Ocean to nest on beaches located on Trinidad’s east coast. SOURCE: TDC Leatherbacks are the largest surviving turtle species on earth. They can grow up to seven feet long and weigh more than 2000 pounds. They can live up to 45 years. It must be mentioned though that this species is endangered, which means that it has been categorized as very likely to become extinct. During nesting months, females swim ashore, dig their nests in the sand before laying, then covering the eggs over and returning to the sea. Two months later, the eggs hatch, and the baby turtles dig themselves out of their nests and venture out to the open sea. Few survive the predators and make it to maturity, but those females that do then return to the beaches on which they were born to begin the cycle once more. Both Grande Rivière and Matura are well-known and protected beaches in northeast Trinidad. Matura is considered to be Trinidad’s safest nesting beach because of the decline of the threat of poaching, which was once rampant. Even though, poaching is not much of a threat anymore, many other threats have arisen, including climate change and environmental degradation. Nature Seekers is a nature-based conservation group which has strong roots in Matura. They envision an empowered organisation supporting a sustainable ecosystem. The group hosts an annual beach clean up in preparation for the upcoming leatherback turtle nesting season. On Sunday 4th March 2018, eNRgyTT and Altech Energy collectively formed a group to participate in this year’s beach cleanup. Our group of 9 was just a small fraction of the total of approximately 2000 volunteers to come out in hopes of preparing the beach to host our reptile friends. Apart from our team, volunteers hailed from organizations such as the Environmental Management Authority (EMA), El Socorro Wildlife Centre, Forestry Division and the Ministry of Rural Development & Local Government, just to name a few. Over 100 bags of garbage were collected and sorted in recyclables and general waste. It is safe to say this undertaking was a tremendous success since the day after we participated in the Matura Beach Cleanup, four leatherback turtles came ashore to nest in the night. I am really proud of our team and I’m glad we could have contributed in our own little way. eNRgyTT’s Turtle Watching Tips: Please do not visit nesting beaches on your own. Always use a trained guide who will be aware of any dangers to the turtles and to visitors; Do not touch or disturb nesting turtles or hatchlings in any way. Keep a safe distance away; Do not remove eggs from nest; Lights (including flash photography), noise and activity tend to disorient both turtles and hatchlings. Try to be quiet and unobtrusive, and do not use flashlights or flash photography; Do not try to pick up hatchlings or impede their progress to the sea; DO NOT ride turtles; Do not drive on nesting beaches; the weight of the vehicle can crush eggs buried in the sand.
Trinidad And Tobago Extractive Industries Transparency Initiative (TTEITI)
What is it? The Extractive Industries Transparency Initiative (EITI) is a global standard which promotes open and accountable measurement of natural resources. This is done by encouraging transparency and accountability by companies and governments involved in the extractive industries, which include oil, gas and mining, by informing citizens of payments made between companies and governments, as an independent, unbiased third party. The Trinidad and Tobago Extractive Industries Transparency Initiative (TTEITI) is part of a worldwide association of governments, extractive companies and civil society working together to improve openness and accountable management of revenues from the extraction of natural resources. Now this brings us to the question, What does the TTEITI really do: Independent assurance on the money T&T earns from all natural resources produced Accessible, relevant data on the energy sector Recommendations for the government to improve revenue collection and audit and assurance systems. 2017 Trinidad and Tobago EITI Report Summary The TTEITI produces an annual report on the extractive industries in Trinidad and Tobago. The title of the 2017 report summary is “Champagne History. Mauby Reality. Adjusting to The New Normal.” Most of us being Trinbagonians may understand the term “Champagne taste with mauby pocket”, but for those who don’t, it simply is a popular local term, which suggests that a person is living beyond their means. “Champagne history. Mauby reality” can be used to accurately describe the current economic climate of Trinidad and Tobago. Our fossil fuel based economy has provided us with a lot of revenue in the past, due to the abundance of natural resources, the high demand of those same natural resources and the high selling price of those resources. For example, in the financial year 2008, the country earned roughly TT$32.4 billion in oil and gas revenues when the global price of oil peaked to US$145 per barrel and the price of natural gas was at a high of US$13 per mmbtu. Now, however, with global oil and natural gas prices being low, coupled with a decrease in production, the economy of Trinidad and Tobago is