Vincent Pereira, Chairman, Energy Chamber of Trinidad and Tobago, and President, BHP Billiton Trinidad and Tobago
All Protocols observed. Ladies and Gentlemen, good morning. What a great day this promises to be.
I feel very honoured to welcome you to the annual Trinidad & Tobago Energy Conference, the premier energy sector conference in the region. I would like to say a special welcome to all of our international visitors – I know that some of you are regular visitors but we also have some people here today who are visiting the country for the first time. So in addition to welcoming you to the conference let me also welcome you to our beautiful twin-island country of Trinidad & Tobago.
This is my first conference as Chairman of the Energy Chamber, a role that I took over from my predecessor, a wonderful person, a personal friend and a terrific colleague – Mr. Roger Packer, at the Annual General Meeting in October 2014. Let me take this opportunity to thank Roger for all his hard work and dedication to the Energy Chamber, which certainly grew and flourished under his leadership and to also thank him in anticipation of the contribution he will continue to make as IPC.
Since taking over Chairmanship of the Energy Chamber oil prices have plummeted by 48% – I am fairly certain that this is one of those cases where correlation does not equal causation. I don’t think that any of us quite anticipated how fast and far prices would drop, but it has certainly put the global industry in a very different position than we were in just six months ago. We are truly operating in times of rapid change – from a both a geo-political as well as a macro-economic perspective.
But in one sense this is nothing new – volatility has always been a facet of the energy industry. Our task can never be about avoiding turbulence – we don’t make it and we can’t avoid it – ours, is the noble role of ensuring that everything we do is focused on ensuring we get sharper every day on our Operating and Capital productivity to expand margins and enhance returns regardless of where prices go.
I suspect that none of us can be precise about the reasons nor the impacts on the Local and International Energy Industry but we can all see the expansion in supply, U Shale liquids; Russian oil, Iraq oil….and all happening at a time when the global struggle for growth has dampened demand – hopefully only temporarily. The good thing is that we have a wonderful slate of speakers who I am sure over the course of today and tomorrow will offer their own expert thoughts on the current state of the Industry and the future.
It is probably safe to say, however, that the face of the Global industry is very likely to change because of the current low price environment. We have already seen major consolidation between two global giants in the Service sector – more to follow? And of course by changing Geopolitics. Indeed, many of you would know that the reason the Minister of Energy is unable to be with us is as a result of the energy discussions taking place today in Washington DC between the United States Government and regional governments that possibly hints at some of the changing geopolitics.
Quite how this will impact the energy sector in Trinidad & Tobago and in the wider Caribbean is unknown. We can do nothing to influence global oil or gas prices but what we can do is to ensure that we have the right policy framework in place to survive this period of uncertainty and position ourselves to take full advantage when higher prices return. Policy frameworks that maintain Trinidad and Tobago’s competitiveness in the broadest sense.
In the energy sector we are accustomed to working with long planning horizons and it is important that we keep the long-term in mind, even as we are dealing with robust short-term challenges. There will always be risks and challenges, our imperative is always to be prepared and have the resilience to respond.
Unfortunately for us the decline in global prices has come on top of some specific local challenges that we have faced over the recent past. The shortages in gas supply to both Atlantic and the Point Lisas plants that we have experienced over the past few years have been widely reported in both the local and international press. The gas shortages have undeniably been a major strain on the industry, negatively effecting company profitability and hence Government revenue and having negative implications for reputation and asset integrity and increasing operational risk. Total gas production in 2014 was around 6% down on 2010, the peak year for production, during a time when ammonia, methanol and LNG were all receiving good prices on international markets.
Clearly not a desired, nor sustainable situation. When one considers the following:
- the scale of the T&T gas business, ca4BCFD (Henry Hub is ca2.0BCFD) – this is a big machine
- the tightness in the Gas supply/demand situation and
- the need for ongoing maintenance both Upstream and Downstream to ensure the safe and reliable operation of these facilities
This is not a situation that will be rectified easily or soon. The critical importance of the Gas Master Plan that is presently being developed cannot be overstated – this GMP must fundamentally examine the gas industry in T&T – the structure and role of critical components; the way risk and return are shared along the gas value chain; opportunities to add new Industry while at the same time assuring the uninterrupted supply of existing plants; – these are all important outputs that the GMP should deliver which in turn must inform any Policy changes that may be needed to assure the sustainability of the industry and create a clear pathway for future growth. This is vital to the industry and to the economy of Trinidad and Tobago.
For oil, the picture is a little more encouraging. After almost a decade of continuous declines in production 2014 was actually flat with 2013 – as an accomplishment this may sound somewhat benign. However, when one considers this accomplishment within the context of natural reservoir decline – it is a huge accomplishment. What I believe is truly significant is that the new oil production has primarily come from mature acreage rather than from exploration. This highlights the potential to quickly turn-around oil production using existing infrastructure, if we can get the policy measures right
It is important to recognise that there have been some very important changes in policy over the past few years, which have directly and positively affected activity levels in the upstream energy sector. Between 2010 and 2013, a series of new fiscal incentives were introduced. These fiscal changes have been the catalyst for both the increased drilling in the traditional oil acreage, the sanctioning of major new gas development projects and the Deepwater exploration programme. These reforms have gone a long way to increase our competiveness. It is heartening for the Energy Chamber to see the positive response of the industry to the incentives which we recommended over many years.
