Home' Trinidad and Tobago Guardian : December 28th 2014 Contents DECEMBER 28 • 2014 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
NEWS | SBG3
In terms of its impact on the T&T economy, there is
no doubt that the collapse of global oil prices following
the refusal of Organization of Petroleum Exporting
Countries (OPEC) at a meeting on November 27 in
Vienna to curtail the 12-nation group s oil production
quota was the year s biggest story.
On the Thursday the decision was taken, which was the
Thanksgiving public holiday in the US, West Texas Intermediate,
the benchmark American price for crude oil, plunged 6.3 per
cent from about US$73 a barrel to $69.05 a barrel in electronic
The next day, Friday November 28, the WTI price plummeted
again to US$66.15, its lowest price in more than four years.
and the price has continued declining, closing on Friday at
Government based its projections for expenditure in the
2015 financial year, which runs from October 1, 2014 to Sep-
tember 30 2015, on an oil price of US$80 per barrel and a
natural gas netback price of US$2.75 per unit.
Speaking in Parliament on November 28, Finance Minister
Larry Howai said the Government "own expectation" is that
the price of oil for the 2015 fiscal year would average between
US$65 and US$70 per barrel.
Howai said: "We expect that the price of natural gas will
come down in tandem with this decline in the price of oil but
we expect that it will remain above the US$2.75 reference price
used in the budget.
Howai said: "While this does not pose an immediate risk
to the 2015 Budget, prudence would suggest that appropriate
action be taken to maintain a level of fiscal balance, given the
medium-term trajectory of oil and gas prices.
"Ministries will therefore be required to review their budgets
to determine areas where expenditure can be suppressed to
make up the shortfall."
Based on a US$65 per barrel oil price and a natural gas
netback of US$2.75 per unit, the expenditure review by min-
istries, according to the finance minister, is expected to increase
the 2015 budget deficit by $1.3 billion.
The only problem with Howai s diagnosis is that on December
26, WTI for February delivery fell $1.11, or 2 per cent, to
US$54.73 on the New York Mercantile Exchange and the
amount of revenue T&T receives for its natural gas exports
has also declined with the minister admitting in a December
18 interview that the netback price had fallen to US$2.90.
In an address on December 1, Central Bank Governor Jwala
Rambarran sharply revised downward the growth of the T&T
economy to 0.5 per cent from an earlier projection of 2.5 per
Rambarran said: "The unexpected slowdown in the economy
was caused by a dismal performance in the energy sector,
with declines most pronounced in natural gas and LNG pro-
duction." The energy sector, he added, is expected to decline
by a little over 2 per cent in 2014.
The Minister of Energy, Kevin Ramnarine, has been quoted
as saying that T&T s gas curtailment issues are not likely to
be behind the country before 2017, which means that the T&T
economy is likely to face a double-whammy for all of the 2014
• A 2 per cent decline in overall energy production for the
• A sharp decline in energy prices for the first quarter of
the 2015 financial year (from October 1 to December 31, 2014).
As about 67 per cent of T&T s energy revenue comes from
the sale of LNG and natural gas-based exports, the impact
on T&T s revenues may not be immediate.
But, as the Central Bank Governor pointed out in his Decem-
ber 1 presentation: "In some regions, such as Asia and Europe,
natural gas prices are indexed to oil and can move in tandem
with movements in oil prices. Even so, Central Bank estimates
the netback price for LNG at Point Fortin would have to fall
by 50 per cent for an extended period of time to significantly
compress energy revenues."
In a statement exclusively to the Business Guardian on
November 25, Point Fortin-based LNG producer, Atlantic, dis-
closed that from January to the end of October, 60 per cent
of the production from LNG Trains I, II and III went to five
Latin American markets: Argentina, Chile, Brazil, Puerto Rico
and Mexico. In none of those markets is the LNG price trans-
parent, as it is in the US, UK and parts of Asia.
While T&T s revenue-generating energy sector contracted
in 2014, the non-energy sector---which uses tax revenues in
the form of foreign exchange reserves---experienced a growth
rate of around 3 per cent, according to the Central Bank Gov-
Rambarran said: "Much of the growth in the non-energy
sector has been concentrated in three areas---construction,
distribution and finance. In the construction sector, local sales
of cement have been expanding strongly, reaching almost 8.5
per cent in the first nine months of 2014.
"New car sales, a main indicator of distribution activity -
are still hitting double-digit rates. Dealers sold just under
14,000 new cars in the first nine months of 2014. At the end
of November, we had already reached near the 4,500 marker
on the PDE series. For the first time in five years, new car
sales have surpassed 18,000 units on an annual basis."
The expansion in consumption was driven by a 4.5 per cent
increase in business lending between January and September,
compared with an average decline of nearly 4 per cent over
the same period of 2013. For the first nine months of 2014,
the expansion in loans to consumers averaged 7.5 per cent,
up from 5 per cent in the same period in 2013.
Said Rambarran: "A disaggregation of consumer credit
showed strong growth of loans for the purchase of vehicles,
home renovation and debt consolidation," with the first two
mentioned involving significant expenditure of foreign exchange.
Strong growth in consumer loans that are being used to
purchase new cars and home appliances has translated into
stronger demand for foreign exchange in 2014 than in previous
But if energy companies earn less for their exports of LNG,
methanol, ammonia, urea, melamine and other petrochemicals
because of lower prices and less of the gas-related commodities
are being produced because of the curtailment issues, that is
likely to translate into reduced quarterly taxes by the energy
companies. Reduced quarterly taxes by the energy companies
means a decline in the supply of foreign exchange. This, in
turn, is likely to mean that the "shortages" of foreign exchange
experienced by importers in 2014 will spill over into next year,
with obvious consequences for the country s foreign reserves.
Business Guardian readers would have received a preview
of the decline in commodity prices when the publication
quoted from a speech delivered by Prof Nouriel Roubini, one
of the most respected economic commentators in the world,
who spoke about the end of the commodity super cycle.
Speaking at an International Monetary Fund conference in
Montego Bay, Jamaica on October 24, Roubini said: "Some
people debate whether we are truly at the end of the commodity
super cycle or whether it is the end for the super cycle in
industrial metals as opposed to energy or other types of soft
"But certainly commodity prices are going down and not
just because China is slowing down, but also because there
has been significant new capacity investment by many countries
after many years of high prices. This is leading to a glut of
new supply and new capacity.
Roubini said an initial analysis of the decline in commodity
prices may lead to thinking that this would be good for com-
modity importers and bad for exporters
"That first approximation might be correct, but I think
there are a number of caveats worth keeping in mind.
• The first one is that some commodity importers also
export commodities. A country like Jamaica produces and
exports alumina, as well as coffee, rum and sugar. The softness
in commodity prices could impact countries that are net
importers of oil;
• Secondly, while the fall in the price of oil is positive for
the oil and energy importers, it puts a huge strain on a country
like Venezuela that is economically and financially fragile. The
PetroCaribe scheme effectively subsidizes the price of oil in
the Caribbean and this could be threatened or Venezuela could
reduce its oil subsidies to the region. If that were to occur,
the falling oil prices would be less of a benefit to the region,
because the explicit or implicit subsidy from Venezuela is
going to be reduced."
End of the commodity super-cycle?
Noted economics commentator and professor at New York University's Stern School of Business, Nouriel Roubini, speaking to
regional journalists at the International Monetary Fund forum at Montego Bay in Jamaica on October 24.
Photo by Anthony Wilson
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