not performing as well as it used to. Energy sector revenues fell to TT$6.58 billion in 2016 and continued to decline in 2017 to TT$6.53 billion. This low production output is as a result of: Aged/mature fields Natural gas curtailments due to maintenance work by major gas producers Insufficient investment in new exploration and production With this decline in energy revenues, we are now experiencing job cuts and layoffs, cuts in government spending, decreases in the fuel subsidy and shortages in US foreign currency. Still, as Trinbagonians, we have not properly adjusted much to this economic crisis. We still have subsidies on electricity and fuel, we still expect our government to pay our tuition, we spend frivolously without regard. Is Trinidad and Tobago spending beyond their means? Are we being efficient and wise with our revenue/income? Can we afford to operate as though we’re living in our champagne past rather than our current mauby reality? Link to TTEITI 2017 Summary Report
Tighten Your Belt...The Continuation
As we, Trinbagonians, are on the eve of the 2017-2018 fiscal budget, which is carded for Monday 2nd October 2017, it is imperative that we prepare ourselves for what may potentially be in our future. According to the Bourse Report, the following occurred during the 2016-2017 fiscal year. It can be broken down into two major sections: Revenue Expenditure On the revenue side of the equation…. GDP Growth SOURCE: CENTRAL BANK OF TRINIDAD & TOBAGO In 2014 and 2015 GDP growth was -0.6%, which further increased negatively t0 -2.3% in 2016. The IMF (International Monetary Fund) expects for 2017, that there will be a positive GDP growth of 0.3% due to an increase in production in the energy sector with regards to natural gas and relative production stabilization within the oil industry. Energy Sector Contribution to GDP In 2012, the petroleum sector accounted 41% of GDP (approximately $60.5 billion). In 2016, the sector generated around $27.5 billion dollars or 19% of GDP fortune. The non-energy sector contributions would have remained relatively constant over the years. SOURCE: CENTRAL BANK OF TRINIDAD & TOBAGO Decreased Revenue Lower levels of production mean that less energy commodities can be manufactured and exported, therefore generating less revenue. The Government Total Revenue in 2012 was $47.1 billion dollars, where 29 915 000 barrels per day were being produced, in comparison to $41.7 billion in 2016 (26 164 000 barrels were produced per day). Total Revenue is directly proportional to the Energy Revenue which stems from the amount of crude oil being produced, and by extension, natural gas as well. SOURCE: CENTRAL BANK OF TRINIDAD & TOBAGO On the expenditure end… Increased expenditure. SOURCE: CENTRAL BANK OF TRINIDAD & TOBAGO In 2015, central government expenditure stood at TT$ 31.8 billion and it increased by 1.8% (TT$ 0.4 billion) to TT$ 32.2 billion in 2016. There were not much changes to the composition of the total expenditure, and it must me noted that Transfers & Subsidies usually account for roughly 50% of all government expenditure. Increase in Fiscal Deficit. A fiscal deficit occurs when a government's total expenditures exceed the revenue that it generates, excluding money from borrowings. In 2016, there was decrease in revenue and an increase in expenditure. This meant that there was an increase in the fiscal deficit by TT$ 3.9 billion, from TT$ -5.5 billion in 2015, to TT$ -9.4 billion in 2016. SOURCE: CENTRAL BANK OF TRINIDAD & TOBAGO Increase in Debt-to-GDP Ratio. The debt-to-GDP ratio is the ratio of a country's public debt to its gross domestic product (GDP). By comparing what a country owes to what it produces, the debt-to-GDP ratio indicates the country's ability to pay back its debt. A low debt-to-GDP ratio indicates an economy that produces and sells goods and services sufficient to pay back debts without incurring further debt. A high debt-to-GDP ratio means that an economy does not sufficiently produce and sell goods and services to pay back debts without incurring further debt. The total Debt-to-GDP Ratio increased from 58% in 2015 to 61.5% in 2017. SOURCE: CENTRAL BANK OF TRINIDAD & TOBAGO What Can We Expect in the Upcoming 2017-2018 Fiscal Budget? It is safe to say that many changes are necessary in order to cope with our current economic climate, as well as prepare for what’s in store for us in the future. We can expect further job cuts, removal/amendments of certain transfers (e.g. GATE) and subsidies (gasoline and electricity), increase in taxes and possible implementation of the rumored property tax. In an address to the nation today at the “Spotlight on Trinidad and Tobago’s Financial Circumstances: The Road Ahead” conference, Prime Minister Dr Keith Rowley stated that: “We have to trigger growth process in the economy. The basic strategy is getting the private sector involved in targeted industries: export, manufacturing, tourism, housing, maritime services, agriculture, financial services and creative industries.” What do you, as a citizen of Trinidad and Tobago, expect out of the upcoming 2017-2018 Fiscal Budget? Stay tuned for the subsequent Post-Budget analysis coming to you, next week.
