Impact of Shale Gas on The Trinidad & Tobago Economy
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Impact of Shale Gas on The Trinidad & Tobago Economy

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A presentation that details the impact of shale oil and gas by other countries that were dependent on Trinidad and Tobago to supplement there energy supply.

A presentation that details the impact of shale oil and gas by other countries that were dependent on Trinidad and Tobago to supplement there energy supply.

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  • Hydraulic fracturing or fracking, is the injection of a solution of water, sand and chemicals at high pressures into the shale formation. This creates a movement of the sedimentary rocks in the formation, which allows the trapped gas to escape in larger quantities to be harvested.The cost of drilling for conventional gas is US$1MM on average and the cost of fracking a well is 2.5$MM.This means that its 250% more costly to frack. Why frack then ?
  • Over the past five years, the price of natural gas to U.S. industry has fallen sharply, from about US$12 per million British Thermal Units, or MBtu, in the first half of 2008 to an average of US$3/MBtu in 2012. In 2000 shale gas provided only 1% of U.S. natural gas production; by 2010 it was over 20% and the U.S. government's Energy Information Administration predicts that by 2035, 46% of the United States' natural gas supply will come from shale gas. Some analysts expect that shale gas will greatly expand worldwide energy supply.[3] China is estimated to have the world's largest shale gas reserves.[4] A study by the Baker Institute of Public Policy at Rice University concluded that increased shale gas production in the US and Canada could help prevent Russia and Persian Gulf countries from dictating higher prices for the gas they export to European countries Trinidad is the seventh largest exporter of lng and they transport to USA, Europe, South America, China and Japan.
  • . Trinidad and Tobago exports over 129 billion cubic feet of natural gas to the United States and is their largest supplier of LNG -
  • Natural Gas is the cheapest source of energy to produce electricity and shale offers US a high supply of cheap gas.
  • It could be noted that Oil and Gas contributes close between 40 to 50% of government income. Trinidad and Tobago, however, still provided 50 percent of all U.S. LNG imports in the 2011/2012 period.
  • Refer to next slide
  • Annual Growth rate for April 2007 to October 2012 – Started at 2.79% in Mar 07 with fluctuations in Oct of the same year and overall increase in October 2008 to 2.67%Decreased again march 2009 to March 2012 Started increasing in Oct 2010 to a decreases in March 2011 and started gaining after that to Oct 2012 at its highest at 2.96
  • The economy benefits from a growing trade surplus. The previous MANNING administration benefited from fiscal surpluses fueled by the dynamic export sector; however, declines in oil and gas prices have reduced government revenues which will challenge the present government's commitment to maintaining high levels of public investment.
  • Consumption + Investment + Government Spending + Net Exports = Aggregate ExpenditureA decrease in any of the non price determinant would cause a fall in GDP and full employment cannot be achieved. A fall in price of Natural gas would cause more unemployment and a fall in gdp.
  • Here we can see the balance of trade 2010/2011 sorted in 80% of exports are oil and gas. U.S. government's Energy Information Administration predicts that by 2035, 46% of the United States' natural gas supply will come from shale gas.[2]
  • In the short run, the demand for natural gas will decrease as the top importers of gas such as United States will be more self sufficient as more reserves are proven. Trinidad net exports will fall at increasing rate. This causes GDP to fall. GDP is commonly used as an indicator of the economic health of a country, as well as to gauge a country's standard of living. Where there is a slow down in an economy , full employment would not be able to be achieved and the ability to employ the 65000 that are employed in the oil and gas sector. The unemployment rate is 4.9% according to the central bank. In the long run, Trinidad’s natural gas would mean that cost of supplying our gas would be above the market equilibrium. Trinidad would suffer from a producer surplus. Keynes stated that
  • He went on to argue that it is the intervention of Government through the use of fiscal and monetary policies that arrest sliding economic activity and continues the move towards full employment. Keynesian economists often calculate multipliers that measure the effect on aggregate demand. By the use of a multiplier government can stimulate the economy by determining the volume of expenditure needed to curb a slump period. o be precise, the usual Keynesian multiplier formulas measure how much the IS curve shifts left or right in response to an exogenous change in spending. Inflation is a necessary by product of heating the industry.
  • Excess LNG earmarked for US ports diverted to closer markets – reduced transportation costs. Also reduced the Eastern Caribbean reliance on petroleum products by supplying Natural gas to these areas. Improve overall final product quality - achieve international standards. Sales reduction for lower valued products and volume sales increase in higher valued gasoline products in the internal market. Refined gasoline yield to increase by 40%

