Finance Minister Colm Imbert yesterday described the decision by the Organisation of Petroleum Producing Countries (OPEC) to cut back on oil production tas "good news" but said a proper assessment of how the decision will affect T&T will take a while.
"We still have serious issues with respect to declining oil production and natural gas shortfalls that we are grappling with as a country," he told the T&T Guardian.
The minister said te Government has to wait to see the details of the agreement and its consequences.
"It is too early to tell. From what I have seen, the agreed production cut is 1.2 million barrels per day, about 4.5 per cent of current production. This has caused the price of WTI (West Texas Intermediate) to jump 8.5 per cent or $3.80 per barrel," he said.
In a statement sent hours after the agreement was finalised, the Energy Chamber of T&T said: "It remains to be seen how sustainable this increase in prices turns out to be, especially if other producers, most notably US shale oil producers, their activity and begin to increase their production.
"The industry fundamentals that created the 'lower for longer' oil price environment have not changed."
The Chamber said for the T&T government any increase in oil prices is welcomed in the short-term, as this translates into more tax revenue.
"However, for oil companies operating in T&T, oil prices in the low US$50 per barrel range are bad news because of the way in which Supplemental Petroleum Tax (SPT) is calculated. With SPT kicking in when prices average above US$50, oil companies are actually better off when prices average in the high 40s.
"This acts as a disincentive for investment in future production and so in the medium-term is bad news for the country as we struggle to halt the decline in oil production. The government is aware of the need to change the tax legislation and has received recommendations from the IMF. These recommendations have been reviewed by the Energy Chamber and comments have been provided to the Ministry of Finance. We are awaiting further dialogue on these issues."
The Chamber noted that T&T is primarily a gas economy and increases in oil prices do not necessarily immediately translate into increases in prices for LNG, ammonia and methanol.
Also reacting to the news was former energy minister Kevin Ramnarine who said he not surprised by the agreement.
"The member countries of OPEC were feeling a lot of economic pain. This moves signals that the shale industry in the United States has won the war of attrition," he said.
Ramnarine is not optimistic that that the agreement will do much in terms of higher oil prices.
"It may nudge prices into the 50's but there remains a major inventory overhang to unwind. Higher prices are good for T&T's Government but bad news for small oil producers such as the lease operators and farmout companies who will have to pay the Supplemental Petroleum Tax at a rate of 33 per cent," he said.