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The energy sector as a development metaphor

Thursday, March 8, 2018

Eric Williams was a brilliant historian, but by his own admission in Inward Hunger, business was not his strong point. Like many of our independence era leaders, educated in England when the empire and capitalism was in retreat and nationalisation the norm, there was no example to follow. There were no business alliances to be forged with the colonial power on independence; we had to make our way.

The multinationals exited T&T quickly, first BP, then Shell, then Texaco. We did not inherit; the state intervened and bought declining assets well past their prime to protect jobs. That is the genesis of Petrotrin loosely put. It did not give us economic independence, but it did put more nationals in key areas. The decade 1962 -71 saw the emergence of the nation state without the funding to undertake the development projects required. The result was 1970.

The new oil and gas finds in 1972 and the increase in oil prices thanks to OPEC, provided the cash flow to undertake projects planned in the 50’s and 60’s but not implemented for lack of funding: The Sir Solomon Hochoy Highway, the beginning of the East West Corridor, the expansion of the secondary school building project.

To the administration’s credit, it found a use for the new gas supplies. The Pt Lisas petrochemical sector was commissioned. Some projects worked better than others. The state even bought Caroni (1975) Limited. Between 1974 and 1984 the economy and the money supply grew in double digit figures. But economic growth did not lead to sustainability even as the state and the social programmes expanded. And then oil prices fell.

1986- 92 was a period of structural adjustment and IMF imposed conditionalities. This led to a roll back of the state through privatisation. The task then, as now, was to build an economy which stood a reasonable chance of sustainability. Whilst we produced a generation of engineers and managers, like most developing countries we still depend on foreign capital and design expertise.

There were sectoral improvements. Firms in the construction sector did develop the capacity to build roads, highways and undertake large scale housing projects on a private sector basis; some professions became self-sustaining. In the energy sector, however, whilst there are capabilities in certain areas, we are clearly deficient in design and exploration capacity.

These were not deepened during the second boom occasioned by the development of LNG. An irony is that the only domestic private sector company that developed the gumption to work with foreign partners to pursue such a possibility remains the disgraced Clico. Neither did we address the sustainability of the gas production.

Once again, oil production is in secular decline, gas production compromised and prices are depressed. T&T is currently producing about 3.8 billion cubic feet per day (bcfd) of natural gas, a big improvement on 2017. About 0.25 bcfd of this is being re-injected to support oil production, leaving approximately 3.55 bcfd to be sold to Atlantic and NGC. Production will improve when De Novo Iguana, Shell Starfish and BP Angelin come into production between 2018 to 2019 taking us back to 4.0 bcfd which satisfies contractual demand only.

This improvement in gas supply is no cause for celebration. Current production models demonstrate that this level of production is unsustainable in the medium term. Former Energy Minister Kevin Ramnarine has made this point clearly. This outlook is supported by the Poten and Partners Gas Master Plan, 2015. The plan identified that there is a lot of natural gas in T&T locked in small stranded pools. One company, De Novo has demonstrated that the model of the small and nimble company going after such resources can work. But De Novo is neither NGC nor Petrotrin.

The independence project is once again on pause, development predicated on how those resources are to be shared between competing demands. Petrotrin must be made sustainable and the NGC gas pricing model addressed as it is outmoded. These are pressing realities, as important as fixing our system of justice, national security and our education system to meet the needs of the 21st century.

Two weeks ago, the Prime Minister attacked those (in PNM clothes) who point out that his administration had no plan to address the weaknesses which have brought about our present financial challenges or address the financial shortfall directly. In typical bravado style, he attacked the messenger and is yet to address the serious issues which we now face. The current increase in gas production is a temporary respite. And even if gas prices improve, the independence project is incomplete. This administration has shown no signs that it either knows how, or wants to address the issues, content to filibuster and bluff.

Developing a country is a relay race and each leg must be run well. Planning is an indispensable part of execution and there can be no progress if your only objective is to survive. Leadership will chart our course and management help us to stay on course. But we need policies, plans and processes to help us get there and to guide us. It is a sad but inconvenient truth that they are not in evidence.

Mariano Browne


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