Renewable Energy Ready
In Trinidad and Tobago we rely 100% on the oil and gas industry for our energy. Oil is the main driver of the transportation sector and natural gas is the driver for the power generation sector. Oil and natural gas, which are fossil fuels, are non-renewable, meaning they are finite and will eventually run out over time. While the use of fossil fuels are damaging to the environment, it is also not a sustainable energy system. A sustainable energy system is one that does not compromise future generations’ access to wealth and welfare, does not contribute to climate change and runs entirely on renewable energy. The most abundant natural resource in the Caribbean region is the sun. The Sun and Earth The Sun is the primary source of energy for the Earth, because almost all forms of energy are directly or indirectly obtained from the sun. It provides warmth for the planet, drives the hydrologic cycle, and makes life on Earth possible. The sun’s heat can be used directly to generate electricity, heat water, for solar cooling and to naturally heat and light buildings or homes. The heat from the sun creates temperature differences throughout the Earth which causes movement of air also known as Wind. The energy in the wind is harnessed to generate electricity using wind turbines. These winds along with the heat from the sun, evaporates water from the Earth’s surface. This evaporated water then returns as rain or snow and flows downhill through rivers and its energy is used to produce hydroelectric power. The sunlight and the water from rain cause plants to grow. Organic matter that make up these plants is known as biomass. Biomass can be used to generate electricity, to make transportation fuels and even chemicals. The use of biomass in this way is called bioenergy. Animation of wind turbines Solar power, wind power, hydro-electric power and bioenergy all in some way need the sun in order to exist. In the Caribbean, however, not all renewable sources come by means of the sun. Geothermal energy harnesses the heat energy in the Earth’s subsurface to generate electricity and also for heating or cooling. Trinidad and Tobago does not have the geothermal potential compared to the likes of fellow Caribbean islands such as St. Vincent and the Grenadines, St. Lucia, Montserrat or Guadeloupe. Renewable and Non-Renewable Sources Trinidad and Tobago and by extension, the Caribbean, has both non-renewable and in particular, renewable sources of energy at its disposal. The importance of preventing rising sea levels caused by global warming in the Caribbean is being noticed every year and one can only hope that we don’t wait till it’s too late.
eNRgyTT Storm Watch!!!
As I sat there, located in the south-east of Trinidad and Tobago, surrounded by gusty winds and heavy rainfall, someone asked me "How do storms and hurricanes affect the energy sector?" Now I know what you're thinking, "Well people not gonna be able to work.......DUHHHH!!!" While you may be right Captain Obvious, there are many more effects, both direct and indirect. Since Trinidad and Tobago (in recent history and to my knowledge, cause I'm a tad bit young) has not been affected immensely by a hurricane or high magnitude storm, I intend to use other countries and their experiences as case studies, to give you an inkling as to what may happen to us if ever God decides to stop be a Trini. I also hope to take an international approach, instead of solely a local one, to illustrate how hurricanes and other adverse weather systems can affect the global oil and gas markets. The Effects: 1. Shut-down in Operations The first obvious effect would be the shutting down of platforms. Since platforms are located offshore (as shown in the picture below), if harsh weather conditions, which include heavy rainfall and dangerous winds, are expected, companies usually shut down any ongoing work on the platform and evacuate, if possible, any non-essential personnel. Those who remain are referred to as the "skeleton crew" which comprises of basically one member of each discipline, amounting to approximately 15 people in total (give or take a few). 2. Damage to infrastructure This is another obvious effect of harsh weather conditions. Platforms and vessels located in the ocean are prone to damage from rough sea conditions and gusty winds. Onshore facilities and plants may also be affected by heavy rainfall and dangerous winds. Buildings and light poles may always be destroyed during these periods. One example is Petrotrin's Point-a-Pierre facility which is prone to flooding when heavy rainfall occurs. It is reported that this is due to the removal of the mangroves that were found close to the facility. These mangroves would have prevented the flooding. An international example would be when Hurricanes Rita and Katrina hit the United States in 2005, 115 platforms were destroyed, 52 were damaged along with 535 segments of pipelines. 3. Disruption in distribution Not only do storms affect oil and gas, but they also affect electricity transmission. Abnormal wind and rain patterns, as experienced with storms and rain, can cause damage and extended power outages on the largely Overhead and Transmission Distribution Systems. Fallen trees, debris and lightning may act as obstacles in the attempts to restore power. 