Mr Vincent Pereira, Chairman, Energy Chamber of Trinidad & Tobago
It gives me great pleasure to welcome you to the annual Trinidad & Tobago Energy Conference. Of course, a special welcome to all of our international visitors – And we are particularly pleased to have with us for this year’s Conference Energy Ministers from Barbados, Guyana and the Dominican Republic…..all very important energy and emerging energy players in their own right. 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 conference takes place during an extremely challenging time for our industry and for Trinidad & Tobago…..the two do very much go hand in hand…the fortunes of this industry and this country. Over the past year, commodity prices have continued their unabated, relentless downward march with no destination yet in sight. I am certainly looking forward to the contributions by some of our feature speakers as they share their insight regarding the industry and their thoughts on what’s ahead.
This low commodity price environment has starkly shown the vulnerability of our small, open hydrocarbon-based economy as it has many other natural resource based economies. The spectacular growth of our natural gas industry from the mid-1990s to the late-2000s transformed the economy of Trinidad & Tobago. Now the economy itself needs to be transformed if we are to sustain both our gas and oil industries over the next several decades.
The theme that we have chosen for this conference – Energy and Development – is as much local as it is global as it speaks to the challenge of economic and sustainable development in a commodity-based economy but also to the ever increasing sense of urgency about global emissions from hydrocarbon led economic growth – both immense challenges that suggest solutions on the scale of transformative change. All of this balanced by an imperative that the world needs energy to survive and to thrive and that energy, today and for the foreseeable future will be fossil fuel led.
Here in Trinidad and Tobago the oil and gas industry has driven economic growth and has propelled us into the group of higher income nations, but we need to ask the question whether this has resulted in a sustainable and robust economy able to weather the inevitable economic storms. I think we all know the answer.
In addition to the problems caused by low commodity prices, Trinidad & Tobago has continued to suffer from shortfalls in gas production, with knock-on effects on LNG and petrochemical exports. Gas production from January to October 2015 averaged 3.8 bcf per day, a 12 % drop from our peak year of production in 2010.
The nature of the Upstream sector is such that increasing gas production – or even just maintaining current production – will require significant new investment in drilling and construction of the necessary gas delivery infrastructure. The future of our gas industry relies upon our ability to attract the necessary capital investment each and every year.
On a very positive note, Trinidad and Tobago has attracted significant Upstream FDI over the past years which has now enabled substantive ongoing Development and Exploration activity. At a time when globally within just the last 6-months alone, 22-major projects worth upwards of $50bn and having 7bn bbl of commercial reserves have been delayed pre-FID….here in T&T, there are least 4 major Upstream gas projects under development. Additionally there is a substantive exploration programme ongoing and ramping-up, both Shelf and Deepwater.
I mention this in the context of a massive process of capital re-balancing that is ongoing throughout the Oil and Gas industry locally and globally with the outcome being intense competition for capital – there are now too many projects chasing too little capital. So in one sense our situation here is unique – but we must cherish that position and protect it. In this environment, the last thing the Country would want to do is to make policy decisions that make the investment environment less competitive and hence encourage the flow of scarce capital to other destinations. Ensuring T&T remains the preferred destination for Energy Sector investment must be an energy policy imperative.
Monitoring investment decisions is more important for the long-term sustainability of our industry than monitoring oil and gas prices. There is precious little we can do to influence global oil and gas prices, but we can control our policy environment and make sure it is supportive of investment.
The gas master plan conducted last year will, we are sure, have given the government significant amounts of data on the issues facing the gas sector and many recommendations on the policy changes that are necessary to sustain our industry. The full findings of that planning process have not been fully shared with the industry. The government has made a strong commitment to consult with the industry on the issues facing the sector as they move from recommendations to actual policy measures.
The Energy Chamber welcomes the proposed consultations. We would like to suggest, however, that the government immediately enter into a dialogue with the industry about how those consultations should take place, the format, the information that is required and most importantly the intended outcomes. We think that the consultation process needs to be well structured with clear mechanisms for exchanging information and ideas, including mechanisms for dealing with commercially confidential items.
