When Minister of Finance Colm Imbert delivers his fourth budget on Monday, he will be in a position to announce that the energy sector has turned the corner and its growth is driving economic expansion, according to the Central Bank’s latest economic bulletin.
Last year, Imbert predicated his budget on an oil price of US$52 and a gas price of $2.75 per mmbtu.
At the time he told Parliament: “It should be noted that our assumed oil price is below the International Monetary Fund forecast of $56.20 per barrel for 2018 and lower than the current oil price forecasts made by the World Bank, United States Energy Information Administration (USEIA) and International Energy Agency (IEA).”
Imbert will report that for fiscal year 2018, crude production was down by close to 3000 barrels compared to 2017 but prices were significantly higher than in 2017.
West Texas Intermediate (WTI) averaged US 50.88 a barrel in 2017 but for 2018 it is averaging US $66.25 a barrel. Brent Crude’s average in 2017 was US $54.25 but in 2018 it has averaged $68.26.
T&T’s mix of crude, including those produced by Petrotrin and its operators onland and Trinmar off the west coast, usually fetch in the vicinity of US$5 less than the price WTI is being traded at. Those on the east coast, including bpTT’s production and Perenco’s TSP production, usually average close to US $1.50 above Brent.
As a result, T&T’s basket of crude would have averaged in the range of US $70.06 for east coast crude and Petrotrin’s production would have fetched closer to US$61 a barrel.
This means that while the fuel subsidy will be higher for the government it should have earned more than $1 billion more from oil revenues than was originally contemplated. Imbert will continue to be concerned about falling crude production and in particular the lower production from Petrotrin. The expectation is that the budget will include information on how the new exploration and production company will stop the decline in production, then turn around its fortunes.
On the natural gas side, the news is far more encouraging.
For a long time T&T has been seen as a gas-based economy with forward and backward linkages. In this respect, the continued curtailment is hurting the downstream sector which has not been able to operate at anywhere close to name plate capacity.
However, there has been stabilisation of the gas supply situation and an increase in production. bpTT’s Juniper platform made a major difference and Shell’s addition of 300 million standard cubic feet of gas will also help. Imbert will also be pleased that a new player has entered the market in DeNovo and while it will produce a modest 70 mmscf/d, that is enough to power an ammonia plant.
According to figures from the Ministry of Energy and Energy Industries, natural gas production has averaged 3.683 billion standard cubic feet a day this year. Compare this to 2017 when the figure was 3.3 billion scf/d.
The increase in natural gas production means an increase in revenue to the exchequer in several ways. It means additional taxes at the well head. Higher gas production will be translated into higher petrochemical production and this combined with improved prices for petrochemicals means more money for Minister Imbert.
The additional gas production and LNG prices that averaged over US$ 3 per mmbtu means Imbert collected more money from LNG, based on price and production.
There is more good news that the Minister of Finance will be able to share on the energy sector, as BHP Billiton has had a relatively successful second phase in its deep water campaign with the final well, Conception, to be drilled in the first quarter of fiscal 2019.
bpTT is expected to go out and explore again. Armed with significantly improved seismic, the company has found gas in the first two wells it drilled in 2017 and will be trying to replicate its success.
BHP is expected to drill out its Ruby and Delaware fields with a view to adding 10,000 barrels of oil a day by 2020. In addition, EOG Resources is also expected to explore.
In fiscal 2019 new bid rounds are expect to go out and there appears to be significant interest in shallow and deep waters.
So, the news from the energy sector is encouraging. The question is: will the rest of the economy grow with it?