PORT OF SPAIN, Trinidad, CMC – The Trinidad and Tobago government Monday said that the outlook for the contribution of the energy sector to gross domestic product (GDP) “is not as buoyant” as 2022, as oil and gas prices are predicted to be average to moderate, due to the global economic slowdown, tight hydrocarbon markets and Organisation of Petroleum Countries (OPEC) conservative production strategy.
Addressing the three-day 2023 Energy Conference organized by the Energy Chamber of Trinidad and Tobago, Prime Minister Dr. Keith Rowley said that the country’s GDP is closely aligned with the performance of the energy sector.
He told the conference being held under the theme “Navigating a Complex Energy Future” that with the volatility in energy prices, the sector’s contribution to GDP fell from 46.8 percent in 2011 to 26.8 percent of GDP in 2021.
“The preliminary results for 2022 show an improved contribution of 33.7 percent of GDP due to the start-up of new major upstream projects and buoyant energy prices. However, for 2023, the outlook is not as buoyant as oil and gas prices are predicted to be average to moderate due to the global economic slowdown, tight hydrocarbon markets, and OPEC’s conservative production strategy.”
Rowley said that with the prediction for West Texas Intermediate, “our benchmark crude will average US$77 per barrel in 2023 as compared to the 2022 average of US$95 per barrel. Henry Hub is predicted to average US$4.90 per MMbtu in 2023 compared to the average price of US$7.42 per MMbtu in 2022.
Rowley said the consistently low Henry Hub price over the years is the reason that the Trinidad and Tobago government has committed so much effort aimed at moving away from Henry Hub and the Spanish fuel prices in the marketing arrangements for gas processed for liquefied natural gas (LNG) in the restructured Atlantic LNG.
“The history and projections of the new marker prices show that they are superior to Henry Hub and will generate more significant revenues for the country. This has been substantiated by the income earned for those LNG contracts already operating under these arrangements.
“We took on the task in 2018 and 2019 of beginning the difficult re-negotiating our energy contracts across the whole value chain, and I am pleased to report that as a direct result of these negotiations, the citizens of Trinidad and Tobago have been earning higher revenue for our gas from upstream, midstream and downstream due to the new formulae that were agreed to.”
Rowley said that had these negotiations failed, given the lower production volumes and the initial lopsided sharing of benefits. It is easy to calculate the dire consequences for the national revenue streams which Trinidad and Tobago would have been experiencing at this time.
He told the conference at which Guyana’s President, Dr. Irfaan Ali, and the Caribbean Community (CARICOM) Secretary General, Dr. Carla Barnett, is due to address that another critical subset of the domestic energy sector is the downstream industry which is dominated by petrochemicals, ammonia, and methanol.
He said within recent years; the industry has had to overcome severe economic conditions brought on by faltering demand, oversupply, and of course, the coronavirus (COVID-19) pandemic.
“The growth in global GDP occasioned by increased demand and robust petrochemical prices has helped the industry to weather the storm. This has enabled a resurgence in the domestic petrochemical industry.”
Rowley said ammonia prices which fell to US$226 per ton in June 2020, have steadily increased, reaching $1,300 per ton by the start of 2022. Argus Consulting Services (ACS), in its 2023 Ammonia Outlook, has projected a decline in ammonia prices from US$995 per ton in the first quarter of 2023 to US$445 per ton by the third quarter of 2023.
The decline in ammonia has been attributed to an oversupply generated by the prospect of an improved supply from Trinidad, Libya, and Brazil and lower demand from European countries.
Methanol, the other major petrochemical, followed a similar path as ammonia. Methanol prices which fell to US$148 per ton in May 2020, steadily increased, reaching US$437 per ton in October 2021 but have been trending downwards as supply exceeds demand. ACS predicted moderate growth in 2023, with prices ranging between US$298 and US$328 per ton.
“These price movements are symptoms of the global energy commodity prices that we are subject to, and one of the ways that my government has sought to mitigate the effects of volatility is the negotiating of new pricing formulae across the value chain.”
Rowley said that based on information provided by the World Bank, Trinidad and Tobago ranks as one of the largest exporters of ammonia and methanol.
In 2021, the country’s methanol exports were valued at US$1.53 billion or 17.7 percent of total global methanol exports, and the country ranked second to Saudi Arabia. As regards ammonia, exports for 2021 were valued at US$1.68 billion or 19.2 percent of total global exports, and the country ranked as the number one exporter.
Rowley said that these achievements resulted from the various stakeholders’ collaboration in managing a tight gas situation.
