Chairman's remarks at the Launch of the T&T Energy Conference 2021

Chairman's remarks at the Launch of the T&T Energy Conference 2021
Dwight Mahabir, Chairman of the Energy Chamber of Trinidad and Tobago

The year since our last Energy Conference, in February 2020, has been a strange and difficult one.  Just about this time last year, at our flagship Trinidad & Tobago Energy Conference, there was a palpable sense of optimism in the sector.  After years of decline, Trinidad & Tobago’s gas production had seen two years of growth and there were many new investments on the horizon.  Guyana had just joined the ranks of oil producers and there was positive news of exploration successes coming out of neighbouring Suriname.  While prices were not stellar, they were certainly healthy.   While it was still early days, the new state-owned Heritage Petroleum had got off to a successful start and the restructuring of the old Petrotrin had happened without major incident.

There were obvious concerns here in Trinidad about concluding gas sales contracts with the downstream plants and we had just seen the closure of the Yara plant, the oldest petrochemical plant in the region; but there was a sense that - with a more stable upstream environment - progress was being made.

At the time of the Conference last year, the coronavirus seemed a distant echo away on the other side of the world, and not something that we should really have been very bothered about.  Of course, all that quickly changed, and the pandemic has had, and continues to have, a profound impact on our industry, our region and the entire world.   We saw unprecedented declines in demand for transport fuels and in the first half of last year rapid declines in commodity prices, with WTI crude famously going into negative territory.  The global oil and gas industry has been badly battered, with a slew of service companies entering insolvency protection programmes, share prices in many of the major companies collapsing and capital investment programmes being slashed around the world.

These global trends have also impacted us here in Trinidad & Tobago, where we have seen petrochemical producers deciding to idle some of their plants in Trinidad, in response to the low commodity prices brought about by the pandemic.  We have seen gas production and exports of our major commodities fall steeply over the course of 2020.  Coping with the COVID 19 safety protocols, especially the restrictions around international travel, has led to some delays in project execution, increased operating and capital costs and has impacted some of our service companies as they have missed out on important opportunities in the wider region. 

Nevertheless, as a region, the southern Caribbean has perhaps fared better than most.  While some projects have been delayed, we have not seen upstream development projects being cancelled or formally postponed.

 In Guyana and Suriname, the extremely successful exploration and development programmes have continued almost without missing a beat, even with changes in Government in both countries and, in Guyana, many months of political uncertainty post-election (thankfully peacefully resolved). 

In Trinidad & Tobago we have had a disappointment with one highly anticipated deepwater exploration well, but, on the flipside, exploration success in an unexpected area, with Touchstone’s onshore gas finds taking many people by surprise.  As the recently released Ryder Scott audit of gas reserves for 2019 has indicated, our overall national gas reserve situation remains relatively healthy, with significant potential exploration leads remaining to be investigated.  And while we have seen some plants idle operations, we have seen one new methanol plant, Caribbean Gas Chemicals, commence production.

Even with these bright spots, 2020 has been, overall, a difficult and challenging year.  It certainly feels like we are still not out of the hurricane so to speak, and, while the vaccine holds the promises of a brighter future and smoother sailing ahead, I think we all know that we are not out of the rough seas yet.   And, as most would agree, as a country we did not enter this storm with a vessel in the best possible condition. 

In addition to the short-term pandemic-created storms, there are longer-term issues for the country that need to be addressed even as we are navigating today’s rough seas.  The global energy sector is going through a significant transition, brought about primarily by the need to address climate change and the need to decarbonise our economies.  The implications of this for hydrocarbon dominated economies, such as ours, are significant.   Reducing the carbon intensity of our energy industry is crucial for its long-term survival. Improved energy efficiency, the introduction of renewable energy and other carbon reduction technologies, such as carbon capture and sequestration, need to be at the centre of our energy policy. 

Next week, the Energy Chamber will be hosting our annual Energy Efficiency and Renewables Conference as a virtual event, where many of the issues and opportunities in that area will be fully ventilated.

Efficiency is also a very important concept for the sustainability of our traditional gas and petrochemical sectors.  As mentioned previously, Trinidad & Tobago has been challenged to maintain investment and production across the entire value chain, and over the past year we have seen plants in Point Lisas being either temporarily or permanently taken offline.

