Home' Trinidad and Tobago Guardian : October 24th 2013 Contents The United States narrowly
avoids debt ceiling crisis.
China's economy rebounds
in the third quarter. Violent
clashes continue in Syria. We
might not be able to see the
link between these headlines and the price
T&T receives for its major energy exports
but there is a clear connection. All these
headlines/occurrences send signals to the
market and influence the trajectory of oil,
LNG, ammonia, methanol and jet fuel prices.
T&T is a global leader in LNG, methanol
and ammonia exports and energy commodi-
ties account for 70 per cent of total exports,
therefore tracking these prices is vital.
Analysing the impacts of global economic
growth, weather patterns, wars, other geopo-
litical events and price speculation will help
us understand what drives price changes in
our energy exports.
There are tools available to help us in our
analysis. The Energy Commodity Price Index
(ECPI) is one such tool which helps track
the price movement of the country's top ten
energy-based commodity exports.
The index is weighted by each commodity's
relative share of its value. The commodities
and their weights are: US natural gas (40
per cent); oil (16.6 per cent); ammonia (11.8
per cent); methanol (9.4 per cent); diesel
(seven per cent); motor gasoline (4.3 per
cent); natural gasoline (3.5 per cent); jet fuel
(2.7 per cent); propane (2.4 per cent); and
urea (2.3 per cent).
Between August and July 2013, the ECPI
increased marginally by 1.21 percentage
points. The price shift was driven by rising
methanol and oil and petro-product prices.
Year-on-year, the August 2013 value sig-
nified a 3.18 percentage point decrease in
the index's value when compared to August
Energy commodity price movement
In Q3 2013, several of the major petro-
chemical plants in the country scaled back
or halted production due to coordinated turn-
arounds where maintenance work was per-
formed at several plants.
Planned upstream maintenance forced
these plants to schedule their own mainte-
nance at the same time. Based on Ministry
of Energy and Energy Affairs data, the average
ammonia production for the year is 396,675
metric tonnes (Mt) while the average
methanol production is 468,357 Mt.
Both ammonia and methanol production
peaked in January 2013 at 433,043 Mt and
521,685 metric tonnes Mt, respectively. While
September 2013 figures are not available, we
anticipate production will be lower than the
T&T is the number one exporter of both
methanol and ammonia globally and any
falloff in production here will impact world
prices. Not by coincidence, as production
lags here global petrochemical prices are ris-
ing. In fact, over the past two years ammonia
prices have surpassed pre-global recession
highs while methanol prices are averaging
their highest rate for the past seven years
(See Chart 2).
While petrochemical prices, like other
energy commodity prices, are cyclical the
reality is at a time when local producers are
constrained by gas curtailments prices are
historically high. But there are other under-
lying factors at play as well.
Just over 80 per cent of ammonia is used
as fertiliser, and globally, there is a greater
need for fertiliser given the rising food
demand in India and China.
United States farming activity also help
drive fertiliser prices, especially the activity
of corn farmers in the Mid-West. Based on
the fertiliser price to corn price ratio, US
farmers are either incentivised or deterred
from buying fertiliser. Currently, the ratio is
widening and may affect ammonia prices in
the fourth quarter.
For methanol, prices are averaging ten-
year highs and several factors are behind this
price movement. Chief among these factors
is surging Chinese demand for methanol to
use in gasoline blending as well as rising car
production and a housing construction
rebound in the United States.
Gasoline blending is critical to reducing
oil imports in China while methanol is also
used in several applications including the
production of plastics, the manufacture of
methyl tertiary-butyl ether (an octane
enhancer), paints and windshield-wiper fluid.
For oil price movements, according to the
US EIA, Brent crude oil prices will average
US$107 per barrel during the fourth quarter
of 2013 and US$102 per barrel in 2014 while
West Texas Intermediate crude oil prices will
average US$101 per barrel during the fourth
quarter of 2013 and US$96 per barrel in 2014.
For Henry Hub US LNG prices, the US
EIA also expects prices will average US$3.71
per million British thermal units (mmbtu)
for the remainder of 2013 and US$4 per
mmbtu in 2014. A look at US demand for
natural gas heating in the winter months can
show how the weather impacts on price and
usage as well.
Based on US EIA projections, spending on
natural gas for heating will increase by 13
per cent this winter. However if temperatures
are ten per cent colder than forecasted the
price will increase by 25 per cent.
On the flip side if temperatures are ten
per cent warmer than expected prices will
increase by only three per cent.
T&T Energy Conference features
At next year's T&T Energy Conference,
Katherine Spector, head of commodities
strategy, CIBC, will deliver an address on
future price trends for energy commodities
and the price trajectory for some of our major
energy exports will be analysed even further.
Spector was acknowledged by Bloomberg
in 2013 as the most accurate forecaster of
benchmark WTI prices over a two-year span.
She is responsible for CIBC's energy price
forecasts and market views, and her analysis
includes global energy supply/demand fun-
damentals, money flows, and geopolitics.
Katherine Spector is a term member of
the Council on Foreign Relations, and serves
on the board of the New York Energy Forum,
an educational organization dedicated to
increasing public knowledge about energy
issues. She appears regularly in print and
television media and was also recognised in
2013 as one of the top ten New York women
in energy by Breaking Energy. Previously she
worked as the editor of Oil Market Intelligence
at the Energy Intelligence Group.
In T&T, the movement in energy com-
modity prices should be followed eagerly
with sharp focus on how global developments
impact on the prices of our major energy
In this regard, the ECPI can also give an
early summary indication of developments
in international prices of energy-based com-
modities, signalling along with other infor-
mation, the evolution of economic growth,
the fiscal accounts and the balance of pay-
The ECPI is a collaborative effort between
the Central Bank of T&T and the Energy
For more information visit www.energy.tt
OCTOBER 2013 • WEEK FOUR www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG17
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