Impact of the Global Economic Crisis on the Energy ... · 1 April 2009 ILO Tripartite Conference Major Events and Real World Oil Prices, 1970-2008Q1 (Prices adjusted by CPI for all

Impact of the Global Economic Impact of the Global Economic Crisis on the Energy Industries Crisis on the Energy Industries

and Economyand Economy

Gregory McGuireGregory McGuireLecturer Lecturer

Energy Economics and StrategyEnergy Economics and StrategyUWI St. Augustine UWI St. Augustine

ILO Tripartite Caribbean Conference

“Promoting Human Prosperity beyond the Global Financial Crisis

Kingston Jamaica 1-2 April 2009

1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference

Presentation OutlinePresentation Outline

Global OverviewGlobal OverviewEnergy and the EconomyEnergy and the EconomyCommodity Markets : Status and Commodity Markets : Status and Outlook Outlook Economic Impact ;ExportersEconomic Impact ;ExportersEconomic Impact : ImportersEconomic Impact : ImportersConclusionsConclusions

The Context The Context


MYOB Ltd

Stakeholders

•Financial Crisis

• Economic meltdown

•Shrinking Demand

•Crash in Commodity Markets and tourism

•State Intervention/ Stimulation

•Trade implications/ Protectionism

•Best bet : recovery in 24 m.


WEO Real GDP Growth ProjectionsWEO Real GDP Growth Projections((In percent change from a year earlier)In percent change from a year earlier)

U.S.U.S. Euro Japan China India WorldEuro Japan China India World

2002009 (Jan.09) 9 (Jan.09) --1.6 1.6 --2.0 2.0 --2.6 6.7 5.1 0.52.6 6.7 5.1 0.52002009 (Nov.08) 9 (Nov.08) --0.7 0.7 --0.5 0.5 --0.2 8.5 6.3 2.20.2 8.5 6.3 2.2Change Change --0.9 0.9 --1.5 1.5 --2.4 2.4 --1.8 1.8 --1.2 1.2 --1.71.7

202010 (Jan.09) 1.6 0.2 0.6 8.010 (Jan.09) 1.6 0.2 0.6 8.0 6.5 3.06.5 3.0

202010 (Nov.08)10 (Nov.08) 1.5 0.9 1.1 9.5 6.8 3.81.5 0.9 1.1 9.5 6.8 3.8Change 0.1 Change 0.1 --0.7 0.7 --0.5 0.5 --1.5 1.5 --0.3 0.3 --0.80.8Source: IMF, World Economic Outlook.Source: IMF, World Economic Outlook.

IMF: The Outlook is BleakIMF: The Outlook is Bleak


World Bank confirms(31World Bank confirms(31stst/3/09)/3/09)

THE OUTLOOK IS BLEAKTHE OUTLOOK IS BLEAK

Global economy to shrink by Global economy to shrink by --1.7%1.7%–– Largest contraction in 80 yrsLargest contraction in 80 yrs

High Income countries = High Income countries = --2.9%2.9%Developing countries inc. China and Developing countries inc. China and India= 2.1%India= 2.1%–– Without China and India Without China and India --1.7%1.7%

Latin America Caribbean Latin America Caribbean --0.6%0.6%


Trinidad and Tobago Trinidad and Tobago Energy Dependence Energy Dependence

Notes: pNotes: p-- provisional , r provisional , r –– revisedrevisedSourceSource: Annual Economic Survey, 2007: : Annual Economic Survey, 2007: www.centralwww.central--bank.org.ttbank.org.tt

3.33.33.33.33.43.43.63.63.23.23.43.4EmploymentEmployment86.786.791.091.085.985.985.885.883.383.375.975.9MM’’dise Exportsdise Exports56.556.561.961.953.653.6rr42.442.4rr42.842.8rr27.827.8rrGovGov’’t Revenuest Revenues43.043.046.846.842.942.937.137.133.933.926.226.2GDPGDP