There is both a direct correlation and causation between the reforms that have been introduced and the record levels of direct foreign investment into our energy sector over the past few years.
However, as the Energy Chamber has repeatedly stated it is not fiscal reform alone that drives competitiveness – it matters a lot, but other things matter deeply as well:
- Speed – which is about effective and stream-lined regulatory processes and decision making that help underwrite timely project builds
- Simplicity – this is about the critical nature of creating policy frameworks that support improved productivity.
As always, the “Above Ground” considerations remain vital to the success of the Energy Sector. Trinidad and Tobago’s key comparative advantage is the Oil and Gas endowment with which we have been blessed. We need policy frameworks that recognise this to allow the Country to thrive.
The current low price environment makes it even more important that we maintain a single-minded focus on competitiveness. The external environment is brutal. In the global oil and gas industry many major companies are cutting their capital investment budgets and cancelling or delaying major projects. So far the major projects in Trinidad & Tobago have not been cut, but with expenditure constantly under review there is no guarantee that this will remain the case.
While we have seen high-levels of investment over the past couple of years, it is vital for our economy that we see those levels being sustained each and every year over the long-term. Only sustained investment in upstream gas delivery every year will allow us to deliver the ca4 billion cubic feet of gas per day that is required to keep Atlantic and Point Lisas operating at capacity.
Significant investments are also required to increase Oil production in a sustainable manner. We need to be cognisant that most of the country’s oil comes from a mature hydrocarbon basin with aged infrastructure. Substantial additional investment is required to ensure existing facilities continue to operate safely and predictably. Coming out of a meeting last week between the Prime Minister and the Energy Sector, Cabinet has agreed to establish a Committee to look at the mature oil sector, with the Energy Chamber set a play a leading role.
The current low price environment means that Government revenue has significantly declined. It is our view that the Government has done the right thing by rebasing the national budget, cutting expenditure and seeking to increase revenue. In formulating this long term strategy and policy for development and commercialization of the Energy Sector within a period of short term volatility the Government must bear the current environment in mind. As a country we must be very cautious that as we make adjustments we do not take short-term decisions that have serious long-term consequences for the sustainability of our energy sector. In turbulent times the Energy Sector can sometimes be seen as a “soft target” for revenue enhancement – we must not fall into that trap. We have to be very, very careful that short-term measures to increase revenue do not erode our fragile competitive position.
We also have to be extremely aware of how inefficiency in the regulatory environment can have a very serious negative impact on our competitiveness. Delays in regulatory approvals add costs to projects and in the long run this means lower returns to Companies, the Government and the people of Trinidad & Tobago. In this regard we are heartened by the Prime Minister’s recent announcement of a Ministerial committee to try to streamline approval processes in the Energy Sector and we are looking forward to working closely with the committee
We also have to be very focused on how we grow the rest of the economy and reduce our reliance upon exporting a handful of commodities. Diversification has inevitably risen up the policy agenda in the low oil price environment. It may surprise people to know that one of the two key strategic objectives of the Energy Chamber relates directly to diversification of our exports – specifically to increase the export of energy services.
For many years we have argued that the local companies in the energy services sector represent the best chance we have for entering competitive export markets. In 2007 we put together a comprehensive policy document on this very issue, entitled “Playing to Our Strengths”. It is heartening to see that we have at last managed to influence Government policy and that the energy services sector is now recognised as one of the key sectors for diversification by the Government. This has resulted in us receiving very significant support from ExporTT as we continue to help our member companies internationalise their operations.
One of the most significant things that we have achieved in the Energy Chamber is the Safe to Work initiative. This initiative has not only contributed to improved contractor safety management across the industry it has also helped our Services Sector raise the bar. We work in a high hazard industry and strong health, safety and environmental management systems are the license to operate for any company in the sector and is the difference between men and women returning home to their families or not.
By setting and enforcing a high HSE standard, we are ensuring that service companies operating in Trinidad & Tobago have the basic requirements needed to operate anywhere in the world. This has been a truly transformational initiative and one that is driven by both a moral imperative to do no harm and a developmental imperative to make sure we have the best energy services sector in the world.
I think it is important to recognise that this transformational aspect of the work that we are doing means that we are driving forward national development, not just the development of the energy sector – this can only be to the benefit to working men and women and their families. Sometimes the narrow focus of our advocacy activity on the energy sector may mask our wider role in national development.
Like everything we do in the energy sector it is a long-term initiative, but we have shown our willingness to stick at it and I believe we are now seeing the results of our many years of hard work. This is a world-class initiative built right here in Trinidad & Tobago.
Ladies and Gentlemen, the Energy Chamber is proud of the role we have played in ensuring the sustainability of the Energy Sector in Trinidad and Tobago which given its scale and impact, redounds to the benefit of every citizen in this great country……and we look forward to the role we will continue to play in this most amazing industry.
Thank you all for being here. Thanks to Dax and his outstanding Team who continue to astound us with their extraordinary delivery. Thanks to the Sponsors. Have a great Conference – Powering Development & Ensuring Sustainability – a most appropriate theme for these volatile times.
While the disruptions and uncertainties we face today are likely to continue – I have no doubt that our industry has the right approach, the necessary capability and the real desire to keep meeting the challenges.
We have proved we can do it in the past, and we will keep on doing it in the future.
A great person once said: “A diamond is a chunk of coal made good under pressure”….a most appropriate metaphor for our Industry.
I thank you.