“We are aware that the petrochemical industry is undergoing major changes. There is a universal and unrelenting movement towards low carbon and the “greening” of petrochemicals. Therefore, if Trinidad and Tobago is to maintain its position as a leading ammonia and methanol exporter or a mere participant in the future international market, we must embrace the change.”
Rowley said current technology offers transitional abatement options to existing processes, such as carbon capture, utilization, and sequestration, pending feedstock generation from renewables. “The initiatives for expansion of renewables in our energy mix and the development of a hydrogen economy is in keeping with our strategy for the greening of the economy, which includes the generation of renewable feedstock in the production of petrochemicals.
“We are in a period of global economic uncertainty. The outlook is subject to multiple risks, including worsening global growth prospects, the pace of recovery in China, macroeconomic uncertainties, a prolonged and deeper conflict in Ukraine, and protectionist trade policies.
“In this time of global market uncertainty, one inescapable fact is that the world needs energy in increasing quantities to support economic and social progress and build a better quality of life, particularly in developing countries.
“The question is, who will supply that energy and in what forms and volumes? It is Trinidad and Tobago and its Caribbean neighbors – Guyana, Suriname, Barbados, and Grenada – the expectation of being ever mindful of the necessary changes to be made while remaining in the marketplace for energy as long as there is such a market for the careful supply of hydrocarbon products.”
Rowley said that most of the current energy supply the world consumes comes from hydrocarbons, with crude oil being the dominant source of transportation fuels. He said even with significant strides in improved energy efficiency, global energy demand is expected to rise by about 50 percent by 2050.
“All energy sources are needed as the global population is projected to grow from estimates of eight billion people to 10 billion people by 2050. The United Nations, in its 2022 Sustainability Report, indicated its Goal 7 needed to be achievable. Goal 7 ensures universal access to clean and affordable energy by 2030. However, rising commodity, energy, and shipping prices have increased the cost of renewables worldwide, and it is estimated that some 670 million people will not have access to power in 2030. “
Rowley said that the UN has determined that achieving energy and climate goals will require continued policy support and mobilizing public and private capital for clean and renewable energy, especially in developing countries.
He said the recently executed agreement between Trinidad and Tobago and the consortium of Lightsource bp, BP, and Shell on the 112.2 Mw Solar Utility project affirms the fundamentals required to achieve this objective.
Construction of the Solar Parks is scheduled to commence in the first quarter of 2023, with full operationalization of the project by the fourth quarter of 2024.
On completion, Rowley said that the Solar Utility project would meet eight percent of the country’s power generation requirements.
“It is the government’s stated objective to increase power from renewables to meet 30 percent of the country’s requirements. This current project is the largest in the English-speaking Caribbean. I have challenged the Ministry of Energy and Energy Industries, in a whole government approach, to move quickly to bring more renewable energy projects on stream.”
Rowley said that a review of the country’s power requirements had projected peak demand to increase from 1400 MW in 2022 to 1600 MW by 2032. He said that two of the country’s foremost independent power producers, representing 40 percent of the country’s installed generation capacity, are due to expire during this period.
“We can achieve much of the target of 30 percent of power from renewables. However, the transition to renewables has its challenges. Demand for wind and solar power increased nearly 30 percent in the past year due to global supply chain issues, significant price increases for components, and labor costs in producing countries, reversing a decade of cost declines.”
He said another hurdle, as encountered by the Solar Parks project, is the competition with the prevailing low cost of electricity in Trinidad and Tobago.
But he said notwithstanding the current issues, the outlook for renewables is technically promising, but widespread cheap energy from these myriad sources is still some time away.
Rowley said while the primary focus is the optimum development of the hydrocarbon resources, “we cannot ignore the initiatives being taken globally to develop low carbon economies.
“New legislation passed in the EU and US in 2022 are expected to provide momentum to renewables in 2023 with tax incentives, grant funding, and other financial support for new technologies and existing projects.”
He said other jurisdictions, such as ASEAN countries, have found that the use of feed-in tariffs (FIT) as a price-based instrument combined with soft loans and tax incentives provide the highest performance in terms of the growth of renewable power and its cost-efficiency.
“Shortly, in Trinidad and Tobago, we will introduce Feed In Tariff legislation as part of our strategy to encourage low carbon power generation technologies and renewable energy generation.
“Feed-In-Tariffs have proven to be an effective policy instrument in encouraging investment in renewable energy technologies and the growth of domestic renewable industries. It is currently being reviewed by the Ministry of Energy and Energy Industries and will be brought to Cabinet this quarter,” Rowley added.
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