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

Transcription

1 ILO Tripartite Caribbean Conference Promoting Human Prosperity beyond the Global Financial Crisis Kingston Jamaica 1-2 April 2009 Impact of the Global Economic Crisis on the Energy Industries and Economy Gregory McGuire Lecturer Energy Economics and Strategy UWI St. Augustine

2 Presentation Outline Global Overview Energy and the Economy Commodity Markets : Status and Outlook Economic Impact ;Exporters Economic Impact : Importers Conclusions

3 The Context

4 Financial Crisis Economic meltdown Stakeholders Shrinking Demand MYOB Ltd Crash in Commodity Markets and tourism State Intervention/ Stimulation Trade implications/ Protectionism Best bet : recovery in 24 m.

5 IMF: The Outlook is Bleak WEO Real GDP Growth Projections (In percent change from a year earlier) U.S. Euro Japan China India World (Jan.09) (Nov.08) Change (Jan.09) (Nov.08) Change Source: IMF, World Economic Outlook. 1 April 2009 Source: IMF, World Economic ILO Tripartite Outlook. Conference

6 World Bank confirms(31 st /3/09) THE OUTLOOK IS BLEAK Global economy to shrink by -1.7% Largest contraction in 80 yrs High Income countries = -2.9% Developing countries inc. China and India= 2.1% Without China and India -1.7% Latin America Caribbean -0.6%

7 Trinidad and Tobago Energy Dependence ITEM r 2007 p GDP Gov t t Revenues M dise Exports Employment r r r Notes: p-p provisional, r revised Source: : Annual Economic Survey, 2007: r

8 Key Energy Based Commodity Exports Petroleum Natural Gas Methanol Ammonia

9 Crude Oil Prices History Rising Demand; Low Spare Capacity ; Weak Dollear; 100 Nigerian Cut-Offs Nominal Dollars per Barrel Iraq Invades Kuwait PdVSA Worker's Strike in Venezuela and Iraq War W i OPEC Cuts Quotas; Rising Demand Hurricanes Dennis, Katrina Hurricane Ivan in Gulf of Inventor y 20 0 Saudi Arabia Abandons Swing Asian Economic 9/11 Attacks Refiner Acquisition Cost of Imported Crude Oil (IRAC) Source: EIA

10 Real Oil Prices Major Events and Real World Oil Prices, Q1 (Prices adjusted by CPI for all Urban Consumers, 2008) $100 $90 Iran-Iraq War Begins; oil prices peak $80 Constant $2008 per barrel $70 $60 $50 $40 $30 Saudi Light Iranian Revolution; Shah Deposed Saudis abandon "swing producer" role; oil prices collapse Imported Refiner Acquisition Cost Iraq Invades Kuwait Gulf War Ends Prices spike on supply disruptions, rapid demand increases, constrained OPEC capacity, low inventories Prices rise on OPEC cutbacks, increased demand $20 PdVSA workers strike in Venezuela $ Arab Oil Asian economic crisis; oil Embargo oversupply; prices fall sharply $ Prices fall sharply on 9/11 attacks; economic weakness Source: EIA

11 Oil Prices and World Economic Growth ( ) Months years US EU China India Oil Prices 0

12 Crude Oil Prices (WTI) (1998-Mar 09) US$/bbl 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 Source: US EIA

13 Oct-08 Natural Gas Prices ( Henry Hub) Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 US $/mmbtu

14 Market Insights Prices have remained depressed in spite of: Extreme cold weather in Europe and North America. OPEC Production cuts amounting to 3.5 million bbls/d 2 week cut off in Russian gas supplies to Europe. Heightened tensions in the Middle East.

15 Market Insights Prices for natural gas have trended downward over last eight months. In 2008 prices averaged $9.13 per Mcf. For fiscal yr. to date natural gas spot prices have averaged US 5.70/per mmbtu.

