Tomorrow when the Finance Minister Colm Imbert presents his 2021 fiscal package he will do so in the context of lower revenues, high non-discretionary expenditure and limited fiscal space for borrowing.
On the revenue side, the Minister has been hurt from the falling taxes due to the COVID-19 pandemic but what has been his challenge over the last five years is the lower for longer energy commodity prices.
From crude oil to LNG to petrochemicals all the prices have fallen and have stayed lower for longer than has been the cyclical case over the last three decades.
The low prices combined with the higher natural gas costs have made the petrochemical sector particularly vulnerable leading to the closure of plants, gas left behind pipe and the National Gas Company (NGC) increasingly vulnerable.
Recognising how important the sector is to government’s coffers, the Roadmap to Recovery Committee, appointed by the Rowley administration to chart a way forward, has warned that the Value chain is in peril.
The report reads; “ With five petrochemical plants already temporarily shut down, and the looming threat of additional plant shutdowns, the Value Chain is in peril. Resources need to be refocussed immediately, led by the MEEI and the NGC, to explore options that can possibly provide short term solutions that can allow some or all of the plants to be restarted and to forestall any further plant shutdowns. This is the most pressing matter to be resolved in the short term that can ensure the sustainability of the Gas Value chain in the long term while stabilising short run revenues simultaneously.
In its report the committee said there is a need to undertake an expeditious assessment of, and appropriate adjustment to the Gas Value Chain, to assure the viability of the chain in the short run and the sustainability of the industry over the longer term.
It noted that the challenge is both short/immediate term and longer term.
“In the longer term, the work that is being led by the Ministry of Energy and Energy Industries (MEEI) and Gas Strategies with the full collaboration of the various players along the Value chain should serve to be transformative to the Energy sector assuring the sustainability of the Sector and that the Chain is investable by all participants along the Value Chain,” the Roadmap committee said.
The committee argued that for Trinidad & Tobago to develop its significant remaining hydrocarbon resources the country will need agility, quick execution, and a renewed focus on jurisdictional competitiveness and sustainability. This must be done in conjunction with the wider strategic initiatives underway (i.e. Gas Value Chain Committee) in this rapidly evolving sector.
It noted that methanol market experts predict that demand for Methanol as a global commodity will continue to grow throughout this coming decade. The Roadmap committee said methanol will continue to be a very viable global business and similarly, independent analysts suggest that demand for ammonia as a global commodity is expected to increase throughout this coming decade at an estimated 1.2% compound annual growth rate.
But the challenge the committee said is the increasingly uncompetitive nature of T&T’s petrochemical sector.
“Trinidad and Tobago is fast becoming a marginal ammonia and methanol producer and must quickly find a way to bridge the down cycle to avoid the risk of being rationalised in favour of other producers.” The Committee noted.
It added; “As energy prices continue to decline, these industries will be increasingly cost competitive with prices predicted to remain low. This means that for Trinidad & Tobago to continue to operate in these industries, there has to be a sharp focus on competitiveness, whilst leveraging our jurisdictional advantages. To achieve increasing competitiveness in the downstream gas sector it is recommended that Trinidad and Tobago:
• Actively explore opportunities in the regional energy market, including small scale LNG, to support the transition from heavy fuel oil and diesel. This would include an assessment of infrastructural changes which might be required at Atlantic LNG to support this market.
• Explore opportunities for access to and sharing of common gas transportation and processing infrastructure which may be underutilised, in order to optimise costs
• Put mechanisms in place to ensure effective management of capacity and gas supply across Trinidad and Tobago.
• Ensure continued development of competitive and competent local content.
• Proactively explore opportunities to optimise and efficiently process available gas volumes, and to reduce GHG emissions, thereby creating value through the entire value chain, and allowing Trinidad and Tobago to respond to a rapidly changing global regulatory environment
It also called for the urgent restart and commercialising of the Guaracara Refinery which it said is a wasting asset, that once deemed viable, must be returned to service as quickly as possible.
“With a potential investor already identified, it is in the interest of potential shareholders and all citizens of Trinidad and Tobago, that the potential deal be concluded as quickly as possible. Given that much work has already been completed, the transaction must be executed with urgency. In that regard, a firm timeline must be established with appropriate milestones. The expectation should be that this transaction should be concluded in six months. In the event that the existing transaction is unable to be closed,then an alternate investor should be sought that utilises Private Sector capital to fund the refinery re-opening.”
The Prime Minister has given to the end of this month for a contract to sign or his administration will move onto the next bidder.