The price of oil had escalated to US$147/bbl by early July 2008, with predictions that it could go to US$200. The impact of these high prices includes high food and commodity prices, increased travel costs in the developed world and knock-on price disruptions in the economies of developing countries.
Though the demand-price curve for oil is inelastic this assumes that the economies stay steady on their growth paths. At the US$147 oil price the global economy tripped, some countries began to cut their oil demand and economies slowed. However, with the subsequent and independent collapse of the global financial system the world’s economic deterioration accelerated, further decreasing demand for and prices of petroleum and its products.The Government hoped in vain that T&T would escape this global recession, since we had diversified our economy into gas and our financial system was disconnected from the rest of the world. However, with the current reduction in the prices of oil and gas, the related earnings of the Government declined by 40 per cent. The on-shore sector employs 96 per cent of our labour force and depends critically on the foreign exchange earnings of the energy sector and Government spending, hence the current ’downturn’ in the local spendthrift economy.
There is little we can do immediately except improve the efficiency of both Government spending and our reduced activity, produce as much as we can with local inputs, tighten our belts and hope that the G20 financing package succeeds in resuscitating the global economies.
The important task ahead of us is to reconstruct our economy based on a futuristic analysis of the global economy and a decision on where we should position ourselves given our present situation and our ability to re-engineer our productive capacity.
The world is at present living through the credit crunch, the climate/environmental crunch and the energy crunch. We hope that the restructuring of the global financing system will rectify the first. The second and the third conflate and dramatically affect our ability to successfully operate our economy; particularly since our oil and gas are depleting resources. The policy decision for our energy sector, a priori, cannot then be business as usual, building more LNG or steel plants or aluminium smelters. Blind faith that there is more gas out there waiting to be found is at best avoiding the responsibility of creating an energy policy that looks at T&T’s energy security, export capacity and the efficient and effective use of our energy resources in the reconstruction of our economy. The production of a green paper on alternative energy outside the context of this economic reconstruction is inadequate.
In order to derive a comprehensive policy and recognising that the export of energy products drives our economy, it is crucial to understand the possible futures for global energy demand and supply, and our local energy needs. As a lead-in to such a policy let me quote from a recent report titled, The Oil Crunch; Securing the UK’s Energy Future:
’Plentiful and growing supplies of oil have become essential to almost every sector of today’s economies... The agricultural sector perhaps makes the case most starkly: modern food production is oil dependent across the entire value chain from the field to the delivered package. Within modern cities ... life will become extremely challenging without plentiful supplies of affordable oil. Yet in recent years, a growing number of people in and around the energy industry have been warning that global oil supply will soon fail to meet demand, even if the global demand drops, because the world is on or close to its peak of oil production.
’Peak oil production is the point at which the depletion of existing reserves can no longer be replaced by additions of new flow capacity. Conventional wisdom holds that the peak is many years in the future, allowing a timely transition to alternatives that can replace falling oil supply.
’However, the International Energy Agency has warned of an oil crunch by 2013. (Shell sees this by 2015). Other authoritative voices warn of severe problems earlier than this. Equally... (we must be) aware of the commercial opportunities that are arising around the world in clean energy. We must ask ourselves three related questions: How big is the risk from peak oil? How big is the alternative-energy opportunity? How do the two conflate?’
Our energy policy, then, has to respond to four questions. What is the risk from T&T’s peak gas? How do we balance energy export and related polluting emissions with local energy security? How do we prepare to satisfy local needs after the depletion of these resources? How do we take advantage of the economic opportunities presented by clean energy?
maryking@tstt.net.tt