Impact of Shale Gas on The Trinidad & Tobago Economy Presentation Transcript

  • 1. IMPACT OF SHALE GAS ON THE TRINIDAD & TOBAGO ECONOMY
  • 2. What The Shale? • Shale gas is natural gas trapped within shale formations of fine-grained sedimentary rock. • The rock comprises silt and clay-size mineral particles that we commonly call "mud". • Its first recorded use was in Switzerland and Austria in the 14th Century. • Lower quality gas than conventional.
  • 3. Shale Formation
  • 4. Shale Vs. Natural
  • 5. Cost Difference: Shale vs. Conventional • The cost of drilling for conventional gas is US$1MM per well on average • The cost of hydraulic fracturing a shale play is US 2.5$MM. • High environmental costs associated with shale fracturing Shale is 250% more costly to ‘frac’.
  • 6. WHY FRAC
  • 7. China 17% Argentina 2% Algeria 21% United States 43% Canada 9% Mexico 2% Australia 6% China Argentina Algeria United States Canada Mexico Australia Proven Shale Gas Reserves
  • 8. US NATURAL GAS SUPPLY- 2011
  • 9. Natural Gas remains the most economic Energy Source Energy Quantity Unit Price Cost Per Energy Unit Coal 1.07 4.83 5.18 Gas 0.00798 3.44 0.02 Oil 0.00184 109.25 0.20
  • 10. ALTERNATIVE MARKETS ASIA SOUTH AMERICA JAPAN SPAIN ARGENTINA
  • 11. Basic Assumptions Harvesting of global shale gas will inevitably force the price of natural gas to be reduced even further. Trinidad’s Natural Gas Reserves are not infinite and have been projected by BP as approx. 10 years of reserves.
  • 12. How Important is Natural Gas To Trinidad & Tobago Oil & Gas contributes 40-50 percent of government’s revenue Provides downstream & upstream employment in the economy Up to 2011/2012 Trinidad supplied approx 50% of the US requirements for LNG
  • 13. Dependent Industries OGPI – Ammonia; Methanol; Melamine; Urea Iron & Steel Power Generation Service companies to OGPI; Iron & Steel; Construction Downstream industries – Plastics Education – MIC; UTT DIRECT IMPACT: INDIRECT IMPACT:
  • 14. Natural Gas Utilization
  • 15. ANNUAL GDP GROWTH RATE
  • 16. GDP 2004-2012
  • 17. Aggregate Demand • The sum of all expenditure in the economy over a period of time Formula: AD = C+I+G+(X-M) • C= Consumption Spending • I = Investment Spending • G = Government Spending • (X-M) = difference between spending on imports and receipts from exports (Balance of Payments)
  • 18. BALANCE OF VISIBLE TRADE 2010/2011 COUNTRIES JANUARY - MARCH 2011 JANUARY - MARCH 2010 IMPORTS (C.I.F.) TOTAL EXPORTS (F.O.B.) BALANCE IMPORTS (C.I.F.) TOTAL EXPORTS (F.O.B.) BALANCE U. S. A. 2,156,776.9 8,447,529.7 6,290,752.8 2,734,386.3 9,463,822.3 6,729,436.0 CARICOM 182,364.6 2,933,838.1 2,751,473.5 178,164.1 4,894,921.4 4,716,757.3 SPAIN 102,970.7 1,449,636.0 1,346,665.3 36,597.6 275,294.8 238,697.2 UNITED KINGDOM 162,691.4 885,948.6 723,257.1 181,817.6 243,462.9 61,645.3 ARGENTINA 24,304.4 627,501.6 603,197.1 34,143.4 168.9 -33,974.5 BRAZIL 1,339,390.3 465,743.1 (873,647.2) 896,476.3 213,043.3 (683,432.9)
  • 19. Aggregate Demand
  • 20. Issue Classical Keynesian Monetarist Theorist Adam Smith John Maynard Keynes Milton Friedman Stability of Economy Stable in the Long Run at full employment Inherently unstable at less than full employment Stable in the long run at full employment Price Wage Flexibility Yes No Yes Velocity of Money Stable Unstable Predictable Cause of Inflation Excess Money Supply Excess Aggregate Demand Excess Money Supply Cause of Unemployment Short Run Price and wage adjustment Inadequate Aggregate Demand Short Run Price and wage adjustment. Monetary Policy Changes aggregate demand and prices Changes interest rate, which changes Changes aggregate demand and prices Fiscal Policy Not necessary Spending Multiplier changes aggregate demand No effect because of crowding out effect.
  • 21. Keynes Model Keynes argues against classical economists and Says Law that there is no self correcting mechanism that eventually moves the economy to full employment.
  • 22. Inflation
  • 23. UNEMPLOYMENT DEVALUATION REMVED GAS SUBSIDY BRAIN DRAIN BALANCE OF TRADE BALANCE OF PAYMENTS FOREIGN INVESTMENT EFFECTS OF DEPLETED OIL & GAS RESOURCES
  • 24. Therefore… Government must utilize Fiscal & Monetary Policy to drive diversification of the economy and thus mitigate the effects of depleting hydrocarbon reserves and falling gas prices.
  • 25. CURRENT INITIATIVES EASTERN CARIBBEAN GAS PIPEINE (ECGP) - • Phase I – Pipeline to be built from Tobago to Barbados • Phase II – from Barbados to Eastern Caribbean Islands PETROTRIN CLEAN FUELS PROGRAM • Gasoline Optimization Program (GOP) & Ultra-Low Sulphur Diesel project (USLD) • PETRO Connect 2011:2012 GREATER COMPRESSED NATURAL GAS (CNG) • Subsidy removal to improve annual savings for the Government • Additional income will now be obtained on open market for liquid fuels displaced by CNG
  • 26. ALTERNATIVES FOR THE LOCAL ECONOMY AGRICULTURE • Expand production in traditional agriculture • Diversify food crop production for local consumption and exports FISHERIES • Maintain healthy marine & fresh water eco-systems to manage natural fish stock • Legislation to address conservation to manage ocean fish stock MANUFACTURING • Cluster development and specialized skilled training to encourage competitiveness and to capitalize on business to business opportunities • Adherence to high environmental standards
  • 27. ALTERNATIVES FOR THE LOCAL ECONOMY TOURISM • Promote Eco-tourism as an avenue of revenue while maintaining the environment • Tourism development of clusters EXPANSION OF PORT FACILITIES • Improve existing port facilities to accommodate greater industrial activity (transshipments) & Cruise Lines EDUCATIONAL SERVICES • Implement additional tertiary infrastructure that attracts regional & international students INNOVATION • Nurture & Foster innovation culture through initiatives such as silicon valleys