16 Today s Prices PRICE*($/bbl) Nymex Crude Future WTI Cushing Spot Natural Gas Henry Hub Spot

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

18 Ammonia and Methanol Prices Petrochemical prices Ammonia (fob Caribbean, US $/MT) Methanol (US $/MT) Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Us$/MT

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

20 Methanol as of March 2009 Supply continues to appear sufficient higher-cost players choosing to curtail production Market continues to be depressed Prices lingering around US$ /tonne

21 Outlook for 2009 The storyline from the past few months will continue High stocks for commodities Lower demand. Impact of global recession. Markets likely to remain weak over the next 12-18months.

22 Trinidad and Tobago Energy Dependence ITEM r 2007 p GDP Gov t t Revenues M dise Exports Employment r r r Notes: p-p provisional, r revised Source: : Annual Economic Survey, 2007: r

23 Measuring Economic Impact Government Revenue and Expenditure GDP Balance of Payments and Exchange Rate

24 Gov t Rev. and Expenditure Government Revenue vs. Government Expenditure TT$Bn Total Gov't Revenue Total Gov't Expenditure : Revenue increase 126%; Expenditure increase+134%

25 Recent Production Trends Natural Gas Utilization MMCFD "000 bbls/day Years Source Table A Years Gas Growth Rate has Plateau: Oil is in long Term Decline

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

27 Implications Government estimates an oil revenue shortfall relative to Budget of $ 8 billion dollars, Non energy revenue is estimated to fall by another billion

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

29 Real GDP Growth LNG2 LNG3 Petroleum Sector - Total LNG

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

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

32 Implications Non energy sector which depends on energy will also decline sharply. Service companies Hotels and Guesthouses Rest of economy will also decline sharply. Financial services-clico Government expenditure cuts Economy likely to experience first contraction in 20 years.

33 Summary Balance of Payments (US$ million) Current Account 1, , Exports 5, , of which: Non Energy Exports Imports (3912) (4,894) (5725) (6843) (7670) Overall Surplus Gross Official Reserves Import Cover ( months)

34 Foreign Exchange Net Official Foreign Reserves US$Bn Net Official Foreign Reserves

35 Implications Imports growth likely to continue for a while although foreign exchange earnings have fallen sharply Hedging by importers Speculation and Asset switching Pressure on exchange rate as supply of FX dwindles.

36 Short-Medium Term Outlook The global recession is having a pervasive impact on the international economy. Oil gas and commodity prices have all fallen sharply and likely to remain at lower levels T&T Gov t IS likely to be in fiscal deficit for and beyond. Global slowdown may have a mitigating impact on domestic inflation

37 Medium Term Outlook At best energy sector growth will be flat less than 1%. Non energy sector growth will wind down because of reduction in Gov t injections and Significant fall in private sector investment as confidence wanes Foreign exchange availability will tighten with possible depreciation of Exchange rate.

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

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

40 Policy Imperatives Economic Transformation Build Build the onshore economy, with emphasis on cultural industries. Maximize Maximize value added from energy upstream and downstream.

41 Policy Imperatives DISCARD EMBRACE

42 A Look at the Oil Importers

43 Context Caricom countries consume 900 trillion BTU of energy per annum Petroleum products constitute over 90% of energy consumption T&T only net exporter of oil in the region

44 Market Characteristics Power generation dominates total energy demand. Haiti Country Suriname Guyana Dominica StLucia Bdos J ca % share of Power 20% 37% 25% 40% 31% 41% 13%

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

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

47 OECS Retail Gasoline Prices (EC$)

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

49 Impact of Economic Meltdown Lower energy prices will bring welcomed relief But, the decline in Tourism and Travel likely to nullify that benefit. Recovery is possible in the Travel and Tourism industry within two years.

50 Policy Imperatives Must avoid the complacency usually associated with lower oil prices. Implement Regional Energy Policy : Promote Renewable energy technologies Seize opportunities for use of Carbon trading and the CDM. Energy conservation initiatives

51 Policy Imperatives Economic Transformation Develop People based vision Greening of Tourism Promote agri-tourism and cultural/heritage tourism in general Regional Cooperation

52 Policy Imperatives DISCARD EMBRACE

53 Thank You. Contact Info: Phone