Are renewables the answer?

Mary King
Monday, July 27th 2009
http://www.trinidadexpress.com/index.pl/article_opinion?id=161509390

Last week's article, "T&TEC thwarted?", raised the concern that subsidisation of the prices of petroleum and its products to local consumers, including electricity, was being accomplished at the expense of not providing a replacement asset with which we could build a new and sustainable economy.

Let us at least be clear that our present plantation economy, aggravated by the Dutch disease, depends on Foreign Direct Investment-driven export of the commodities-oil, gas and their products. This makes our economy, our foreign exchange earnings, very vulnerable to global price and supply swings.

Yet, our political elite boasts that we have diversified our economy away from one commodity, oil, but to another, natural gas. However, the future pricing of these two commodities look very different. Before the twin collapse of both the global economic and financial systems, oil prices rose to a figure of US$147/bl and natural gas to US$14/mmBtu. However, on the current expectations of the recovery of the economies of some of the developed countries oil prices (quoted in mmBtu for comparison) have increased on the futures market from its low of US$7/mmBtu to just above US$12/mmBtu. Natural gas prices, however, have remained below US$4/mmBtu. There are two related reasons for this. Global economic development has always depended on cheap energy- cheap oil. With the global production of oil expected to peak pre-recession and inelastic demand, especially from China and India, growing at a rapid rate, prices escalated forcing demand destruction and a move towards renewables, unconventional gas etc. The present situation in oil remains the same except that the demand has fallen with the global recession. The Energy Correspondent of the Business Express set out the characteristics of the natural gas market. There is a massive increase in production of LNG by Qatar, new super LNG vessels, increasing exploitation of shale gas, the development of an open market in the EU and, possibly way into the future, the exploitation of natural gas hydrates. Even though natural gas is expected to be the bridge that will support the post peak oil decay of oil, there will be no shortage of traditional gas up to 2050 and its prices in the various markets will converge. Thus, T&T will not see the same kind of net-back pre-recession returns. Further, bpTT is telling us that it has become more expensive and riskier to drill for the not-so-easy-to-get petroleum, a comment that is dramatically demonstrated by its last expensive dry hole. Hence bpTT is looking at the smaller caches of gas and to do so wishes the Government to reduce its tax take in the sector. Also, the discovery profile for petroleum in the Columbus Basin shows a distinct flattening, indicating peak gas in this area. But, of course, our political elite has set its hopes on Big Oil finding more gas and eventually being allowed by Venezuela to exploit the cross border resources. The proven reserves-to-production ratio internationally is some 60 years, which shows the recklessness of what our PM describes as the T&T miracle-a reserves-to-production ratio of 12 years. There is no doubt that our gas will be depleted and life has to go on. We have to make alternative arrangements to support both the internal demand (e.g. for electricity) and whatever production of tradable goods and services we put in place to replace the export of commodities. Local use of renewable energy including nuclear energy springs to mind. Again the Energy Correspondent tells us of the progress being made by the energy importing countries of the region in solar energy (Barbados), geo-thermal (St Kitts/Nevis) and wind (Jamaica). Though the Government has established a renewable energy committee to advise it, the immediate adoption of these alternatives will in the first instance be severely hampered by the subsidised petroleum energy available in T&T. Further, the development and implementation of renewables, even in the developed world, are government-subsidised. The hope is that costs will drop on large deployment of these alternatives. T&T, with its subsidised energy, would either have to also massively subsidise renewables to get population buy-in, or progressively remove these subsidies and implement other incentives for renewable energy usage. This is easier said than done given that the comparative advantage of our manufacturers is cheap energy. It appears laudable that the Government has shown an interest in renewables but this is but one issue in an energy policy that should consider the finite life of our resources, the optimisation of the energy sector via knowledge and innovation as opposed to its present plantation economy exploitation and more broadly the creation of a knowledge-based on-shore sector to provide tradable goods and services. maryking@tstt.net.tt