4. Halt in Production If weather systems are extremely dangerous, there would be a shut down of plants. If plants shut down, there would be no production of commodities such as methanol, ammonia and natural gas, which would affect the following problem. 5. Decrease in Supply = Increase in Demand = Increase in Price If as mentioned before, there is a halt in production, there would be a decrease in supply, which would result in an increase in demand. An example of this happening is when gas stations are forced to shut down to brace for the oncoming storm, people would flock to their local gas stations to fill up their tanks, to avoid having to suffer from the shortage of gas. 6. Energy Price Volatility Along with causing millions of dollars in property damage, hurricanes and storms also create volatility in financial markets, especially regarding energy prices. The evacuation of the platforms causes a disruption in the supply of oil and gas into the market, which then causes the price to increase (as mentioned before with the supply and demand relationships). For example, when Hurricanes Katrina and Rita hit the United States in 2005, they both cause record spikes in the cost of gasoline and natural gas. This was as a result of the hurricanes hitting the oil-producing areas in the Gulf of Mexico. That being said, I hope everyone was safe during the last couple of days and I hope your families and homes were not severely affected. So now that we're aware of some of the potential effects hurricanes, storms and harsh weather countries on not only our energy sector but our economy and country, on the whole, I ask you: Can our economy and country recover from a natural disaster?
Let there be light!....Sustainably?
There's an old saying that goes something like this, "Charity begins at home"....while this may be true, charity isn't the only thing that can start from your home. Most people think the only way to make their homes and business more sustainable and "greener" by conserving energy is to switch to renewables, however there are simpler, inexpensive ways to do so that many take for granted. One simple change that can go a very long way is through a change in the light-bulbs one uses around their home. In Trinidad and Tobago, we usually use incandescent or Compact Fluorescent (CFL) light-bulbs, with CFL being the smarter choice of the two. However, there is an emerging technology which has the potential to be a step up from CFL bulbs called Light Emitting Diodes or LED. Here is a comparison of all three types of bulbs: 1. Incandescent Bulb: The incandescent light bulb or lamp is a source of electric light that works by the emission of light caused by heating the filament. 2. CFL Bulb: In a compact fluorescent bulbs, an electric current is driven through a tube containing argon and a small amount of mercury vapour. This generates invisible UV light that excites a fluorescent coating (called phosphor) on the inside of the tube, which then emits light. 3. LED Bulb: The average light emitting diode works through what is known as a “p-n junction”, which is formed of a p-type semiconductor (which contains positively charged carriers) and an n-type semiconductor (which contains electrons). This is when the color starts to change and light is being emitted by the LED. LEDs are "directional" light sources, which means they emit light in a specific direction, unlike incandescent and CFL bulbs, which emit light and heat in all directions. LED lighting is therefore considered to be able to use light and energy more efficiently. 1. Energy Efficiency and Energy Costs Life Span: Incandescent = 1 200 hours CFL = 8 000 hours LED = 50 000 hours LED bulbs have a longer lifespan than CFL and Incandescent bulbs. Energy Use: Incandescent - Consumes = 100 Watts; Emits = 60-80 Watts CFL - Consumes = 24 Watts; Emits = 100 Watts LED - Consumes = 12-15 Watts; Emits = 75-100 Watts LEDs consume the least energy, while having a larger output of energy. LEDs use less power (Watts) per unit of light generated. 2. Environmental Impacts Greenhouse gas emissions: For 30 bulbs per year, carbon dioxide emissions stand at: Incandescent = 4500 pounds per year
CFL = 1051 pounds per year
LEDs = 451 pounds per year LEDs help reduce greenhouse gas emissions and aid in achieving a lower electricity bill, due to the less amount of energy required. Mercury Content: Mercury is highly toxic to human health and the environment. LEDs and Incandescent bulbs do not contain mercury, unlike CFL bulbs. Restriction of Hazardous Substances (RoHS) Compliant: RoHS originated in the European Union and restricts the use of certain hazardous materials found in electrical and electronic products. LED and Incandescent bulbs are RoHS compliant, unlike CFLs. 3. Important Facts Sensitivity: CFLs may not work under 10 or over 20 degrees Fahrenheit, and are also sensitive to humidity. Some incandescent bulbs are sensitive to both low temperatures and sensitivity. However, LEDs are not sensitive to low temperatures or humidity. Durability: Incandescent/CFLs = can break easily LEDs = very durable On/off cycling: Switching on and off quickly affects the bulbs in the following ways... CFL = can drastically reduce the lifespan of the bulb LED = does not affect it Turning on Incandescent = instantly CFL = takes some time to warm up LED = instantly Failure Incandescent = only occurs in some CFL = potential to catch on fire, smoke or emit odour LED = typically does not occur Heat emitted Incandescent = 85 British thermal units CFL = 30 British thermal units LED = 3.4 British thermal units Incandescent bulbs release 90% of their energy as heat. CFLs release 80% of their energy as heat. LEDs consume the least amount of energy and emit the least amount of heat. Policy Changes That Can Be Made: 1. Banning of the incandescent bulb. Some countries like the United States and India have banned the Incandescent bulb from households and certain industries. 