Transcript `Plane` - Prof. Dennis Pantin

Challenges in managing the T&T
Economic ‘Plane’
COTE Conference
Dennis Pantin
October 09, 2008
Content of Presentation
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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’?
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1. Oil Exports
2.Natural Gas Exports
and their dominant role in Export earnings,
Government Revenue, GDP
How Dependant
? 4
Figure
Hydrocarbon Exports as % of Total Exports
1981-2006
160.00
140.00
$billion TT
120.00
100.00
Total Exports
Hydro-Carbon Exports
80.00
60.00
40.00
20.00
19
81
19
83
19
85
19
87
19
89
19
91
19
93
19
95
19
97
19
99
20
01
20
03
20
05
0.00
Source: Table A 3
Years
How Dependant ?
Figure 2
Hydrocarbon Share of Government Revenue 19812006
100
90
80
Hydrocarbon Rev.%
Other Revenue%
70
60
%
50
40
30
20
10
0
1981
1984
1987
1990
1993
Y ear s
Source: Appendix Table 2
1996
1999
2002
2005
Petroleum’s
Contribution
%
ITEM
2002
2003
2004
2005
2006
r
2007p
GDP
26.2
33.9
37.1
42.9
46.8
43.0
Gov’t Revenues
27.8r
42.8r
42.4r
53.6r
61.9
56..5
M’dise Exports
75.9
83.3
85.8
85.9
91.0
86.7
Employment
3.4
3.2
3.6
3.4
3.3
3.3
Notes: p- provisional , r – revised
Source: Annual Economic Survey, 2006: www.central-bank.org.tt
Growth in the Energy and Non Energy
Sectors
35
30
per cent
25
20
15
10
5
0
2001
2002
Energy
2003
2004
2005
Non Energy
Source: Central Statistical Office
How Dependant ?
Figure 1
Changes in Total GDP Energy and GDP
40
40
% change in GDP at Constant Prices
% Change in BOE
30
20
20
10
10
%
30
0
-10
Source: Appendix Table A 1
years
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
0
-10
Types of ‘fuel’
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
1. Foreign Direct Investment and behind this
foreign technology and know how
2. Together with Foreign Demand and hence
Prices
How Dependant
Figure 7
Oil Share of Foreign Direct Investment
140.00%
120.00%
100.00%
% share
80.00%
60.00%
40.00%
20.00%
0.00%
-20.00%
-40.00%
Years
FDI Petroleum Industries
Source: Appendix Table 4
FDI All other Industries
Map of T&T Gas Market
Nominal Oil Prices: 1986-2008
120
100
US$/bbl
80
60
40
20
0
86 87 88 89 90 91 92 93 94 95 96 97 98 99 0
Source: Appendix table 6
Years
1
2
3
4
5
6
7
8
Real Oil prices
Real Oil Prices 1980-2008 ( 2006 dollars)
90.0
80.0
70.0
50.0
40.0
30.0
20.0
10.0
Source: US EIA. Annual Energy Outlook 08
Ye ars
20
07
20
04
20
01
19
98
19
95
19
92
19
89
19
86
19
83
0.0
19
80
US$/bbl.
60.0
Rising Gas Prices
12
Figure 6
US Natural Gas Prices 1994-08 ( Henry Hub) US$/MMbtu
US$/MMbtu
10
8
6
4
2
0
94 95 96 97 98 99
Source: Table 6
0
1
Years
2
3
4
5
6
7
8
Methanol & Ammonia Prices
500
450
400
Ammonia
Methanol
300
250
200
150
100
50
0
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
US$/Tonne
350
Years
‘Clear-air’ Turbulence
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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
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‘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’
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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 Decline
Figure 13
Crude Oil Production (000bbls/d)
250
"000 bbls/day
200
150
100
50
Source Table A8
Years
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
0
Oil Producers 2008 (YTD)
Crude Oil Producers (2008 YTD)
Others
10%
Repsol
10%
Petrotrin
44%
BHP
17%
BP
19%
Refinery Output
Figure 14
Refinery Product Slate ( 2006)
Other
4%
Fuel Oil
32%
Gasoline
17%
Reg Gasoline
7%
Unf Gas/Ref
Feed
6%
Kerosene
11%
Source: Petrotrin
Gas Oil /
Diesel
23%
Petrotrin Sales
Figure 15
Petrotrin's Sales By Channel 2006
In'national
31%
Local
13%
Caricom
31%
Non Caricom Extra
Regional
25%
Souce: Petrotrin
How Long?
Figure 9
Crude Oil Proved Reserves and RTP
( 1976 - 2006)
1200
800
Proved Reserves
20
RTP Years
15
600
10
400
5
200
0
19
76
19
79
19
82
19
85
19
88
19
91
19
94
19
97
20
00
20
03
20
06
0
Years
Source: Appendix Table 7
years
MMbbls
1000
25
Natural Gas Demand
History & Projections(1965-2016)
2000
Projected
1800
1600
1400
Bcf p.a.
1200
1000
800
600
400
Total Gas Production
Total Consumption w /Lng
Total Consumption w /o Lng
200
0
1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016
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)
300.0
25.00
20.00
200.0
15.00
150.0
10.00
100.0
5.00
50.0
RTP Years
Proved Reserves TCF
Source: Appendix Table 8
2006
2004
2002
2000
1998
Years
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
0.00
1976
0.0
TCF(Reserves)
Years( RTP)
250.0
Oil and Gas RTP Compared
300
25
Gas RTP
Oil RTP
15
150
10
100
5
50
Years( Time)
06
20
03
20
00
20
97
19
94
19
91
19
88
19
85
19
82
19
79
0
19
76
0
Oil Years ( RTP)
20
200
19
Gas Years( RTP)
250
Medium Term Demand Outlook
Mmscfd
Existing Projects
4000
New Projects( Inclusive
of Train X)
1800
Total
6000
Do 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
8000
27
7000
26.5
Total Demand
26
Reserves
5000
25.5
4000
25
3000
24.5
2000
24
1000
23.5
30
29
20
28
20
27
20
26
20
20
25
24
20
23
20
20
22
21
20
20
20
19
20
18
20
17
20
16
20
15
20
20
14
13
20
12
20
11
20
10
20
09
20
20
20
20
08
23
07
0
Years
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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!!!!!!
TCF
MMSCFD
6000
Inadequate Savings
Year
US $million
Sept 2002
162.66
1015
Sept 2003
249.12
1566.9
Sept 2004
449.23
2830.2
Sept 2005
640.33
4034.1
Sept 2006
1354.13
8544.6
Sept2007
1,680.0
10,617.6
April 2008
1, 996
12,375.2
TT$ Million
Top Ten Oil and Gas Funds
Country
Fund Name
Assets
US$ 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
Definitions in H&Stab Fund
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
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
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
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 8th 2008
.
Proposals for Managing
Turbulence
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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