Friday, December 15, 2017

Act now to head off economic ruin


(BI) Feedloader User

There are all kinds of spurious discussions about race, whether we won or didn't win from the OPV situation etc., but nobody is discussing the 800-pound gorilla in the room — that our oil and gas business model will be under threat given that the US will "overtake Russia as the world's biggest gas producer" by 2015. This is information taken from The Financial Times and the International Energy Agency. Before we get to this point however, let's review the steps leading up to this "threat".

In the short-term, we see the Central Bank Governor has stated that our second quarter for 2012 had a negative 3.6 per cent growth—in the main part due to a negative seven per cent result from the energy sector.

The reason given by BP and other producers is "maintenance". We must recognise these are businesses driven by the profit motive, so when it doesn't make sense to produce more— "there are maintenance issues" but when the price of oil/gas increases sufficiently things will be back on tap. Bottom line – we have no control over our source of revenue.

If you call any of the ammonia, urea, methanol or steel producers and ask them what prices they are paying for gas in T&T at present, they will probably say anywhere between $5 to $8. If you ask them what are the current prices being paid in the US, they would probably say $2.50 to $2.75.

What is the implication here? Given the opportunity costs of the cheaper gas in the US, our whole downstream industry could disappear. This will happen where the intersection of the lines between the cost of local gas and doing business in T&T line falls below the capital outlay of plant in T&T versus removal to a cheaper location line as per US.

Despite the recent claims of oil and gas finds here and there, you may only add an additional two to four years to our reserves. The National Petroleum Council says the US now has natural gas supplies "bountiful enough to last a century at current consumption rates".

So by the time we get to 2015 our oil and gas business model would be in a serious tailspin. Firstly, because our "down streamers" will pick up their plants and move to the US because the much cheaper cost of gas there—which is their major cost input. Secondly, as a net exporter, the US will go after our current markets such as Japan and the Far East to win over this business from us. Bottom line — if we are having a bad quarter now, we will be having years of bad quarters by then.

What does this mean for everyone? For starters the additional ten per cent to 15 per cent of the population employed via URP and CEPEP would have to be sent home. The gas subsidy will have to go with probably a quadrupling increase in gas and diesel prices. The GATE programme will be gone. CDAP will disappear. Pensions also go out the window. And, serious cuts in the public service will take place.

Can this catastrophe be prevented? Hell yes, but the Government has to be deadly serious starting now.

What needs to be done? A task force has to be set up with business people who have been significant achievers and people who can get things done. People such as Arthur Lok Jack, Dr Aleem Mohammed, Ken Gordon, Derek Chin and others.

These people will be given a mandate to come up with an action plan to diversify our economy within a six-month period. This plan has to be broken out by the various business sectors with various mile-posts to gauge the effectiveness. It would obviously have to be agreed upon by the Government, but then the resources and funding have to be set aside for these business people to deliver on these time frames.

People keep saying God is a Trini, but come 2015, if we don't take responsibility for correcting this situation now—God, the Trini man will go on indefinite leave leaving us to wade in our own self-pity, and irresponsibility. We cannot afford to waste any more time in getting things done. We have already run this economy into the ground, do we really don't want to take the whole country with it?

Roger Gordon