The Energy Chamber has had a long association with Point Lisas.  Indeed, it was our predecessor South Trinidad Chamber that originally promoted the idea of the industrial estate and incorporated the Point Lisas Industrial Port Development Company or PLIPDECO back in 1966. Point Lisas has been a cornerstone of the country’s economy for many years and provides tens of thousands of well-paying jobs and economic opportunities for hundreds of service companies, not to mention all of the spin-off economic activity, government taxes and foreign exchange earnings.  The estate is an extremely important market for our upstream gas producers and is integral to the economic success of Trinidad and Tobago.  Plants on the estate have faced a challenging time in recent years, firstly with shortages in gas supply and then with competition from other international producers, especially in the USA, who are able to access cheaper natural gas in a time of low commodity prices. 

The Energy Chamber believes that the petrochemical sector has the potential for a continued positive future in the country, but we all need to pull together to make sure that the gas industry, as a whole, can survive.  The current work to develop a new medium-term strategy for the gas industry, being undertaken by the Ministry of Energy, with consulting support by Gas Strategies out of the UK, is extremely important for the future of the entire country.  The scope of this strategic review needs to both ensure that the industry can survive in the short-term,  and that all of the necessary changes are addressed to create long-term sustainability.    The Energy Chamber is closely monitoring this work and stands ready to play a deeper role in the project, as the trade association representing all players in the sector.  Minister Khan we will be turning to you for assistance in this regard.  

There is one uncomfortable issue that is vital for the future of the gas industry, that the Energy Chamber strongly believes must be tackled head-on, namely, the subsidy that the gas industry provides to the electricity sector and hence to every household, company and government body in the country.  The electricity sector consumes a significant volume of natural gas, around 250 million standard cubic feet per day, and this gas is provided to the country at rates that are significantly below the prevalent prices in the petrochemical and LNG sectors.  This imposes a significant burden on the gas industry which, under current market conditions, is proving to be too heavy a load to carry and is contributing to the sustainability challenges faced by the industry. 

We appreciate that dealing with the electricity subsidy is not an easy political decision and offer two important points for consideration. 

Firstly, it is very important to recognise that the challenge is not the subsidy to low-income households.  These households contribute only a very small portion to total electricity demand and therefore demand for the natural gas from which electricity is produced.  The subsidy to these households is not a heavy burden to carry and there are very good social and economic reasons to ensure that every household is able to access basic electricity services.  The Energy Chamber’s view is that the subsidy should continue for low-income households.

 The second point to consider is that higher electricity rates do not automatically translate into higher bills, if people become more efficient at managing electricity use.  There have been studies in Trinidad that show that electricity consumption can be cut by 40% in most government and commercial buildings, through the simplest of electricity management programmes.  There is no doubt that significant savings can be realized in the private sector and domestic market as well.  In other words, as electricity prices increase with the reduction or removal of subsidies, the public and private sectors and individuals may not be faced with higher bills if they alter their consumption patterns. 

An added national benefit is that there are many opportunities that exist for small and medium-sized businesses, if consumers decide to actively reduce their electricity consumption.  This includes things like retrofitting buildings to make them more energy efficient, installing solar water heaters and more efficient air-conditioning systems.

In our view, asking public and private sector entities, as well as individuals, to accept that across-the-board electricity subsidies are not sustainable, is not too much to ask.   We all need to accept that we must be more efficient in our use of electricity.  This is especially the case when one considers the significant benefits that will arise from making additional gas available to the gas industry and on the flipside, the significant impact to the country and its citizens if the industry is not sustained well into the future.

In addition to the electricity sector, Trinidad & Tobago has also made commitments to reduce carbon emissions in our transport sector.  Globally, this is the sector where the majority of petroleum products from oil are consumed, including diesel, gasoline and jet fuel.  This sector has seen massive decreases in demand over the past year due to COVID-related travel restrictions.  There are some respected analysts who believe that demand for petroleum products will never again reach pre-pandemic levels. While this may be an exaggeration, clearly the commitments to zero carbon emissions being made across the world, and with the USA re-joining the Paris Climate Accord, the long-term demand for crude oil is likely to decline over the next few decades.