2. Increase tariffs, draft policy measures and implement environmental taxes Incandescent bulbs which are the cheaper, more polluting option. This makes the cost of the incandescent higher than that of the LED. 3. Decrease trade tariffs (if there are any) on LEDs to effectively reduce the price. 4. Encourage the use of LEDs in households and industries. It is clear that the LED bulb is the safer, more economical choice, not only in households and business but in industries as well. In Trinidad and Tobago, studies done by the Energy Chamber identified that wide scale adoption in Trinidad and Tobago can reduce the gas curtailment by 10%. Even though an incandescent bulb cost about $1 US dollar and the LED at its lowest price is $6 US dollars, the LED bulb can be seen as an investment since it has a longer lifespan and consumes less energy to produce light. If you are interested in making your home more sustainable and environmentally friendly, as well as cutting your electricity bill, you should definitely consider the transition to LED lighting. Do you think Trinidad and Tobago is capable of making this wide scale transition? LEDs may be illuminating a way forward to a more sustainable future.
“The price of gas went up!”
Now as citizens of Trinidad and Tobago, we are no strangers to “the price of gas going up”, ie. Gas being “more expensive”. In the last fiscal budget, the Minister of Finance indicated that the price of diesel and super gasoline would increase. Now, what does that really mean? At the end of this, I’m hoping you’d be able to tell me… In Trinidad and Tobago, the costs of fuel and electricity are subsidized, which, as mentioned before in the first blog post, simply means that money is granted by the government to ensure that the price of a commodity, in our case electricity and fuel, remains low or competitive. Basically, the government covers a portion of the cost, resulting in more affordable prices for the average citizen. The government does this to decrease the cost of production and encourages suppliers to increase output, without major price inflation occurring. How do subsidies work? 1. Fuel Subsidies Both the Government and Exploration and Production (E & P) companies share this burden. Petrotrin supplies the commodities to the domestic market, NP and Unipet, at a market price which is below the international price. The Government and the E&P companies will then compensate Petrotrin for that loss which occurred in the sales. 2. Electricity Subsidy T&TEC buys natural gas from the National Gas Company (NGC) at a price that is significantly lower than the average market price. T&TEC then pays independent power producers, such as Powergen, Trinity Power and Trinidad Generation Unlimited (TGU) to convert the natural gas to electrical energy. This means that NGC forgoes the amount of money they could have gained by selling the natural gas at the market price. God is a Trini: Price Comparisons The average price of electricity (per Kilowatt per hour) in Trinidad is: ONE THIRD the price of electricity in the United States and nearly ONE EIGHTH the price of electricity in Barbados. The average price of super (95 octane level) gasoline (per litre) in Trinidad, is : nearly HALF the price in Barbados, and approximately ONE QUARTER the price in the United States. The average price of diesel (per litre) in Trinidad is: roughly HALF the price in Barbados, and around ONE-SEVENTH of the price in the United States. The average price of Compressed Natural Gas or CNG (per litre) in Trinidad is estimated at ONE FOURTEENTH the price of CNG in the United States. It is quite evident that the prices of the commodities paid by Trinidadians are waaaaaaaaaaayyyyyy lower than the prices paid by Americans and Bajans. In the Caribbean Trinidad and Tobago allocates higher than the average (in per cent of GDP) when it comes to subsidies. Benefits of subsidies… This is evidently an advantage for the citizens of Trinidad and Tobago since power and gasoline is now made more accessible and affordable to them. Also, by subsidizing the cost of Compressed Natural Gas (CNG), the Government of the Republic of Trinidad and Tobago is now encouraging citizens to start using the cleaner alternative form of fuel for their cars. Cheaper fuel costs = Lower public transportation fees. Cheaper electricity rates = Lower electricity bills. Is There a Downside? The answer to that question my friends is a big, resounding YASSSSSSSSSS!!!!!! Apart from the obvious benefit of cheaper prices, on the flip side, there are many disadvantages to having fuel and electricity subsidies. These include: 1. Expensive for the Government: Subsidies are basically taxes in reverse. In Trinidad and Tobago, approximately 50% of the country’s annual budget is allocated to transfers (eg. GATE) and subsidies. 