Most citizens understand that the energy sector is the major contributor to national income and that world prices have declined and with it, Government’s revenue and the national income. Many people have bought the idea that declining natural gas production can be corrected by simply getting more gas from the cross border (i.e. shared with Venezuela) Loran Manatee field, or the across the border (in Venezuelan waters) Dragon. Whilst the initial prospects may have looked positive, it should be clear neither prospect is a practical alternative. Nor will this extra gas solve the strategic pricing issues.
The reality is that T&T is poorer and whilst energy prospects may still be positive, finding and developing new gas or oil requires substantial investment by multinational companies, over whom we have no control, at a competitive price. This may explain Dr Keith Rowley’s preoccupation with having a seat at “the table”, though it does not explain why he thought an amateur could successfully intervene in what were complex negotiations between unequal partners.
In 2010, natural production amounted to an average 4.33 billion standard cubic feet a day (bscufsd). Notwithstanding the successful completion of the Juniper and Angelin projects in 2017-8, average daily production of natural gas amounted to 3.53 bscufsd in 2019, which is 17 per cent lower than average production in 2010. Whilst there is every likelihood that more gas can be found, the market has changed considerably. The price advantage that T&T once enjoyed as an early developer of gas is now lost and natural gas production capacity has increased worldwide. One issue is whether T&T can produce gas feedstock for the petrochemical sector at a competitive price. If it cannot, what is to become of the Point Lisas project?
A review of the various natural gas trading sites will show that natural gas futures contract pricing has been low, trending between US$1.72 -1.88 for the last two weeks. For the petrochemical sector to compete internationally, it must buy feedstock at these prices or lower which is not the current position. Hence the closed or idled plants.
In May, the Henry Hub natural gas spot price averaged US$1.75 per million British thermal units (MMBtu). EIA forecasts that relatively low natural gas demand will keep spot prices lower than $2/MMBtu through August. Natural gas prices have also been affected by the global pandemic as production has outstripped demand leading to declining prices everywhere, except at NGC. To make matters worse, the prices enjoyed by methanol, ammonia and liquid fuels were in decline by 40-50% before the pandemic exacerbated the losses facing the T&T petrochemical sector.
The publication Oil Price.com noted in an article published on June 8th “crude oil wasn’t the worst-performing energy commodity in May…. LNG was.” It reported that LNG spot prices have been on the slide since April, reaching an all-time low of US$1.85 per MMBtu at the end of May. It went on “As with crude oil, the reason was very much the wide gap between supply and demand, already substantial before the coronavirus lockdowns but made even wider...”
Much of the additional demand has come from Asia, the largest single source of LNG demand growth. LNG prices in the US$1.85 range are uneconomic as they cannot meet the cost of transportation and regassification which account for at least $3-4 per MMBtu. This has led to cancelled cargoes. Long term contracts pegged to the price of oil may be protected from these lower price ranges.
Yet, the strong point of LNG is that demand over the long term will grow. When demand recovers in the key Asian markets, prices will increase. But it will take time and new capacity has already been planned to access this market segment and could lead to depressed prices.
The gas price used in the T&T’s revised budget calculation is the wellhead price which is now close to the spot price and does not include regassification and transport costs. This places T&T’s income, government revenue included, under severe pressure. Further, Caricom demand for T&T non-energy exports is likely to be depressed until tourism recovers in these tourism-dependent economies.
The economic outlook is tough for the foreseeable future. The election campaign must address the recovery in specific, measurable, attainable, realistic, time-bounded goals and not get lost in the emotive platform rhetoric of personality, race, or corruption. Focusing on this approach could generate billions in savings, not a few million on a single, slim-lined interchange project. If Dr Rowley could do that, the nation would be grateful.