KEVIN RAMNARINE
In its September 2014 Article IV report, the International Monetary Fund (IMF) flagged the decline in oil and gas prices as a major threat to our economy. Only a few weeks before, the price of oil was just above US$100 per barrel. In the IMF's assessment, if the decline was "rapid, substantial and sustained", adjustments in T&T could be forced to take place in a disorderly fashion.
In the fifteen months since the IMF report was published, the decline in the oil price can be described as rapid, substantial and seemingly sustained. No Article IV report has since been published by the IMF on T&T. The next report is due in early in 2016.
In the context of low oil and gas prices, the decisions the country makes in the next three years are crucial for the survival of our economy. Several issues will converge in this period. First, there is the fall in price for oil, natural gas, ammonia and methanol. Second, there will continue to be shortfalls in the supply of natural gas.
Thirdly, there are major contracts with BP that will expire in 2018 and 2019 that will have to be treated with. Fourthly, in the current low oil price scenario there will be cost cutting at Petrotrin. In the face of all this the country must continue to attract investment to the energy sector.
To help address these complex natural gas related issues, the Ministry of Energy and Energy Affairs (MEEA) in November 2014 engaged the firm Poten and Partners to produce a Natural Gas Master Plan. This Plan is a roadmap for the natural gas sector for the next ten years.
The Plan was submitted to me the week before 2015 general election. I have studied this document and I can say it is one of the most important documents ever written on the natural gas sector. The new Government has not yet said what they intend to do with the recommendations contained in this Plan.
Given the global scenario it cannot be business as usual in our natural gas sector. In the current scenario there is a need for major policy intervention regarding natural gas allocation and regarding the tax/ fiscal regime that governs arrangements for upstream producers. Such interventions are critical.
As far as our energy sector is concerned any Government must always act in the national interest even when such action is unpopular. The unvarnished truth that is borne out in the Master Plan is that there are gas-based industries that we should consider exiting because they no longer make economic sense.
In times of shortage in supply of natural the focus has to shift from volume to value. The question that has to be asked is: Where do we get the best value for our natural gas? In all our deliberations, economics must trump politics and not vice versa.
All this is happening in a global energy and economic context over which we have no control. There seems to be no let up of what is clearly a global glut of oil. Depressed oil prices impact the price our LNG cargoes fetch in South America, Europe and Asia. Our netbacks for LNG cargoes have fallen significantly in the last year and added to this there is now the threat of a global glut of LNG.
Most experts agree that the December 4, OPEC meeting will yield little change to the status quo and Saudi Arabia will hold on to their position. All over the world of oil and gas there is pain. In the USA, 86,000 oil and gas jobs have been lost since June 2014. In our country the fallout has not been as dramatic as in other countries but that does not mean we have escaped.
A few months ago Repsol took a decision to cancel a drilling programme in T&T in the wake of falling prices. I suspect other oil and gas companies in T&T may be having similar thoughts. In what is a faint glimmer of hope the International Energy Agency has predicted that oil will go back to US$80 per barrel by 2020. This is somewhat good news for our deepwater explorers in BHP's Invaders Bay office.
In the wake of falling oil prices BPTT has trimmed cost in T&T but I am certain this will not impede the very important Juniper project and other future upstream developments such as the 2016 Savannah exploration well. BG's Lobster exploration well is also currently being drilled and we await the outcome.
The public may be largely unaware but despite the oil price roller coaster, 2016 is a big year for our oil and gas industry.Despite the fall in prices, BHP Billiton and its partners are pressing ahead with plans to explore our deepwater in 2016. This holds much promise and I will write more about it in the future.
However, with the low price environment, intervention is urgently needed in the energy sector to drive efficiency, to focus on long term value creation, to ensure the sector remains competitive and to continue to attract investment.
The range of policy options to achieve these objectives is contained in the 2015 Natural Gas Master Plan. In the national interest, it is hoped that this important 736-page document gets the attention it deserves.