When the Minister of Finance Larry Howai presents his first budget on Monday, paramount on his mind will be where he is going to get the money to pay for all of the Government’s goods and services, its debt servicing obligations and its capital expenditure. Minister Howai has already expressed concern about reducing the deficit and bringing expenditure in line with revenue, for which he will continue to rely heavily on money from the energy sector. In his 2011/2012 budget presentation, former Minister of Finance Winston Dookeran told the Parliament that the Government expected total revenues in 2012 to be $47 billion, with US$18.1 billion coming from the energy sector. That figure was based on an oil price of US$75 a barrel and a net back gas price of US$2.75 per mmbtu. During the last fiscal year, the prices for all of the country’s export commodities in the energy sector have been buoyant. Oil prices have remained high, while in the T&T context, there is no one price for this country’s crude. Taken as a basket of crude, the average oil price has been higher than was forecast averaging US$90 per barrel. According to the US Energy Information Agency, Brent crude oil spot prices have increased at a relatively steady pace from their 2012 low of US$89 per barrel on June 25 to their recent high of US$117 per barrel on August 23 because of the seasonal tightening of oil markets and continuing unexpected production outages.
But the EIA is predicting that the price of crude will fall over the next year, but not significantly. In its latest report, the EIA sad: “Brent crude oil prices to fall from recent highs over the rest of 2012, averaging $111 per barrel over the last four months of 2012 and US$103 per barrel in 2013. “West Texas Intermediate (WTI) crude oil spot prices rose by a more modest US17 per barrel between June 25 and August 23, as the WTI discount to Brent crude oil widened from US$10 per barrel to US$22 per barrel. EIA expects WTI spot prices to average US$93 per barrel in 2013, with the WTI discount to Brent narrowing to US$9 per barrel by the end of the 2013.” If this happens, it would mean that the Minister of Finance could expect lower prices for the average basket of T&T crude, which has been fetching a price between West Texas Intermediate and Brent prices. Howai would perhaps be even more concerned by the level of crude production which continues to plummet. Crude production figures from the Ministry of Energy and Energy Affairs show that from January to July 2012, the average oil production was just above 83,000 bo/d, which is down by almost ten per cent from an average of 92,000 bo/d for 2011, and even further down when compared to the beginning of 2011 when oil production exceeded 100,000 barrels per day. The drop in oil production has been due to several factors, including natural decline of reservoirs, but also the maintenance work being undertaken by bpTT, which has hurt its condensate production.
BPTT has already said it will not complete its work until the last quarter of 2013 into 2014, as a result of which, will not return to full production until that time. In addition, bpTT president Norman Christie has indicated that due to the new gas fields producing less wet gas when compared to those in the past, the condensate production will remain lower than in previous years. Natural gas production has also been down and has negatively impacted the throughput in the petrochemical sector and in export liquefied natural gas (LNG). LNG prices in the US continues to be soft due to the abundance of shale gas in North America, which could have long-term implications for T&T.
According to the US EIA, shale gas production is projected to increase from 5.0 trillion cubic feet per year in 2010 (23 per cent of total US dry gas production) to 13.6 trillion cubic feet per year in 2035 (49 per cent of total US dry gas production). “As with tight oil, when looking forward to 2035, there are unresolved uncertainties surrounding the technological advances that have made shale gas production a reality. The potential impact of those uncertainties results in a range of outcomes for US shale gas production from 9.7 to 20.5 trillion cubic feet per year when looking forward to 2035,” the EIA noted. The Former Finance Minister told the country in the 2011 budget that in 2012 US$2.5 billion would be spent in the energy sector on ongoing and new projects. He said additionally, petrochemical companies would add another US$1.4 billion in new downstream projects in 2012.
“First, is the AUM2 project, which would produce melamine. We anticipate that the domestic production of melamine will provide the basis for melamine derived industries, including those producing plastics, adhesives and laminates. This facility has an estimated capital cost of US$1.9 billion and will create more than 3,000 jobs during the construction period and 450 permanent jobs on completion,” Dookeran had told the Parliament. He added: “Secondly, there is the CariSal project. Government, in conjunction with the US firm CariSal, will construct a plant to produce calcium chloride, caustic soda and other related products for the domestic market as well as markets in the Caribbean, North America, West Africa and Latin America. “Construction of the CariSal plant would begin in 2012, at an estimated cost of US$430 million, with the potential to create more than 200 jobs during construction and operation.” Neither of these projects has got off the ground, even though Methanol Holdings (Trinidad) Ltd has started some site preparation. An internal memo from the Ministry of Energy has cast doubts on the CariSal project getting off the ground due to financing problems.
In addition, Dookeran also announced negotiations were ongoing for five projects, from which the Government could anticipate US$5 billion in investments.
These projects are:
1. The Reliance bitumen upgrader project;
2. Methanol to polypropylene project;
3. Methanol to acetic acid project;
4. Maleic anhydride project; and
5. Melamine derivatives projects.
None of these projects has come to fruition and the Minister of Finance will also be concerned to try and get some activity going in the petrochemical sector. The Minister of Finance will, however, take heart in the significant increase in drilling and exploration activities and in the last successful deepwater bid round.
This is expected to lead to more activity, particularly in the south of T&T and lead to significant investment in the upstream part of the energy sector.