This means that as a country which still has significant oil reserves in the ground, we should be moving quickly to encourage investment in the oil sector and to produce as much as we can while a market still exists for our crude.  The Energy Chamber has long argued for changes to the Trinidad & Tobago petroleum taxation regime to encourage and attract investment, and we were delighted that the Government restructured the Supplemental Petroleum Tax or SPT for small onshore producers in the last budget.  There are still some tweaks that we would like to see that would make that change even more beneficial, but it was certainly a move in the right direction and one that we fully support.  

The Energy Chamber also warmly welcomed the announcement by the Minister of Finance in his October 2020 Budget speech that the Government is – and I quote - “keenly focused on improving the investment climate in the energy sector through a review of the Petroleum Taxes Act with a view to simplifying the existing oil and gas fiscal regime and making it more competitive to investors”.  In response to this announcement the Energy Chamber has pulled together a high-powered industry Task Force with a view to supporting the Government in these efforts.  Minister Khan, we look forward to meaningful engagement with the Ministry of Energy and the Ministry of Finance in the coming months to explore possible reforms to the system. 

The restructuring of the state-owned Petrotrin and the creation of the new upstream focused Heritage Petroleum has already shown signs of success in terms of improved efficiency and cost-effective production.  With the right fiscal system in place, we think that there is a window of opportunity that exists for a revived oil industry, even while the energy transition unfolds. 

One of the reasons that we have advocated so hard for the change in SPT for the small oil producers is because these small oil companies use a lot of local services whenever they have drilling programmes or infrastructural development projects.  Many of their investment dollars recirculate in the local economy and their investment activity helps generate significant economic opportunities for local service companies and contractors, which in turn, means more well-paying jobs, especially in the economically depressed rural communities of south Trinidad. 

In general, increasing the value of the spend by all operators that is retained in the local economy – or local content - is an important objective for the Energy Chamber.  For the country as a whole, increasing local content is important from a forex perspective, as it means less US dollars are spent on accessing goods and services from outside of the country. 

 Local content needs to be paired with local capacity development and ensuring that we have a sustainable and robust local energy services sector.  It has long been recognised that Trinidad and Tobago’s energy service companies represent one of the best chances to drive forward the much-desired diversification of our exports.  These companies have the potential to export to the wider Caribbean, and hence earn forex, by selling services to both the traditional oil and gas industries in countries like Guyana and Suriname, but also a wider range of energy services in niche areas in the rest of the region.

We must also recognise that there is growing expertise in the wider region and in many cases, there are things that we can learn from the rest of the Caribbean, especially in the renewables space. There are clear and immediate benefits to be had through the full implementation of the CARICOM Single Market and Economy.  The integration of service sector markets through removing barriers and improving trade facilitation, to make the movement of goods, equipment, and people seamless, has huge potential benefits to the entire CARICOM region.  We have noted the renewed focus on the CSME in the aftermath of the pandemic and we believe that this must be a key objective for the Caribbean region to be pursued aggressively. 

Minister Khan, please be assured of our full support in the Government’s efforts to

integrate the regional energy sector.  We know that progress to implement the Memorandum of Understanding with Guyana has been delayed due to the pandemic and the change in Government in Guyana, but we stand ready to assist to the best of our ability to operationalise the MOU.  We have forged strong stakeholder relationship in Guyana and Suriname, and we have been instrumental in the creation of the new Caribbean Chambers Network (of which our CEO is the current Chair) and we would like to leverage these linkages for the overall benefit of the country and the region.

Improving the functioning of the CSME is just one element of the overall improvements to the ease of doing business that are necessary to unlock the full potential of our economies.  There are many other issues that we must urgently tackle as well.

Many of these issues, including those that I have outlined here today, are well known to many of you. Many of them were detailed in the Roadmap to Recovery report, commissioned by the Prime Minister last year.  That document is an excellent starting point for us to work together with the government as we continue to navigate today’s challenges on our journey to a brighter future.  As always, the challenge is to make sure that we implement the ideas that have been outlined in the document.

Minister Khan – you have the assurance that the Energy Chamber will continue to work closely with you and your government, as we navigate the road to a brighter future.

Thank-you.