2. Higher Taxes: The money being forwarded to our subsidies must come from somewhere right? Since our climate does not promote the growth of money trees, subsidy money is most likely derived from taxes. In order to maintain fuel and power subsidies in this economic situation we are now facing, the government may have to raise taxes to accommodate them. 3. Wastage of Commodities: If we’re getting electricity at such a cheap cost, what is going to stop people from “wasting it”? It can be argued that “people waste electricity and fuel because it’s cheap”. If people we’re being billed the market price for power, they would be more motivated to monitor how much electricity their homes and businesses use instead of leaving their appliances plugged in, lights on in their home and using air conditioning units all day. 4. The money… The money being used for subsidies can be pumped elsewhere, into other sectors to benefit our economy. Instead of spending so much money on fuel and electricity subsidies, the government can use that money for projects such as improving our agriculture sector, or investing in renewable energy, just to name a few. 5. Climate Change: I know what you’re thinking, here we go again with this Climate Change thing….but to be honest, it’s a serious issue that is plaguing our planet and it needs to be handled ASAP. Low energy subsidies contribute greatly to carbon emissions. If gasoline and electricity is so cheap, why would any sane person want to invest in renewable sources of energy for their cars, homes and businesses? And to be fair, they have a valid point. The initial start-up costs of using these renewables would obviously be more expensive than these subsidized prices we are currently paying for power and gas. 6. Inequity: Subsidies tend to benefit the rich more than the poor. How you may ask? Well, since both the upper and lower classes pay taxes (which may sometimes be high), and the cost of fuel and power tends to be the same for both the upper and lower classes, the upper class tends to come out on top since they are capable of spending more, but they end up spending the same amount as the lower class. Still confused? Look at the following picture… What should be done? It is wise for the Government to reform energy subsidies. The subsidy should be gradually lessened and eventually phased out. While that may seem unreasonable to consumers, the population may be more receptive to the move of this action is accompanied by the following: improvements and new investments in public transportation and transport planning; cheaper alternatives to gasoline and diesel as transport fuels, CNG being a viable option; investments and promotion of renewable energy use in homes and businesses; education of the general public on the pros and cons of subsidies and how they affect the economy; transparency with regards to where the money being saved from subsidies, is being used. Now that you are aware of what “the gas price going up” really means, the next time the price of fuel or electricity is increased, you can now comprehend exactly why the government is doing this. Finally, let me leave you with this: Would you consider subsidies as our country spending beyond its means?
Who is who in T&T's energy?
Even if you have no interest in energy, you have heard of Petrotrin! But who are the other players in the industry and how are they different? To summarize, there are 35 companies operating within the energy sector according to the Trinidad and Tobago Energy Guide. These 35 companies show great diversity in their size, ownership and role in the industry. However, there are three major types of companies in the sector: 1. International Oil Companies (IOCs) IOCs operate globally and typically are involved in the entire oil and gas value chain. IOCs are not state-owned and are regularly ranked among the world’s most profitable (think $$$) corporations. Since oil and gas extraction offshore tends to be expensive and technologically challenging, IOCs dominate this area in T&T. IOCs in T&T: BP Trinidad & Tobago LLC BHP Billiton Trinidad & Tobago BG Trinidad & Tobago Chevron Texaco Trinidad & Tobago Shell Trinidad Limited 2. National Oil Companies (NOCs) NOCs are state owned companies or majority state-owned companies that typically do not operate outside of the country’s territory. It is important to highlight that NOCs control more than 80% of global oil and gas reserves, and globally are highly competitive performers. NOCs in T&T: The National Gas Company of Trinidad & Tobago Ltd. (NGC) Petroleum Company of Trinidad & Tobago Ltd (PETROTRIN) 3. Independent Oil and Gas Companies, Contractors, Service Providers and Consulting Firms These are typically privately owned companies or part of diversified business groups. The small or medium independent companies play a crucial role in the maintenance and prolongation of life in our mature oil fields. Oil service companies (eg. Schlumberger, Halliburton) provide products, services and specific technical expertise. Similarly consultants can be contracted to conduct audits or studies for oil and gas companies. Now that you have an introduction to the types of companies operating in the energy sector in T&T, next time we can delve into the debate over Petrotrin: to privatize or not to privatize… that is our question!
