Home' Trinidad and Tobago Guardian : January 1st 2015 Contents BG8 ENERGY
BUSINESS GUARDIAN www.guardian.co.tt JANUARY 2015 • WEEK ONE
During 2014, the energy sector
was impacted by a number
of significant developments
that make 2015 a year of real
Last year, there was a dramatic fall in oil
prices with crude futures now at its lowest in
five years, natural gas prices that are indexed
to oil have started to fall, crude production in
T&T remains flat, there continues to be sig-
nificant natural gas curtailment that is hurting
the downstream and midstream sectors,
Petrotrin continues to perform poorly and
there are increasing calls for the country's nat-
ural gas model to be reviewed.
So how did we get here?
At time of writing this article crude oil prices
on the New York market settled, down by
more than a US $1 per barrel (bbl), reaching
the lowest value since May 1, 2009. The Feb-
ruary crude oil contract dropped US $1.12 on
December 29 on the New York Mercantile
Exchange, closing at US $53.71/bbl. The March
contract declined by US $1.10 to US $54.03/bbl.
NYMEX crude prices have lost 50 per cent
The February ICE contract for Brent crude
oil fell US$1.57 to US$57.88/bbl. The March
contract also declined US$1.56 to US
$58.66/bbl. Brent prices settled at their lowest
in overnight floor trade since May 15, 2009.
The ICE gas oil contract for January dropped
US$3.75 to US$535.25/tonne.
The average price for OPEC's basket of 12
benchmark crudes on December 29 was
US$54.44/bbl, down US$1.59 from the pre-
There have been several theories as to the
cause of the decline in oil prices including an
attempt to punish shale oil producers in the
United States because many studies have
shown they cannot produce economically
There has been the issue of supply and
demand with slow growth in the developed
world due to the sluggish economic recovery
while production from non-OPEC members
has increased significantly. In addition there
have been suggestions about the need by the
West to punish Russia and Venezuela for their
behaviour. Whatever the reason, T&T is a
price taker and the fall in prices is hurting
government's revenues in a fiscal year in which
the government plans to spend more money
than at any other time in the history of the
Natural gas prices:
The government has argued that the falling
price of oil is not having a dramatic effect on
its budget because the country is far more a
gas-based economy than it is an oil-reliant
economy. Both the Finance and Energy Min-
isters have said that Atlantic LNG has been
able to sell its cargoes into the Asian and South
American markets where they get a premium
for LNG prices.
While this is true, what they have not said
is that Asian spot LNG prices have more than
halved since the start of the year to below $10
per million British thermal units (mmBtu).
Average import prices into Japan, the world's
top buyer, are forecast to fall to about US$11
per mmBtu next year, down from an estimated
US$15.50 this year and US$16.45 in 2013.
Japanese prices are a benchmark for LNG in
Asia, a region which accounts for about 70
per cent of global trade.
Gas prices will also respond to falling oil
prices, which have fallen close to 50 per cent
since June, because most gas prices in the
region are indexed to oil. The lower prices
have also been confirmed by the presidents
of bpTT and Atlantic LNG who both confirmed
to the Business Guardian that they are wit-
nessing a fall in LNG prices in both the Far
East and Europe due to lower oil prices.
Nigel Darlow, President of Atlantic LNG
told BG of the fall in oil prices and its effects
on LNG prices: "I think it is going to have a
depressing or dampening effect on natural gas
or LNG prices and I think we are already seeing
that. The LNG pricing has come off fairly sig-
nificantly and a large part of that is because
there are a lot of LNG contracts that are effec-
tively oil indexed. So with the declining oil
price you have seen a reduction in the LNG
Norman Christie, regional president of BP,
the country's largest natural gas producer and
Atlantic's largest shareholder, also confirmed
falling LNG prices. He said: "Of course, some
prices are tied to crude and some are delinked
from crude. In the Far East, some of those
prices are tied to crude. So we have seen some
fall off in prices in those areas linked to crude.
So we have a mixed block."
The challenge for T&T goes further in 2015
as once again 2014 proved to be a bad one for
gas production with supply constraints con-
The Point Lisas Executives Association have
so far been forced to pen two letters to the
Minister of Energy complaining that the gas
shortages are hurting their business, estimating
that it has cost them $10 billion in four years.
The shortage is no longer being blamed on
BP's maintenance schedule and the Minister
has now talked about the coming online of
Starfish and Juniper as the solution even though
both BP and BG say the projects are in the
main to replace gas lost during the natural
decline in production.
On becoming the Minister of Energy in 2011
Kevin Ramnarine gave his first speech at an
Energy Chamber luncheon at which he prom-
ised that he would increase crude production
and he promised that Petrotrin and Trinmar
were key to his strategy.
He explained to the chamber that the Mal-
colm Jones-led Petrotrin board had concen-
trated on the refining and marketing aspects
of the company's business at the expense of
the exploration and production side of the
business. He promised to fix that but four
years later Petrotrin's production remains flat
and country's crude production has fallen.
In October, the State enterprise announced
a $346 million loss and the company said it
was not in any position to offer an increase
in salaries to its employees. This led to threats
of strike action from the President General of
the Oilfields Workers Trade Union.
The company continues to be heavily
indebted, its cost of production higher than
the benchmark for other state energy com-
panies globally and its margins---which is the
difference between what it costs Petrotrin to
buy a barrel of oil and what it can sell a barrel
of refined products at---is low. Petrotrin con-
tinues to suffer from cost overruns and sig-
nificant delays in its upgrade programmes with
it ultra-low sulphur diesel plant still not com-
plete at a time when diesel prices are good.
The company's aging assets and issues of
quality control has led to at least two major
oil spills in 2014 and hundreds of millions of
dollars in expenditure in infrastructure in its
Trinmar asset as Petrotrin tries to increase
The news has not been all bad. In 2014, the
Government through the Ministry of Energy
and Energy Affairs, awarded several blocks
both on land and offshore for exploration. The
Government hopes that these blocks will even-
tually lead to more oil discoveries and increased
crude production. However that will not be
known for a few years.
Last year witnessed an increase in drilling
activities both on land and offshore as com-
panies respond to more favourable fiscal incen-
tives from the government. This year will
determine if the increased drilling activity will
be kept up should oil prices remain soft.
The Ministry of Energy also took steps to
review T&T's natural gas policy and appointed
an UK-based firm to conduct a study that is
likely to impact what is known as the T&T
natural gas model.
In 2015, negotiations with BP, BG and
Atlantic LNG are all expected to begin in
earnest as the country tries to ensure its gains
from the natural gas sector are protected while
an announcement is also expected in January
2015 from the consortium of Mitsubishi and
the Massy Group on a new methanol plant.
New challenges for
T&T's energy sector
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