IMPACT OF SHALE GAS ON THE TRINIDAD & TOBAGO ECONOMY
What The Shale?
• Shale gas is natural gas trapped within shale formations of fine-grained sedimentary rock.
• The rock comprises silt and clay-size mineral particles that we commonly call "mud".
• Its first recorded use was in Switzerland and Austria in the 14th Century.
• Lower quality gas than conventional.
Shale Formation
Shale Vs. Natural
Cost Difference: Shale vs. Conventional
• The cost of drilling for conventional gas is US$1MM per well on average
• The cost of hydraulic fracturing a shale play is US 2.5$MM.
• High environmental costs associated with shale fracturing
Shale is 250% more costly to ‘frac’.
WHYFRAC
China 17%
Argentina 2%
Algeria 21% United States 43%
Canada 9% Mexico 2% Australia 6%
China Argentina Algeria United States Canada Mexico Australia
Proven Shale Gas Reserves
US NATURAL GAS SUPPLY-2011
Natural Gas remains the most economic Energy Source
Energy Quantity Unit Price Cost Per Energy Unit
Coal 1.07 4.83 5.18
Gas 0.00798 3.44 0.02
Oil 0.00184 109.25 0.20
ALTERNATIVE MARKETS
ASIA
SOUTH AMERICA
JAPAN
SPAINARGENTINA
Basic Assumptions
Harvesting of global shale gas will inevitably force the price of natural gas to be reduced even further.
Trinidad’s Natural Gas Reserves are not infinite and have been projected by BP as approx. 10 years of reserves.
How Important is Natural Gas To Trinidad & Tobago
Oil & Gas contributes 40-50 percent of government’s revenue
Provides downstream & upstream employment in the economy
Up to 2011/2012 Trinidad supplied approx 50% of the US requirements for LNG
Dependent Industries
OGPI – Ammonia; Methanol; Melamine; UreaIron & SteelPower Generation
Service companies to OGPI; Iron & Steel; Construction
Downstream industries – Plastics Education – MIC; UTT
DIRECT IMPACT:
INDIRECT IMPACT:
Natural Gas Utilization
GDP CONTRIBUTION 2007
• GDP 2007agriculture
0%
Petroleum45%
manufacturing5%
electricity&water1%
construction8%
distribution6%
tranport,storage&communicati
on12%
finance11%
government7%
other4%
GDP 2007
GDP CONTRIBUTION 2011
• GDP 2007 agriculture1%
Petroleum45%
manufacturing5%
electricity&water1%
construction6%
distribution5%
tranport,storage&commu
nication12%
finance11%
government9%
other4%
GDP 2011
ANNUAL GDP GROWTH RATETrinidad and Tobago is the leading Caribbean producer of oil and gas, its economy is heavily
dependent upon these resources but it also supplies manufactured goods, notably food products
and beverages, as well as cement to the Caribbean region
Economic growth between 2000 and 2007 averaged slightly over 8% significantly above
the regional average of about 3.7% for that same period
GDP has slowed down since then and contracted during 2009-2011 due to depressed
natural gas prices and changing markets.
Growth fueled by investments in liquefied natural gas, petrochemicals, and steel.
ANNUAL GDP GROWTH RATE
-4.5
-3.5
-2.5
-1.5
-0.5
0.5
1.5
2.5
3.5
2.79
-1.51
-0.83
2.67
-4.56
-0.44
-3.49
2.33
-2.58
-1.77
0.11
2.96
GDP SEMI-ANNUAL GROWTH RATE
GDP 2004-2012
Aggregate Demand
• The sum of all expenditure in the economy over a period of time
Formula: AD = C+I+G+(X-M)
• C= Consumption Spending• I = Investment Spending• G = Government Spending• (X-M) = difference between spending on imports
and receipts from exports (Balance of Payments)
BALANCE OF VISIBLE TRADE 2010/2011
COUNTRIES
JANUARY - MARCH 2011 JANUARY - MARCH 2010
IMPORTS (C.I.F.)
