Every time that there are concerns expressed about the future of the oil, gas and petrochemical sectors in Trinidad and Tobago, there are responding calls for the diversification of the economy. These calls are understandable and appropriate, and fully supported by the Energy Chamber of Trinidad and Tobago (Energy Chamber). The Energy Chamber views economic diversification as a fundamental issue for our economy and especially the diversification of our exports. As a small open economy, Trinidad and Tobago needs to earn foreign exchange in order to survive and we can no longer rely upon exporting just a handful of energy related commodities.
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Energy Chamber Editorial
If Trinidad and Tobago is going to make a success of the newly formed state oil company, Heritage Petroleum (Heritage), the Minister of Finance is going to have to follow through on his previous commitments to review the way in which Supplemental Petroleum Tax (SPT) is structured. The current way in which this tax against revenue is structured acts as a serious impediment to investment in the oil sector.
Fossil fuels are going to remain an important part of the energy mix for many years to come, but renewable energy is growing quickly. Trinidad and Tobago needs to be aware of this reality and embrace the global energy transition to a lowercarbon future. The energy transition is being driven not just by climate change policies, but also by technological innovation and the changing economics that the technological revolution has spurred.
Technology is changing every sector of the economy, including the energy sector. The examples are endless: new seismic imaging technology is unlocking new reserves and improving recovery, drone technology is revolutionising pipeline and platform inspections, RFID technology is transforming inventory management, and everywhere information technology is fundamentally altering how people work and communicate. All of these technologically driven changes have implications for how people work, the jobs people do and the skills and knowledge companies need. Individuals, companies and countries who manage the changes brought about by new technology will succeed, while those who fail to adapt will be left behind.
If the government wants to make a success of the new upstream focused Petrotrin one of the issues it will need to address is the impact of Supplemental Petroleum Tax (SPT) on investment in the oil sector. It will be difficult to attract the necessary capital investment unless this long outstanding issue is resolved.
Trinidad and Tobago is one of the least energy-efficient economies in the world and has one of the highest per capita greenhouse gas emissions rates. The introduction of renewable energy, improving energy efficiency and reducing our greenhouse gas emissions have become policy issues on the government’s agenda and are usually included in statements from the current Minister of Energy and Energy Industries and other senior politicians and government officials. However, they often seem to be presented as additional policy issues for consideration, rather than issues at the core of overall energy policy.
The Energy Chamber of Trinidad and Tobago has commissioned a major study into the value added by the energy sector to the local economy. The preliminary results of the study were presented at the annual Trinidad and Tobago Energy Conference in January 2018 and showed that the sector adds significant value to the economy above and beyond direct taxation. Note, this does not mean we should ignore the value of tax return. Using 2016 as the base year, the study showed that the energy sector added four and a half times more overall value to the economy than if you only considered taxes paid to the government.
Industry collaboration has become an important focus for companies in the energy sector as they adjust to the lower price environment of the past few years. Companies have recognised that while they will compete in many areas of their business, there are also many areas where they can collaborate in order to maximise the value of their business. This can include collaboration between operators, between service companies and operators (or with each other), between academia and the industry, or collaboration between state agencies and the industry. There are also opportunities for collaboration across international borders to find mutually beneficial solutions.
If Trinidad and Tobago is going to continue to attract the massive amounts of direct foreign investment it requires to maintain its world-class natural gas industry, the country needs to ensure that there is clarity on both short and long-term energy policy. To attract investment, the country needs to reduce uncertainty and help investors mitigate risk.
Interest in energy efficiency, renewable energy and climate change has increased in Trinidad and Tobago in recent months, driven by both international events and specific local challenges. But while there is a lot of interest from industry, academia and NGOs, government action seems to be lagging behind.
A strong safety culture is vital for the continued success and competitiveness of the Trinidad & Tobago energy sector. Every individual working on any energy sector facility has a duty to stop work at any situation that will put themselves or others in harm’s way. Under Trinidad & Tobago’s Occupational Safety and Health Act (OSHA), companies need to have policies in place where workers are informed of their responsibility to stop any unsafe work and systems in place to investigate any “stop work” incidents. This is also one of the requirements that contractors need to demonstrate in order to be certified under the Safe to Work (STOW) programme. At present, there are over 500 certified companies in the country.
One of the major issues of discussion at the recently concluded Trinidad and Tobago Energy Conference 2017, was the institutional capacity of key government regulatory agencies. Trinidad and Tobago is facing the prospect of further significant declines in gas production from 2019 onwards, unless final investment decisions are taken immediately to develop new gas fields, such as bpTT’s Angelin project. These major investment decisions by international oil and gas companies rely upon timely decision-making by the government of Trinidad and Tobago.
The future of Trinidad and Tobago’s gas industry relies on the ability to attract significant new investment into upstream gas production. Rystad Energy, a consultancy firm, has recently concluded a study of the competitiveness of the Trinidad and Tobago gas economy, commissioned by the Energy Chamber. The study, summarised in an article on Page 8 of EnergyNow, clearly highlights the serious challenges faced by the Trinidad and Tobago gas economy.
Over the past few days there has been a lot of commentary in the press, on social media and amongst the public on the current wage rates at Petrotrin. Given this discussion the Energy Chamber of Trinidad & Tobago thinks that it is important to provide factual information about the current wage rates at Petrotrin compared to the general rates prevalent in the energy sector.
Over the past decade the Energy Chamber’s flagship Safe to Work (STOW) programme has helped many smaller contractors and service companies implement robust health, safety and environmental management systems and to meet the requirements of major customer companies in the energy sector. There are now almost 500 companies fully STOW certified. Despite this success, the energy industry must continue to work to make sure every single contractor or service company carrying-out high risk work is fully compliant and meets the STOW requirements.
Urgent government action is required to halt the current significant decline in activity in the Trinidad and Tobago oil sector and the knock-on impact that this is having on both crude oil production and the energy service industry, the major generator of employment in the sector. Since September 2015, the government has been promising a consultation process to discuss energy sector taxation and other issues facing the industry, but to date, no such consultation has taken place and there is no clear signal being provided of when or how this will occur.
Trinidad and Tobago needs direct foreign investment for its economic and social development. The economy of Trinidad and Tobago is – and will remain for the foreseeable future – an oil, gas and petrochemical-based economy. This means that we need very high levels of capital investment into our economy, each and every year. Oil and gas reservoirs have a natural decline rate and in order to simply maintain a national plateau of production we require billions of US dollars of investment every year. Given the current shortfalls in gas production, there is a particular need to attract investment into upstream gas production.
The current low commodity price environment has focused national attention on the diversification of the economy. In a small economy, diversification is only going to happen if we have competitive, export-driven companies who are able to sell goods and services beyond our borders. If we are going to be globally competitive, we urgently need to reverse the current trend in declining productivity.