Home' Trinidad and Tobago Guardian : September 11th 2014 Contents BG6 NEWS
BUSINESS GUARDIAN www.guardian.co.tt SEPTEMBER 2014 • WEEK TWO
Dependence on energy-based revenue
will continue in the foreseeable
future, said University of the West
Indies (UWI) economist Dr Roger
Hosein s comments come after Finance Minister
Larry Howai presented the Government s $64 billion
budget on Monday.
"The petroleum sector is a central driving force in
the growth of the T&T economy. Specifically, petro-
leum value added in 2013 was around 42.9 per cent
and its contribution to oil revenues and exports was
50 per cent and 85.7 per cent, respectively. This
dependence is expected to continue throughout the
next three years at least," he told the Business Guardian
He said the 2015 budget identified that the fiscal
and other adjustments in the past have sprouted sig-
nificant increases in foreign direct investment (FDI)
in the energy sector.
According to Hosein, the budget statement said:
"The oil and gas companies have advised that invest-
ments amounting to US$3.3 billion will take place in
2014 and similarly-sized investments will take place
over the medium term, US$3.2 billion in 2015 and
US$3.0 billion in 2016."
He said no new energy-related measures were out-
"As concerns new measures, however, nothing
major was mentioned, and perhaps the sizeable
amounts of FDI injections proposed may be an indi-
cation that the fiscal package is now nearing ideal.
Mention was made of the role of the National Gas
Company (NGC) in rolling out 35 CNG fuelling stations
by first quarter of 2016. Some fiscal support was
offered to encourage an increase usage of hybrid and
electric-powered vehicles," he said.
Hosein pointed out no changes were made to the
"No change was made to the fuel subsidy and
there were some amendments to the Heritage and
Stabilisation Fund (HSF). As concerns the HSF, the
current formula is such that money can go into the
HSF in a period when the economy has a fiscal
balance which is zero or even negative. This raises
the question as to where these revenues will come
from, and the indication is that it will have to be
borrowed. It was hoped this would be reviewed in
this budget; it was not, but may be it will be reviewed
in the next," Hosein said.
He spoke about the price of a barrel of oil as one
of the "contentious" areas a government always finds
itself in when trying to establish a price on which
to premise a budget.
"The budget is premised on a price of oil of US$80
per barrel. This is one of the usual contentious areas
and the Government has indicated that this budgeted
price of oil is based on a 11-year moving average
using five years ahead and five years before and the
value in the current period (in the 2015 budget, it
was stated that it is based on interactions with inter-
national organisations). Data for a five-year ahead
forecast of oil was obtained from the World Bank
commodity price forecast and for the current period
and the last five years data from the Energy Infor-
mation Administration (EIA) was used," he said.
Hosein said on the conservative side, estimates by
the Government will benefit the HSF.
"It must also be noted the budgeted price as in
previous years continues to be conservative in relation
to the forecasted price so that the HSF will likely
benefit during the course of the year."
When asked what are the likely consequences if
the price of oil and gas was to fall below the budgeted
price, he said the Government may have to borrow.
"My forecasts are reasonable and I am confident
as things stand, it will not drop below US$80 for oil
and or the US$2.75 for gas. However, in the event
that it does, the Government may need to consider
going to the Heritage and Stabilisation Fund or bor-
Hosein said no mention was made in the budget
of the forecasted production of crude oil and this
comes at a time of declining production.
"The statistics clearly show that the production
of crude oil from the T&T economy has fallen sharply
since 2005 (indeed, since 1978), although there are
some signs that this may have been halted towards
the end of the data period. In my view, because of
the decline in output in this sub-sector, forecasted
energy sector revenues need to not just quote a fore-
casted price of oil, but also a forecasted output level
of oil," he said.
Statistics Hosein provided from the Central Bank
show that in 2005, crude oil production was 52,715.2
barrels compared to 35,836 in 2010 and a further
drop to 29,617 in 2013.
He said against the backdrop of this type of trend,
it is critical the budget provides a forecasted figure
for the production of crude oil.
"In the future, may be this can be considered. As
it stands, however, the T&T economy is, indeed,
classifiable as a gas-based economy," he said.
The Government used the price of gas on US$2.75
per MMBTU, which Hosein called "conservative."
"As concerns natural gas, T&T only exports 16.62
per cent (3,177.77 MCM in 2012) of its liquefied natural
gas (LNG) to the United States, so that the Henry
Hub gas price is not the best guide as an indication
of the trend in gas prices of relevance to this economy.
"The 2015 budget is premised on a price of gas of
US$2.75 and again this is conservative as the HH
price was US$3.72 per MMBtu in 2013, and US$4.59
in July 2014) and this, in turn, is much lower than
the price in Japan (US$15.21 per MMBTu in July 2014),
Germany (US$9.40 per MMBtu in July 2014) and
Continental Europe ($9.27 per MMBtu in July 2014).
"The European market accounts for 17.33 per cent
of T&T s LNG exports. The Asian-Pacific market
accounted for 9.93 per cent of T&T LNG exports
and the Latin American market accounted for 36.34
per cent of T&T LNG exports in 2012. Note, Latin
American LNG spot prices are similar to Asia-Pacific
UWI economist Dr Roger Hosein:
Budget oil, gas
DR ROGER HOSEIN
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