Home' Trinidad and Tobago Guardian : December 8th 2016 Contents BG6 | NEWS
BUSINESS GUARDIAN guardian.co.tt DECEMBER 8 • 2016
Energy experts on OPEC's deal to cut production
T&T's oil prices will not skyrocket
T&T should not expect oil prices
to shoot up again to US$100
barrel because the Organisa-
tion of the Petroleum Export-
ing Countries (OPEC) signed
an agreement to cut oil pro-
duction last week, said lawyer and consultant
in the oil and gas sector, Hugh Howard.
"I do not want people to think OPEC's
agreement will cause oil prices to shoot up and
money will just flow into the country. That
will not happen. People must recognise the
reality that the price of oil will not move up
significantly," he told the Business Guardian
Last week, OPEC members and non-mem-
bers who met in Vienna came to an agreement
to cut production by 1.2 million barrels of oil
This agreement came as oil prices plunged
from a high of US$100 a barrel in 2014 to tum-
bling as low as under US$30 a barrel in January
of this year, hurting many oil producers from
Saudi Arabia to Venezuela and Nigeria.
On December 9, members and non-mem-
bers will meet to expand and provide further
details on the deal.
Howard said the downturn in the world
economy and lower demand for oil caused
a glut in the world market and this is what
OPEC's deal would seek to rectify with pro-
He does not expect oil prices to go beyond
US $60 a barrel of oil in the medium term.
"Since the signing last week we have seen an
immediate increase of oil prices. Two years ago
I said people should not expect oil prices to go
beyond US$55 a barrel of oil and if it manages
to hit $60 that will be the ceiling. I expect the
prices to stay within this range for the next
two to three years," he said.
Oil production decline
Howard noted that oil production is "dwin-
dling" in T&T and the Government must use
every effort to contain this development.
According to statistics, while T&T produced
82,000 barrels of crude oil a day in 2012, in
2013 it fell to 81,000, in 2014 it was 81,300
and that fell to 78, 600 barrels a day in 2015.
Former Energy Minster, Nicole Olivierre
speaking at the 5th international Energy Con-
ference in June said over the past 10 years, the
energy sector's contribution to gross domestic
product (GDP) has declined from 43 per cent
in 2006 to 32 per cent in 2015 and this is be-
cause the recent fall in production of both oil
and gas, as well as the decline in the prices of
Howard also said that Saudi Arabia's effort
to undermine the United States' shale oil in-
Given the global scenario, Howard urged
T&T's Government and the private sector to
become more competitive.
"Globalisation kicked in many years ago.
International investors have many options be-
yond T&T and can go anywhere else. However,
T&T has many factors working in its favour as
the country has a stable political climate and
economy and energy companies globally look
at these things," he said.
In a statement last week, the Energy Cham-
ber of T&T said it remains to be seen how sus-
tainable these price increases will be.
"The production cuts announced by OPEC
have led to an immediate increase in oil pric-
es. It remains to be seen how sustainable this
increase in prices turns out to be, especially
if other producers, most notably US shale oil
producers, increase their activity and begin to
increase their production. The industry fun-
damentals that created the 'lower for longer'
oil price environment have not changed."
The chamber also said any increase in oil
prices is welcomed in the short-term, as this
translates into more tax revenue.
"However, for oil companies operating in
T&T, oil prices in the low US$50 per barrel
range is bad news, because of the way in which
Supplemental Petroleum Tax (SPT) is calculat-
ed. With SPT kicking in when prices average
above US$50, oil companies are actually better
off when prices average in the high 40s. This
acts as a disincentive for investment in future
production and so in the medium-term is bad
news for the country as we struggle to halt the
decline in oil production. The government is
aware of the need to change the tax legisla-
tion and has received recommendations from
the IMF. These recommendations have been
reviewed by the Energy Chamber and com-
ments have been provided to the Ministry of
Finance. We are awaiting further dialogue on
The chamber concluded that T&T is primar-
ily a gas economy and increases in oil prices
do not necessarily immediately translate into
increases in the prices for LNG, ammonia and
Dr Roger Hosein, senior lecturer, University
of the West Indies (UWI), told the Business
Guardian that the OPEC agreement still is not
set in stone and there will be another meeting
on December 9 in Moscow to examine details
on how it will work.
"The deal is not final and requires a com-
plementary non OPEC out of 600 000 per
day. Whether or not countries like Russia will
support this thrust we will have to wait and
see. However what often happens is that non
OPEC members try to sell more oil as prices
rise. If done in sufficient magnitude, this can in
turn compromise the OPEC cut and the market
He also said it is left to be seen how sustain-
able oil prices increases will be.
"Whilst prices may be given a boost, this
is not likely to be pronounced or sustained as
the USA alone can wipe out about 1.1m bpd
by revamping its production levels consistent
with past highest production levels. Also in the
T&T specific case, remember that there has
been a continuous decline in the production
of crude oil and likely the gains being made on
the pricing side will be softened by the slide
in revenues associated with declining output.
In this regard it may be best to err on the side
of caution and not expect any sharp increase
in oil revenues, at this point."
Apart from oil industry developments, T&T
also made headway in its gas industry.
On Monday, Prime Minister Dr Keith Row-
ley visited Venezuela where agreements were
signed in the area of gas with Venezuela's Gov-
The agreements included a supply of nat-
ural gas from Venezuela to T&T from Camp
Dragon, Shell Venezuela and PDVSA entering
in negotiations to evaluate opportunities to
reduce gas flaring in northern Monagas state,
and agreement to obtain financing for a joint
venture to encourage increased oil production.
In a brief statement after the signing, Row-
ley said the agreement marks a commitment
from both countries towards the commercial
development of the hydro carbon sector.
On Tuesday, Howard---who called himself a
former legal adviser of Shell Trinidad Ltd---told
the Guardian that coming out of the agreement
Shell, Venezuela's state owned PDVSA and the
National Gas Company (NGC) would be the
companies involved in gas being transported
"I would expect to see PDVSA selling gas
to the NGC and having the gas transported to
Trinidad through Shell. The agreement will set
out delivery terms and time lines. The agree-
ment has to be set in a manner that would make
He estimates that it would take at least three
years for the first delivery of gas to Trinidad
"It will be 2020 before there is gas actually
delivered to the estate at Point Lisas. T&T has
been short of gas for years and it makes a lot
of sense if the country can get gas. It will give
the country a lot more room and confidence
that it will be able to make the requirements
of the downstream operators," he said.
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