20072007pp20062006rr20052005200420042003200320022002ITEMITEM


Key Energy Based Commodity ExportsKey Energy Based Commodity Exports

PetroleumPetroleum

Natural GasNatural Gas

MethanolMethanol

AmmoniaAmmonia


Crude Oil Prices History Crude Oil Prices History 19821982--2007 2007

0

20

40

60

80

100

120

1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

Nom

inal

Dol

lars

per

Bar

rel

Refiner Acquisition Cost of Imported Crude Oil (IRAC) Source: EIA

Iraq Invades Kuwait

Saudi Arabia Abandons Swing

9/11 AttacksAsian Economic

PdVSA Worker's Strikein Venezuela and Iraq War W i

OPEC Cuts Quotas; Rising Demand

Hurricane Ivan in Gulf of

Hurricanes Dennis, Katrina

Nigerian Cut-Offs

Rising Demand; Low Spare Capacity ; Weak Dollear;

Inventory


Major Events and Real World Oil Prices, 1970-2008Q1(Prices adjusted by CPI for all Urban Consumers, 2008)

$-

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Con

stan

t $20

08 p

er b

arre

l

1973 Arab Oil Embargo

Iranian Revolution; Shah Deposed

Iran-Iraq War Begins; oil prices peak

Saudis abandon "swing producer" role; oil prices collapse

Iraq Invades Kuwait

Gulf War Ends

Asian economic crisis; oil oversupply; prices fall sharply

Prices rise on OPEC cutbacks, increased demand

Prices fall sharply on 9/11 attacks; economic weakness

Prices spike on supply disruptions, rapid demand increases, constrained OPEC capacity, low inventories

Saudi Light

Imported Refiner Acquisition Cost

Source: EIA

PdVSA workers strike in Venezuela

Real Oil Prices 1976Real Oil Prices 1976--20082008


Oil Prices and World Economic GrowthOil Prices and World Economic Growth(1998(1998--2008)2008)

0

2

4

6

8

10

12

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

years

Mon

ths

0

20

40

60

80

100

120

US EU China India Oil Prices


Crude Oil Prices (WTI) Crude Oil Prices (WTI) (1998(1998--Mar’09)Mar’09)

0

20

40

60

80

100

120

140

160

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Months

US$

/bbl.

Source: US EIA


Natural Gas Prices 2003Natural Gas Prices 2003--’08’08( Henry Hub)( Henry Hub)

0

2

4

6

8

10

12

14

Jan-03Apr-0

3Jul-0

3Oct-0

3Jan-04Apr-0

4Jul-0

4Oct-0

4Jan-05Apr-0

5Jul-0

5Oct-0

5Jan-06Apr-0

6Jul-0

6Oct-0

6Jan-07Apr-0

7Jul-0

7Oct-0

7Jan-08Apr-0

8Jul-0

8Oct-0

8

US

$/m

mbt

u


Market Insights Market Insights

Prices have remained depressed in Prices have remained depressed in spite of:spite of:–– Extreme cold weather in Europe and Extreme cold weather in Europe and

North America.North America.–– OPEC Production cuts amounting to 3.5 OPEC Production cuts amounting to 3.5

million bbls/dmillion bbls/d–– 2 week cut off in Russian gas supplies to 2 week cut off in Russian gas supplies to

Europe.Europe.–– Heightened tensions in the Middle East. Heightened tensions in the Middle East.


Prices for natural gas have trended Prices for natural gas have trended downward over last eight months.downward over last eight months.

In 2008 prices averaged $9.13 per Mcf .In 2008 prices averaged $9.13 per Mcf .

For fiscal yr. to date natural gas spot For fiscal yr. to date natural gas spot prices have averaged US 5.70/per prices have averaged US 5.70/per mmbtu. mmbtu.

Market InsightsMarket Insights


Today’s Prices Today’s Prices

3.593.59Natural Gas Natural Gas Henry Hub SpotHenry Hub Spot

49.6649.66WTI Cushing WTI Cushing SpotSpot

48.5848.58NymexNymex Crude Crude FutureFuture

PRICE*PRICE*($/bbl)($/bbl)


OutlookOutlook

Oil prices are likely to weaken in the Oil prices are likely to weaken in the summer months.summer months.Gas prices will also weaken in most Gas prices will also weaken in most markets markets Recovery now hinges mainly on Recovery now hinges mainly on resumption of economic growth in resumption of economic growth in major economies.major economies.


