Accessing foreign exchange is a major headache for many Energy Chamber member companies, especially small to medium-sized service companies and contractors. These companies need foreign exchange to procure equipment and supplies as well as to pay for things like international certification fees and specialised training. Just like companies outside of the energy sector, many of our members are juggling various accounts with different banks to be able to access the foreign exchange that they require.
While many of our members are facing the same difficulties as companies in other sectors, the energy sector is also at the centre of efforts to resolve the issue of foreign exchange shortages. Much of the advocacy work that the Energy Chamber has been pursuing over the past few years directly impacts the issue of foreign exchange availability.
Upstream investment to increase production
Firstly, and most obviously, our advocacy work focused on increasing oil and gas supply, through increased upstream investment, has a direct impact on foreign exchange availability. The decrease in production of natural gas has led to significantly lower exports of LNG, methanol, ammonia and other commodities, our major foreign exchange earning exports. If we can turn that around and increase production, then exports rise, and more foreign exchange will be available.
While higher commodity prices can offset some of the decline in production, we are at the mercy of international markets and there is little or nothing that Trinidad & Tobago can do to influence global commodity prices. Most analysts are predicting lower commodity prices in 2025 and 2026. On a more positive note, the restructured Atlantic marketing arrangements for LNG do give greater stability, as they are linked to three different markets, rather than primarily the US market as existed previously. Two of the relevant markets, namely Japanese and European LNG, have been fetching historically high prices over the past few years.
Our major advocacy objectives in the area of upstream investment are outlined in our six-point plan for increasing natural gas production and securing our exports.
Reducing demand for natural gas for electricity
Secondly, the Energy Chamber has done a lot of advocacy work on the issue of introducing renewables onto the grid and improving energy efficiency. These advocacy objectives are directly related to foreign exchange availability: the less natural gas we use to produce electricity for the domestic economy the more gas is available for exports and the more foreign exchange that is available.
There is currently one major solar farm under construction, but we need the rapid introduction of more grid-scale renewables.
We also need to work on energy efficiency. The biggest increase in electricity consumption over the past decade has been in the residential sector and specifically in the households with the highest electricity consumption (typically the richer households). Increased energy efficiency in these households and increased investment by them in small-scale renewable energy would have a material impact on the volumes of natural gas available to earn foreign exchange though exports. This could be best achieved through an increase in rates for households in the top tiers of usage (leaving the subsidy in place for households in the lower usage tiers) and the introduction of some form of feed-in tariff to allow people to generate their own electricity through renewables (primarily roof-top solar).
The Energy Chamber has consistently advocated for these two items: one with widespread support and the other unpopular but necessary.
Increased local content
The third major area where the Energy Chamber’s work programme can positively impact foreign exchange availability is in the area of local content. Oil, gas and petrochemical companies either pay the government their taxes and fees directly in US dollars or convert these in the local banks to pay their taxes. This is the major source of foreign exchange in the country.
These companies also convert US dollars to TT dollars in the banks to pay their local suppliers, service companies and staff. This is a second major source of foreign exchange from the energy sector. The more work that takes place in Trinidad & Tobago, the higher the volume of conversions and hence the higher the amount of US dollars available in the commercial banks for distribution to businesses and individuals.
The Minister of Finance recently stated that there is US$ 2.3 billion worth of investment scheduled to take place in the upstream energy sector in 2025. It is great to see this investment taking place (in the context of future gas supply) but it is also important to focus on making sure as much of that figure as possible circulates in the local economy. The fact that the Mento platform was fabricated at the TOFCO yard in La Brea and the Manatee jacket will also be starting construction there imminently is good news. This mean more jobs for nationals and more business for local sub-contractors and it also means more foreign exchange being converted into TT dollars.
It is important to not just focus on the major projects, but also on the routine activities in the energy sector to identify areas where we can increase local content (and substitute imports). The Energy Chamber has identified three sub-sectors where we think there are good opportunities to increase local content, namely inspection services, engineering services and marine services. We are working with our member companies to identify specific practical steps that can be taken to increase local content in these areas.
One of the areas where the Energy Chamber has been successful is in developing and implementing a local HSE certification programme which meets international standards, namely Safe to Work (or STOW). This programme which meets the requirements of the international operators in Trinidad & Tobago is entirely run in local currency. This means companies do not need to pay expensive international auditors in US dollars to be able to meet the basic requirements to work with the international operators. The industry needs to carefully look at where it is having to buy other inspection and other certification services outside Trinidad and see if there are ways to deliver those services domestically and paid for in TT dollars.
Increase the export of energy services
Many commentators rightly identify increasing non-energy exports as a crucial target to increase the availability of foreign exchange in Trinidad & Tobago. It is also important to understand that it is not just the export of goods that has the potential to increase foreign exchange availability but also services. Energy services are an important potential sector for export growth.
Many of our member companies have been working outside of Trinidad & Tobago, especially in the fast-growing markets of Guyana and Suriname, and earning US dollars. There is potential for further growth in the energy services exports both within the region and also further afield.
The key advocacy work that we have been pursuing in this this area has been the full implementation of the CARICOM Single Market and Economy (CSME). Free movement of people, capital and equipment around the region would help create a bigger regional market in energy services to the benefit of all. More work being done by CARICOM companies will mean less foreign exchange leaving the region. If more of our energy service companies are able to get opportunities outside of Trinidad & Tobago, they will be able to earn the US dollars that they need for their activities.
It is also important that we remove the barriers that exist that make it more difficult to import goods and services from the rest of CARICOM, for example food and agricultural products from Guyana. This would be especially useful if we could develop payment systems that do not require using US dollars are the means of transaction; a project that the CARICOM Private Sector Organisation (CPSO) has been pursuing.
The Energy Chamber’s advocacy objectives would, if achieved, significantly improve the availability of foreign exchange in Trinidad & Tobago. This will benefit all of our members, businesses more widely and most importantly the citizens of Trinidad & Tobago. We will continue to focus on these areas.