Econometrics study

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The effects of shocks to crude oil and natural gas, prices and production levels on the economy of Trinidad and Tobago.

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Econometrics study

  1. 1. The Impact of the Energy Sector on the Economy of Trinidad and Tobago An Investigation using Econometric Modelling Techniques Edward Bahaw June 30 th 2010
  2. 2. Outline <ul><li>Importance of the energy sector </li></ul><ul><li>Differences between crude oil and natural gas </li></ul><ul><li>Hydrocarbon Production & Price and GDP </li></ul><ul><li>Econometric Modelling </li></ul><ul><li>Results </li></ul>
  3. 3. T&T Energy Statistics (2009) <ul><li>Energy Exports - 87% of total exports </li></ul><ul><li>Energy taxes - 48% of total taxes </li></ul><ul><li>Energy GDP - 40% or total GDP </li></ul>
  4. 4. Gross Domestic Product <ul><li>Gross Domestic Product (GDP) – measure of the value of output in a country. </li></ul><ul><li>Increases in GDP – Economic Growth </li></ul><ul><li>Decreases in GDP – Recession </li></ul>
  5. 5. GDP Time Series
  6. 6. Impacts on GDP <ul><li>Which energy sector variable has the biggest impact on GDP? </li></ul><ul><li>Natural gas price </li></ul><ul><li>Crude oil price </li></ul><ul><li>Natural gas production </li></ul><ul><li>Crude oil production </li></ul>
  7. 7. Crude Oil and Natural Gas Prices
  8. 8. Crude Oil and Natural Gas Production
  9. 9. Natural Gas Utilization (2009)
  10. 10. Value Chains <ul><li>Crude oil </li></ul><ul><li>Production and Export </li></ul><ul><li>Natural gas </li></ul><ul><li>Production and processing </li></ul><ul><li>Utilization as feedstock </li></ul><ul><li>Utilization as fuel </li></ul><ul><li>Export (Condensate, NGLs, LNG, Methanol, Ammonia, Iron and Steel, UAN etc.) </li></ul>
  11. 11. Crude Oil Upstream Taxes <ul><li>Revenue Based </li></ul><ul><li>Petroleum Levy – 3% </li></ul><ul><li>Supplementary Petroleum Tax – 35% </li></ul><ul><li>Green Fund Levy – 0.1% </li></ul><ul><li>Profit Based </li></ul><ul><li>Unemployment Levy – 5% </li></ul><ul><li>Petroleum Profit Tax – 50% </li></ul>
  12. 12. Natural Gas Upstream Taxes <ul><li>Revenue Based </li></ul><ul><li>Petroleum Levy – 3% </li></ul><ul><li>Supplementary Petroleum Tax – 0% </li></ul><ul><li>Green Fund Levy – 0.1% </li></ul><ul><li>Profit Based </li></ul><ul><li>Unemployment Levy – 5% </li></ul><ul><li>Petroleum Profit Tax – 50% </li></ul>
  13. 13. Natural Gas Downstream Taxes <ul><li>Revenue Based </li></ul><ul><li>None </li></ul><ul><li>Profit Based </li></ul><ul><li>Corporation Tax – 25% </li></ul>
  14. 14. Natural Gas Production and GDP
  15. 15. Crude Oil Production and GDP
  16. 16. Natural Gas Price and GDP
  17. 17. Crude Oil Price and GDP
  18. 18. Correlation Coefficients Energy Parameter Correlation with GDP Crude Oil Price 0.83 Crude Oil Production 0.02 Natural Gas Price 0.56 Natural Gas Production 0.99
  19. 19. Are Correlations sufficient? <ul><li>The question - Which energy sector variable has the biggest impact on GDP? </li></ul><ul><li>Correlation does not imply causation </li></ul><ul><li>Then what? </li></ul><ul><li>Econometric Modelling tools! </li></ul>
  20. 20. Econometric Modelling Tools <ul><li>Cointegration Testing </li></ul><ul><li>Vector Autoregressive (VAR) Models </li></ul><ul><li>Variance Decompositions </li></ul><ul><li>Impulse Response Functions </li></ul>
  21. 21. Econometric Modelling Tools <ul><li>Empirical evidence of causation </li></ul><ul><li>Nobel Prize 2003 (R. Engle & C. Granger) </li></ul><ul><li>Utilized in many studies in other countries </li></ul><ul><li>Employed in this study using quarterly data from 2000 to 2009. </li></ul>
  22. 22. Econometric Results <ul><li>The results provide the following: </li></ul><ul><li>Significance of causal effects </li></ul><ul><li>Magnitude and directions of the causal effects </li></ul>
  23. 23. Significant causal effect on GDP? <ul><li>Natural gas production - Yes </li></ul><ul><li>Natural gas price - Yes </li></ul><ul><li>Crude oil production - No </li></ul><ul><li>Crude oil price - No </li></ul>
  24. 24. Actual vs. Fitted GDP
  25. 25. Actual vs. Fitted GDP
  26. 26. Magnitude and Direction Energy Sector Variable Percentage Change in Energy Sector Variable Impact on GDP Natural Gas Production  10%  5% Natural Gas Price  10%  0.5%
  27. 27. Outlook on Natural Gas Production <ul><li>Proven reserves – 16.9 tcf </li></ul><ul><li>Production – 4.2bscf/d (2009) </li></ul><ul><li>R/P ratio – 11years (until 2020) </li></ul><ul><li>Decline curve analysis </li></ul>
  28. 28. Outlook on Natural Gas Price <ul><li>Expected lower price due to : </li></ul><ul><li>Increased LNG production and export globally </li></ul><ul><li>Shale-gas production in the US </li></ul>
  29. 29. Suggestions?

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