Ammonia and Methanol Ammonia and Methanol Prices Prices

Petrochemical prices 2006-2008

0100200300400500600700800900

1000

Jan-

06Fe

b-06

Mar

-06

Apr

-06

May

-06

Jun-

06Ju

l-06

Aug

-06

Sep-

06O

ct-0

6N

ov-0

6D

ec-0

6Ja

n-07

Feb-

07M

ar-0

7A

pr-0

7M

ay-0

7Ju

n-07

Jul-0

7A

ug-0

7Se

p-07

Oct

-07

Nov

-07

Dec

-07

Jan-

08Fe

b-08

Mar

-08

Apr

-08

May

-08

Jun-

08Ju

l-08

Aug

-08

Sep-

08O

ct-0

8N

ov-0

8D

ec-0

8

Us$

/MT

Ammonia (fob Caribbean, US $/MT)Methanol (US $/MT)


Ammonia as of March 2009Ammonia as of March 2009

The average ammonia price The average ammonia price for January 2009 (fob for January 2009 (fob Caribbean) averaged Caribbean) averaged $102/tonne. Prices have $102/tonne. Prices have recovered to US$185/Tonne recovered to US$185/Tonne in Marchin March


Supply continues to appear Supply continues to appear sufficientsufficienthigherhigher--cost players choosing to cost players choosing to curtail productioncurtail productionMarket continues to be depressedMarket continues to be depressedPrices lingering around US$140Prices lingering around US$140--150/tonne150/tonne

Methanol as of March 2009Methanol as of March 2009


Outlook for 2009Outlook for 2009The storyline from the past few months will

continue

High stocks for commoditiesLower demand. Impact of global recession.

Markets likely to remain weak over the next 12 -18months.


Trinidad and Tobago Trinidad and Tobago Energy Dependence Energy Dependence

Notes: pNotes: p-- provisional , r provisional , r –– revisedrevisedSourceSource: Annual Economic Survey, 2007: : Annual Economic Survey, 2007: www.centralwww.central--bank.org.ttbank.org.tt

3.33.33.33.33.43.43.63.63.23.23.43.4EmploymentEmployment86.786.791.091.085.985.985.885.883.383.375.975.9MM’’dise Exportsdise Exports56.556.561.961.953.653.6rr42.442.4rr42.842.8rr27.827.8rrGovGov’’t Revenuest Revenues43.043.046.846.842.942.937.137.133.933.926.226.2GDPGDP

20072007pp20062006rr20052005200420042003200320022002ITEMITEM


Measuring Economic Measuring Economic ImpactImpact

Government Revenue and Government Revenue and ExpenditureExpenditureGDPGDPBalance of Payments and Balance of Payments and Exchange RateExchange Rate


Gov’t Rev. and Expenditure Gov’t Rev. and Expenditure

Government Revenue vs. Government Expenditure

0.0

10.0

20.0

30.0

40.0

50.0

1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

TT$B

n

Total Gov't Revenue Total Gov't Expenditure

2004-08 :

Revenue increase 126%; Expenditure increase+134%


Recent Production Trends Recent Production Trends Natural Gas Utilization 2000-08

0.0

500.0

1000.0

1500.0

2000.0

2500.0

3000.0

3500.0

4000.0

4500.0

2000

2001

2002

2003

2004

2005

2006

2007

2008

Years

MM

CFD

0

50

100

150

200

250

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Years

"000

bbl

s/da

y

Source Table A8

Gas Growth Rate has Plateau: Oil is in long Term Decline


Petrochemical OutputPetrochemical Output

Will remain flat in 2008Will remain flat in 2008--99No new plants coming onNo new plants coming on--stream.stream.Planned plants delayed.Planned plants delayed.Gas supply overhang will impact NGC Gas supply overhang will impact NGC cash flow and revenue base. cash flow and revenue base. --


ImplicationsImplications

Government estimates an oil Government estimates an oil revenue shortfall relative to revenue shortfall relative to Budget of $ 8 billion dollars , Budget of $ 8 billion dollars , Non Non ––energy revenue is energy revenue is estimated to fall by another 8estimated to fall by another 8--9 billion9 billion



Total Revenue Loss ( Total Revenue Loss ( Energy and Non Energy )Energy and Non Energy )estimated at $15 to estimated at $15 to $18 billion$18 billion , about1/3 of , about1/3 of national Budget .national Budget .