TOTAL EXPORTS
(F.O.B.)BALANCE IMPORTS
(C.I.F.)
TOTAL EXPORTS
(F.O.B.)BALANCE
U. S. A. 2,156,776.9 8,447,529.7 6,290,752.8 2,734,386.3 9,463,822.3 6,729,436.0
CARICOM 182,364.6 2,933,838.1 2,751,473.5 178,164.1 4,894,921.4 4,716,757.3
SPAIN 102,970.7 1,449,636.0 1,346,665.3 36,597.6 275,294.8 238,697.2
UNITED KINGDOM 162,691.4 885,948.6 723,257.1 181,817.6 243,462.9 61,645.3
ARGENTINA 24,304.4 627,501.6 603,197.1 34,143.4 168.9 -33,974.5
BRAZIL 1,339,390.3 465,743.1 (873,647.2) 896,476.3 213,043.3 (683,432.9)
Aggregate Demand
Issue Classical Keynesian Monetarist
Theorist Adam Smith John Maynard Keynes
Milton Friedman
Stability of Economy
Stable in the Long Run at full employment
Inherently unstable at less than full employment
Stable in the long run at full employment
Price Wage Flexibility
Yes No Yes
Velocity of Money Stable Unstable Predictable
Cause of Inflation Excess Money Supply
Excess Aggregate Demand
Excess Money Supply
Cause of Unemployment
Short Run Price and wage adjustment
Inadequate Aggregate Demand
Short Run Price and wage adjustment.
Monetary Policy Changes aggregate demand and prices
Changes interest rate, which changes
Changes aggregate demand and prices
Fiscal Policy Not necessary Spending Multiplier changes aggregate demand
No effect because of crowding out effect.
Keynes Model
Keynes argues against classical economists and Says Law that there is no self correcting mechanism that eventually moves the economy to full employment.
Inflation
UNEMPLOYMENT
DEVALUATION
REMVED GAS SUBSIDY
BRAIN DRAIN
BALANCE OF TRADE
BALANCE OF PAYMENTS
FOREIGN INVESTMENT
EFFECTS OF DEPLETED OIL & GAS RESOURCES
Therefore…
Government must utilize Fiscal & Monetary Policy to drive diversification of the economy and thus mitigate the effects of depleting hydrocarbon reserves and falling gas prices.
CURRENT INITIATIVES
EASTERN CARIBBEAN GAS PIPEINE (ECGP) - • Phase I – Pipeline to be built from Tobago to Barbados• Phase II – from Barbados to Eastern Caribbean Islands
PETROTRIN CLEAN FUELS PROGRAM• Gasoline Optimization Program (GOP) & Ultra-Low Sulphur Diesel
project (USLD)• PETRO Connect 2011:2012
GREATER COMPRESSED NATURAL GAS (CNG)• Subsidy removal to improve annual savings for the Government • Additional income will now be obtained on open market for liquid
fuels displaced by CNG
ALTERNATIVES FOR THE LOCAL ECONOMY
AGRICULTURE • Expand production in traditional agriculture• Diversify food crop production for local consumption and exports
FISHERIES• Maintain healthy marine & fresh water eco-systems to manage
natural fish stock• Legislation to address conservation to manage ocean fish stock
MANUFACTURING• Cluster development and specialized skilled training to encourage
competitiveness and to capitalize on business to business opportunities
• Adherence to high environmental standards
ALTERNATIVES FOR THE LOCAL ECONOMY
TOURISM• Promote Eco-tourism as an avenue of revenue while maintaining the
environment• Tourism development of clusters
EXPANSION OF PORT FACILITIES• Improve existing port facilities to accommodate greater
industrial activity (transshipments) & Cruise Lines
EDUCATIONAL SERVICES• Implement additional tertiary infrastructure that attracts
regional & international students
INNOVATION• Nurture & Foster innovation culture through initiatives such
as silicon valleys