The Oil Price
This title of this post is very straightforward and self-explanatory. However, the mechanics behind it, maybe a little more complex. We’ve been hearing a lot lately “This happening because the price of oil low”, but do we really know what that means for us and why is it happening? In Trinidad and Tobago, the energy sector accounts for roughly 40% of our Gross Domestic Product (GDP). The current (27.06.201) prices of oil and natural gas stand at: West Texas Intermediate Crude Oil = USD 43.51 per barrel Brent Crude = USD 46.01 per barrel Henry Hub Natural gas = USD 2.88 per MMBtu NOTE WELL: THE PRICE OF OIL IS CLOSELY RELATED TO THE PRICE OF GAS (view graph below to see the trend) What Drives the Oil/Gas Price? 1. Law of Supply and Demand When the global supply of oil/gas exceeds the global demand, the price of oil/gas drops since there is now an excess of oil, with no one to buy it. When the global demand for oil/gas exceeds the global supply, the price of oil/gas increases since there is now a decrease in the supply, causing oil/gas to be in demand. NOTE WELL: THE PRICE OF OIL AND GAS IS VERY SENSITIVE TO DEMAND AND SUPPLY 2. Geopolitics Global politics in the form of countries’ interactions with one another influences the price as well. For example, when the shale boom occurred in the United States and the U.S. transitioned from an importer to a producer of oil and gas, there was now an excess supply of oil (which was what the U.S. usually used). The Organization of Petroleum Exporting Countries (OPEC), whose objective is to co-ordinate and unify petroleum policies among its 14 member countries, decided to cut their production in the last quarter of 2016, to drive the oil price up. This caused tension between OPEC and the United States 3. Strength of the US Dollar There is an inverse relationship between the value of the U.S. dollar and commodity prices, i.e. dollar strengthens = drop in commodity prices. The U.S. dollar is the benchmark pricing mechanism for most commodities (including oil and gas) because the U.S. currency is the reserve currency of the world. It is viewed as the most stable currency in the world since the U.S. economy is the strongest and most stable economy in the world. When the value of the U.S. dollar drops, foreign buyers will have more purchasing power as it takes less of their currencies to purchase one U.S. dollar 4. Weather The demand for oil and gas (to be used as sources of energy) increases in winter and summer because in summer, more air conditioning units are used and in winter, more heating systems are used, thus increasing the global electricity demand which is fueled by fossil fuels. Recent History of the Oil/Gas Price As shown in the graph below, the two major recent falls in the oil price occurred in 2008 and 2014. In 2008, there was a large spike in the oil price in the first half, followed by a massive drop. In July 2008, the oil price peaked at around US $147.27 per barrel. Firstly, let us cover some reasons why there was a spike in the price: There was a decrease in supply from Non-OPEC members, which resulted in a surge in global demand. In February 2008, Venezuela cut off sales to ExxonMobil (an energy company) stemming from a legal battle over the nationalization of the company's assets in the country. Production of oil from the Iraqi fields did not recover from the damaged caused by war, and it was reported that in late March 2008, two main oil export pipelines in the south of Iraq were blown up, which cut the country's exports by 300 000 barrels of oil per day. Hurricanes Katrina and Rita hit the United States, causing major damages to infrastructure, thus contributing to a decrease in supply. This now brings us to the fall in oil prices in the 2nd half of 2008, which took place against the Global Financial Crisis aka The Great Depression. This occurred due to: Demand for oil dropped significantly globally due to the economic decline A decrease in demand since the prices were previously over US $100. If prices increase, demand will decrease. The Global Financial Crisis affected all the major "power players" or powerful global economies simultaneously, thus reducing their power and desire to import. In the United States, consumption fell by 1.8 million barrels per day or 8% causing their refineries to run at their slowest pace in 21 years. The US Dollar gained value which meant that the price of oil in dollars had to come down. Talks of bailouts and rescue plans for companies caused the stock prices to tumble, which in turn caused the price of oil to fall as well. In the 2nd Quarter of 2014, the oil price fell significantly once more. Global supply of oil was more than the global demand, this was as a result of: Increased energy efficiency and a growing