Real GDP Growth 2002Real GDP Growth 2002--0808

0

5

10

15

20

25

30

35

2002 2003 2004 2005 2006 2007 2008

Petroleum Sector - Total

LNG 4

LNG3

LNG2


Downstream Expansion Downstream Expansion 20092009--1111

Three gas based projects currently Three gas based projects currently under construction.under construction.Six planned projects have been either Six planned projects have been either postponed or delayed as a result of postponed or delayed as a result of financing difficulties or reduced risks financing difficulties or reduced risks appetite. appetite.



Energy Sector which accounts for 45% Energy Sector which accounts for 45% of GDP will remain flat or decline in of GDP will remain flat or decline in 2009.2009.–– Oil decline.Oil decline.–– Petrochemicals output reduction Petrochemicals output reduction –– Steel closure Steel closure



Non energy sector which depends on Non energy sector which depends on energy will also decline sharply.energy will also decline sharply.–– Service companiesService companies–– Hotels and GuesthousesHotels and Guesthouses

Rest of economy will also decline sharply. Rest of economy will also decline sharply. –– Financial servicesFinancial services--ClicoClico–– Government expenditure cutsGovernment expenditure cuts

Economy likely to experience first Economy likely to experience first contraction in 20 years.contraction in 20 years.


Summary Balance of Summary Balance of PaymentsPayments(US$ million)(US$ million)

9.99.9

6530.86530.8

1118.81118.8

(6843)(6843)

10851085

1210012100

48084808

20062006

9.49.48.98.96.96.95.45.4Import Cover ( Import Cover ( months)months)

6673.56673.54885.74885.72993.02993.02257.82257.8Gross Official Gross Official ReservesReserves

1541.11541.11475.91475.9531531334.2334.2Overall SurplusOverall Surplus

(7670)(7670)(5725)(5725)(4,894)(4,894)(3912)(3912)ImportsImports

100910091076.01076.012601260827.8827.8of which: Non of which: Non Energy ExportsEnergy Exports

131391131391967296726,363.206,363.205,958.005,958.00ExportsExports

5380.95380.9359435941,64701,64701,081.601,081.60Current AccountCurrent Account

20072007200520052004200420032003


Foreign ExchangeForeign Exchange

Net Official Foreign Reserves

‐2.0

0.0

2.0

4.0

6.0

8.0

197419

77

1980

198319

86

1989

1992

199519

98

2001

200420

07

US$

Bn

Net Official Foreign Reserves



Imports growth likely to continue for a Imports growth likely to continue for a while although foreign exchange while although foreign exchange earnings have fallen sharply earnings have fallen sharply –– Hedging by importersHedging by importers–– Speculation and Asset switching Speculation and Asset switching

Pressure on exchange rate as supply Pressure on exchange rate as supply of FX dwindles.of FX dwindles.


ShortShort--Medium Term Medium Term Outlook Outlook

The global recession is having a pervasive The global recession is having a pervasive impact on the international economy.impact on the international economy.Oil gas and commodity prices have all Oil gas and commodity prices have all fallen sharply and likely to remain at lower fallen sharply and likely to remain at lower levelslevelsT&T Gov’t IS likely to be in fiscal deficit T&T Gov’t IS likely to be in fiscal deficit for 2008for 2008--9 and beyond .9 and beyond .Global slowdown may have a mitigating Global slowdown may have a mitigating impact on domestic inflationimpact on domestic inflation


Medium Term Outlook Medium Term Outlook

At best energy sector growth will be flat At best energy sector growth will be flat less than 1% . less than 1% . Non energy sector growth will wind down Non energy sector growth will wind down because of reduction in Gov’t injections andbecause of reduction in Gov’t injections andSignificant fall in private sector investment Significant fall in private sector investment as confidence wanesas confidence wanesForeign exchange availability will tighten Foreign exchange availability will tighten with possible depreciation of Exchangewith possible depreciation of Exchangerate.rate.