In his budget speech the Honourable Minister of Finance mentioned that the consultation process may be modelled on the UK consultations of 2014. We think that could be a good starting point. We do note however, that the UK process started with a published report written by Sir Ian Wood, which advocated an overall switch in the guiding economic philosophy for the UKCS, and then asked companies and other stakeholders to present evidence to support the proposed changes in a structured consultation process over a three-month period. For the consultation process to yield benefits, it must be inclusive and extend beyond a single big meeting with stakeholders.
In my speech to this conference last-year I emphasized the fact that the declining commodity price environment meant that we needed to have a single-minded focus on competitiveness. Within the industry I think that there has been an increasing focus on competitiveness. Operators and service companies have been in dialogue about how we can improve efficiency and innovative ways of cutting costs – and though we have taken some ground, my sense is that there are still significant productivity and efficiency opportunities we must access to ensure the competitiveness of our industry – working together we can do this.
Outside of the energy sector, in the nation as a whole, I think that the conversation on the importance of competiveness is really an early stage conversation – stimulated perhaps Prime Minister by your address to the nation on the 27th December 2015.
But it has now started and it is vital that we really take a serious and focused look at the competiveness of our economy. For a small open economy like Trinidad & Tobago, diversification essentially means diversification of our exports. We have to focus our economic policies on helping our companies sell a more diversified range of goods and services to the rest of the world. Competiveness is therefore absolutely key to any discussion on diversification.
Companies within the energy sector have a vital role to play in diversifying our service exports. Many T&T-based energy service companies already meet the high international standards demanded by the global oil and gas industry, otherwise they would not be able to do business with the major multi-national companies resident in the country. This gives them an advantage in breaking into export markets, but they need support from the national agencies with this responsibility.
The recent Liza oil discovery in Guyana represents a significant opportunity for T&T-based companies but we need to forge the right relationship and the right partnerships with both the public and private-sectors in Guyana to make sure we take full advantage of those opportunities for both of our countries. I am delighted that the Honourable Raphael Trotman, the Minister of Governance, Natural Resources and the Environment from Guyana has been able to join us for this conference.
In addition to exporting more, we also have to be conscious about preserving our foreign exchange and, as far as possible, importing less. This is where local content can play an extremely important role in overall national economic policy. However, we must concentrate on building genuine local content and focus on retaining as far as possible the value of expenditure by the major operator companies in the country. Simply contracting a foreign service or product through a local agent who charges a mark-up on the price, without adding any value, will neither help competitiveness nor build sustainable local companies.
The Energy Chamber has adopted an approach to local content that concentrates on building the capability and capacity of local energy service companies and contractors. This approach fits well with the emphasis on ensuring we are a competitive location able to attract direct foreign investment at the same time as building our export capacity. Local content should always be about long-run sustainability; about improved productivity – about enhancing competitiveness – in other words, strengthening our local service companies and enabling them to successfully compete to gain market share both here and abroad.
The work that the Energy Chamber has done on improving standards is crucial in this regard – high standards drive competitiveness and enhance capability but we also need to ensure we have structures in place to help local enterprises meet and surpass these standards. That is what the Chamber remains focused on.
Ladies and gentlemen, this year marks the 60th anniversary of the Energy Chamber. Over that sixty-year history our Chamber and our predecessors have faced and overcome many challenging events that gripped this Industry and this Country. I am confident that given the strength of the Chamber today, that we will not only overcome the present challenges we face, but that we will make a strong contribution towards ensuring our nation emerges from this current storm, with a stronger and more robust economy. Let us not forget that many of the reforms that came in the late 1980s and early 1990s helped drive forward the period of rapid growth in our economy from the mid-1990s onwards.
The hydrocarbon industry in Trinidad & Tobago still has a long-life ahead of it. There are many exciting opportunities that lay ahead, including the upcoming deepwater exploration campaign. If we go about a process of structural adjustment over the next few years, in a sensible and focused manner, we will come out of this current challenging period stronger than we went in. So I want to end on that positive note – the current crisis brought about by low commodity prices has the potential to create significant transformation for our economy and society. We all need to work collaboratively to make that possible.