By Raffique Shah
November 30, 2014
In the current oil prices turmoil that has sparked much speculation, rumours of doom and gloom, and seeming indifference on the part of Government, the few in the country who know and understand what’s happening at the global level owe it to the nation to let their voices be heard.
We cannot believe the politicians. Over the past few months, as the price of West Texas Intermediate (WTI) crude slipped from US$105 a barrel in June to below US$70 a barrel last week, Finance Minister Larry Howai and Energy Minister Kevin Ramnarine were singing, “Don’t worry, be happy!”
Meanwhile, as she doled out hefty incentives of $50,000 a person to members of the country’s women’s football team, the latest recipients of State largesse from our bottomless pit of gas dollars, the Prime Minister remained stupendously silent on the most alarming economic development to have struck her Government during its tenure.
In the absence of informed discussion on the issue, the political blogs and social media networks went wild with portents of doom and gloom: now we ask-mih-no-questions dark if not dead, the natives screamed.
In the face of this state of national confusion, I plead with our knowledgeable analysts—Gregory McGuire, Terrence Farrell, Roger Hosein and a handful more—to intervene, to inject some sanity in the situation, to shine some light in an area of darkness that should never be, since oil and gas are the oxygen of our economy.
If we settle for guidance from Howai and Ramnarine, there is no problem with tumbling oil prices because it is gas that sustains the economy, providing 90 per cent of revenue from the energy sector. Howai told Parliament last Friday that as long as gas prices remain above US$2.75 per mmBtu (1,000 cubic feet), even if oil drops to US$65 a barrel, revenue loss will be a mere TT$1.3 billion, or 2.1 per cent of Government’s projection.
What neither minister told the population is that ever since this country shifted its gas sales from the depressed US market three years ago, and focussed instead on South America (Brazil, Argentina, Chile), Europe (UK, Spain) and Asia (Korea, Japan, China), LNG has been sold at more than US$10 per mmBtu, at times as high as $16.
In other words, by pegging budgeted gas price at the Henry Hub benchmark of $2.75 per mmBtu, Minister Howai engaged in sleight-of-hand economics (and arithmetic), knowing well that actual revenue would be four times more, certainly for LNG exports, which is approximately 50 per cent of all gas produced and sold.
What neither he nor Ramnarine said, too, is that the remainder of the gas, which is sold to and utilised by downstream energy plants (methanol, ammonia, urea), iron and steel manufacturers and power generators, is sold at Henry Hub prices or less. In fact, T&TEC’s general manager Kelvin Ramsook let the cat out of the bag when he said last week that they are buying gas at US$1.18.
So, yes, the country is making good money from at least half of the four billion cubic feet of gas produced and utilised daily, meaning LNG exports. But this is not a new development. It happened when oil sold at an average of US$90 a barrel, which was for the duration of this administration’s incumbency.
A sudden drop in prices must have deleterious effects on projected revenues. The ministers are being disingenuous by suggesting otherwise, especially as the industry is scrambling to maintain production levels above 80,000 barrels per day (bpd). In December 2008, when production stood at over 100,000 bpd, oil prices plunged from $133 (June) to $40! By January 2009 it had climbed back to $69, but the impact on revenue was startling.
In fiscal 2007/2008, out of total revenues of TT$56.8 billion, $30 billion came from the petroleum sector. By 2008/2009, when oil plunged (but recovered fairly quickly), petroleum sector revenue also plunged by almost 50 per cent, to $15.7 billion. In the ensuing years it crept back up, but lower production meant less revenue: $17.8 billion, $20 billion, $18 billion.
Oil shocks are nothing new. As one of the oldest oil producing and exporting countries in the world, we have been through the boom-bust cycle repeatedly. In 1970, oil fetched US$1.80 a barrel. When the 1973 Arab-Israeli war triggered the first oil boom, prices climbed to the then astronomical $11.58 (1974), $36.83 (1980) and stayed there until 1986 when it plunged to $14.43.
We all know what happened politically that year. It rebounded to average $20 through the 1990s, falling only once (1998) to a low $12.72. Between 1986 and 2002 ($30), the country experienced five changes of government, almost all of them coinciding with declining oil prices.
The incumbent Partnership Government enjoyed buoyant prices throughout its tenure. Now, on the eve of elections, there is a slide with little hope of recovery before June 2015, when OPEC next meets.
Oil and politics are deadly cocktail, a bitter potion for politicians. Maybe that is why ministers are in denial over the looming prospect of significantly lower revenues, which could mean fewer dollars to throw at voters. And that is where this Government performs best.