Medium Term OutlookMedium Term Outlook

Economy likely to experience Economy likely to experience its first contraction in GDP in its first contraction in GDP in 20 years.20 years.Unemployment likely to Unemployment likely to increase 8increase 8--10%10%Rise in Industrial tensionsRise in Industrial tensions


Policy Imperatives.Policy Imperatives.

Align expenditure with revenue Align expenditure with revenue based on long term prices.based on long term prices.Develop a people based vision.Develop a people based vision.Give priority to basic needs Give priority to basic needs before grand projects.before grand projects.


Policy ImperativesPolicy Imperatives

Economic TransformationEconomic Transformation

Build the onshore economy, with Build the onshore economy, with emphasis on cultural industries.emphasis on cultural industries.

Maximize value added from Maximize value added from energy upstream and energy upstream and downstream.downstream.



DISCARDDISCARD

EMBRACEEMBRACE

A Look at the Oil A Look at the Oil ImportersImporters


Context Context

Caricom countries consume 900 trillion Caricom countries consume 900 trillion BTU of energy per annumBTU of energy per annumPetroleum products constitute over Petroleum products constitute over 90% of energy consumption90% of energy consumptionT&T only net exporter of oil in the T&T only net exporter of oil in the regionregion


Market CharacteristicsMarket Characteristics

Power generation Power generation dominates total dominates total energy demand.energy demand.

13%13%HaitiHaiti41%41%J’caJ’ca31%31%BdosBdos40%40%StLuciaStLucia25%25%DominicaDominica37%37%GuyanaGuyana20%20%SurinameSuriname

% share % share of Powerof Power

CountryCountry



Energy imports absorbs a Energy imports absorbs a significant % of foreign exchange significant % of foreign exchange earnings.earnings.–– OECS <10%OECS <10%–– Larger economies>20%Larger economies>20%



Petroleum products are heavily taxedPetroleum products are heavily taxed11 members of Caricom participate in 11 members of Caricom participate in PetroCaribe accord.PetroCaribe accord.Varying levels of debt accumulated Varying levels of debt accumulated across the regional economies.across the regional economies.Deterioration in the quality of life.Deterioration in the quality of life.


OECS Retail Gasoline Prices (EC$)OECS Retail Gasoline Prices (EC$)


Impact of Economic Impact of Economic MeltdownMeltdown

Typically economies run counter Typically economies run counter cyclical to the T&T economy when the cyclical to the T&T economy when the external shock is only about energy. external shock is only about energy. However global recession has also hit However global recession has also hit the tourism product hard, therefore the tourism product hard, therefore affecting entire regionaffecting entire region. .


Impact of Economic Impact of Economic MeltdownMeltdown

Lower energy prices will bring Lower energy prices will bring welcomed reliefwelcomed reliefBut, the decline in Tourism and Travel But, the decline in Tourism and Travel likely to nullify that benefit .likely to nullify that benefit .Recovery is possible in the Travel and Recovery is possible in the Travel and Tourism industry within two years. Tourism industry within two years.


Policy Imperatives Policy Imperatives

•• Must avoid the complacency usually Must avoid the complacency usually associated with lower oil prices.associated with lower oil prices.

•• Implement Regional Energy Policy :Implement Regional Energy Policy :•• Promote Renewable energy technologies Promote Renewable energy technologies •• Seize opportunities for use of Carbon trading Seize opportunities for use of Carbon trading

and the CDM.and the CDM.•• Energy conservation initiativesEnergy conservation initiatives



Economic Transformation Economic Transformation –– Develop People based visionDevelop People based vision–– Greening of Tourism Greening of Tourism –– Promote agriPromote agri--tourism and tourism and

cultural/heritage tourism in general cultural/heritage tourism in general Regional CooperationRegional Cooperation



DISCARDDISCARD

EMBRACEEMBRACE

Thank You.Thank You.

Contact Info:

Phone 1-868-682-4348

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Documents

Impact of the Global Economic Crisis on the Energy ... · 1 April 2009 ILO Tripartite Conference Major Events and Real World Oil Prices, 1970-2008Q1 (Prices adjusted by CPI for all