interest to switch from oil to other fuels. Unrest in Iraq and Libya (two massive oil producers). America transitioned from an oil importer to an oil producer. Even though it’s not an exporter, the amount it once imported significantly decreased, creating a decrease in demand and an excess of supply. What does this mean for Trinidad? Low oil/gas price coupled with low production output means one thing for the economy of Trinidad and Tobago, the energy sector would contribute less to the total revenues earned. As seen in the graph below, energy revenues peaked in 2014, and then began to decline, coinciding with the fall in the oil price in late 2014. Source: TTEITI It can be inferred that shocks to the oil price directly affects the economy of Trinidad and Tobago. High oil/natural gas price = Economy doing good Low oil/natural gas price = Economy doing bad High oil/natural gas prices mean increased revenue for the country, whereas low oil/natural gas prices mean decreased revenue. The Future, as a result…? OPEC will stick to their production cuts to drive the oil price up further. This was announced in May 2017. Many more companies within the Trinidad and Tobago energy sector will continue to undergo cuts, to cope with their loss of revenue from low oil prices. It is reported that by the year 2035, China may be the largest consumer of oil. In the 2030s the USA may be self-sufficient in oil, due to their success with shale. There will be an increase in efforts to achieve decarbonization, as well as transition further towards renewable sources of energy.
eNRgyTT’s Thoughts: Atlantic LNG’s Retrenchment
Trinidad and Tobago news outlet CNC3 reported that Atlantic LNG made the following statement on June 13, 2017: "Atlantic will on June 14 2017, make a Voluntary Separation of Employment Package available to permanent employees. Atlantic is facing the toughest period in its 20-year history. Global LNG prices remain at depressed levels and at the same time, Atlantic continues to suffer from unprecedented levels of gas supply shortfall. Over the last two years, the severe gas supply shortages have resulted in facility utilization rates of less than 70%. Recognizing the need to respond to the gas shortages, to streamline its activities and ensure it remains efficient in the new environment Atlantic has conducted a comprehensive review of its business – part of which has included a review of the required resources. Regrettably, Atlantic will be reducing its permanent staff by what is expected to be less than 50 persons, equating to approximately 7%. It is hoped that the reduction can be achieved as far as possible via voluntary separation." What does this mean? Firstly, it must be noted that the price of oil and natural gas are closely related, meaning that when the price of oil is low, the price of gas is also low. Currently, the prices are: Oil – WTI Crude = US $46.36 (per barrel) Brent Crude = US $48.66 (per barrel) Natural Gas – Henry Hub Gas Price = US $2.978 (per 1 million British thermal units or MMBtu) Cost of Oil (per barrel) vs. The Cost of Natural Gas (per MMBtu) There has also been a decline in production of natural gas over the years, see the following pictures… Crude Oil Production vs. Natural Gas Production Now logically speaking, if the production of natural gas is down, the amount of Liquefied Natural Gas (LNG) exports would also be down, resulting in a decline of money being earned by Atlantic LNG. This the issue of natural gas shortages in Trinidad and Tobago, not only affects Atlantic LNG, but also the Point Lisas Industrial Estate. If they are not earning the amount of money needed to cover their expenses, their expenses would therefore need to be cut. Unfortunately, in this case, this means that workers would be retrenched. Even though the expected employee cut is 7%, according to LNG’s statement, and seems to be a small fraction, it amounts to 50 employees which is a significant cut in their workforce. According to the Central Statistical Office, the oil and gas sector employs 2.9% of the workforce. It is expected that a portion of this workforce will be let go due to low prices coupled with low production. I personally believe that while this is unfortunate for the workers being sent home, it is a casualty that cannot be escaped. Another company, IPSL, was also forced to retrench workers this year. It is evident that this may be an ongoing issue. Also, apart from the companies suffering, the economy also suffers since natural gas production is closely related to the GDP. When the production of natural gas and oil is up, there would be an increase in GDP, and when the production is down, there would be a decrease in the GDP. I think we can expect an increase in these lay-offs throughout the energy sector.