Despite several calls for diversification away from the energy sector, there are practical realities which need to be addressed. Diversification takes time and is a long and trying process. India, for example, did not set out to take advantage of the information technology revolution when it came in the mid-‘90s.
India took a policy decision on independence to prioritise the teaching of mathematics and sciences. And so a direction was set. Some 45 years later, when the Internet revolution arrived and made outsourcing of IT both possible and profitable, India had a receptive business community with the necessary savvy, and an abundant, adequately trained natural resource (people) at the right scale to take advantage of the opportunity.
This explanation is an oversimplification, but it does illustrate the timeframe that it takes for policy decisions to take effect. It is not short-term and to make an impact on the world scene requires scale.
Trinidad and Tobago is small and its gas reserves account for less than 1 percent of the world’s reserves. The country used its oil windfall in the mid-’70s to invest and develop uses for natural gas, first by developing a petrochemical capacity for downstream processing, then in the mid-1990s the country changed its policy direction and moved upstream by developing LNG capacity. We had the advantage of entering the market early in its development and taking advantage of the early gains.
World conditions have changed. The relatively high prices enjoyed during the past 10 years have now disappeared. World demand has fallen and the market is now faced with an oversupply. Furthermore, the USA is not only self-sufficient, but it is now in a position to export to add to the world’s oversupply. Worse yet, Iran will soon be in a position to export. In our own case, we are faced with declining production and not enough gas to meet the installed gas demand, far less start any new project.
Faced with these conditions, we have only two priorities: first, to explore with a view toward increasing production; second, in the short run, to find a supply source that can ease the domestic undersupply. It sounds easy. Good news appeared this week in the form of Venezuela and the Loran/Manatee field. But there are several political, diplomatic and business hurdles to cross to make this a reality in the near term.
First, legislative elections are due in Venezuela in the next three months, and it is expected that the opposition will make considerable inroads. What if the administration loses its current freedom? Was an agreement signed this week? Where is the official communique? Second, Venezuela is in the middle of an expensive commercial battle in the U.S. courts, where it faces seizure of commercial assets in the United States (CITGO) in compensation for its expropriation of U.S. commercial interests.
This raises many difficult issues on the diplomatic front, not including the Guyana/Venezuela border dispute. Third, a U.S. energy major has commercial rights to the Loran-Manatee field; is it in the picture, and is it in agreement with this new Venezuelan initiative? If not, what is the economic and diplomatic fallout from pursuing this approach?
These are only the preliminary questions. There are deeper, more intractable issues which we must face from a policy perspective. After 100-plus years in the energy sector, what are our country’s strengths and capabilities? The majority of our investment expenditures have been undertaken through foreign direct investment, with technology that we did not own. Capital has to be repaid with interest and dividends, and technology must be licensed. With the exception of CLICO, no domestic firm has invested deeply in the energy sector.
Where are our centres of excellence with the capabilities to operate in the energy sector at an internationally competitive level? These are robust policy issues, the answers to which are the key to sustainable development. As in the case of India, they cannot be solved in five years. But we must start.