Home' Trinidad and Tobago Guardian : May 8th 2014 Contents BG14 | COMMENTARY
BUSINESS GUARDIAN www.guardian.co.tt MAY 2014 • WEEK TWO
kraine is grappling with an
ongoing geo-political crisis.
Libya reopened one of its
major ports for oil export.
Oil inventories in the United States increased
to record highs. The Chinese manufacturing
sector expanded in the last two months.
At a glance, it may not be evident how
these events impact on T&T’s economic
growth. However, as a country where the
energy sector accounts for 40 per cent of our
direct gross domestic product and 70 per cent
of our exports, these events influence the rise
and fall in prices we receive for energy com-
modities produced here.
Paying attention to these global incidents
and their impact on our energy commodity
prices is therefore key in determining the
country’s short and medium term growth
There are devices available to help us in
our price analysis. The Energy Commodity
Price Index (ECPI) is one such tool which
tracks 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 (7.0 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).
In Q1 2014, driven by price increases in US
natural gas and methanol, the ECPI value
reached its highest level since November 2011
(See Figure 1). However, between February
and March 2014, the ECPI’s value fell by 5.51
percentage points. Year-on-year, the March
2014 value signified a 5.31 percentage point
increase in the index’s value when compared
to March 2013.
As mentioned before, US natural gas prices
rose to four-year highs due to harsh winter
conditions and in March 2014 prices averaged
US$4.88 per million British thermal unit, the
highest price since February 2010. The harsh
winter also impacted the prices of the coun-
try’s petrochemical prices.
Petrochemicals account for 24 per cent of
the index’s value and in March, ammonia
prices saw significant gains. With ammonia
being used as fertiliser, the spring planting
season in the US tends to provide a boost for
Ammonia prices rose by US$57 per metric
tonne in March. Other petrochemicals on the
index also fared well.
Methanol continued rising, averaging
US$620 per metric tonne; the commodity’s
highest price since February 2008. Several
factors helped buoy this price increase.
Chief among them is surging Chinese
demand for methanol to use in gasoline blend-
ing. Gasoline blending is critical to reducing
oil imports in the world’s second largest econ-
omy, especially with the price of crude oil
continuing to average close to $100 per barrel
over the past two years.
Future demand for methanol will also con-
tinue to be strong and according to analysts
is predicted to grow between 7.0 to ten per
cent annually up to 2016. Other signals also
point to expanded methanol use. Tougher
European Union emission standards for ships
are also leading shippers to look into new
methanol powered ships.
Methanol is also used in several applications,
including the production of plastics, the man-
ufacture of methyl tertiary-butyl ether (an
octane enhancer), paints and windshield-
Factors such as housing construction in the
United States as well as the global growth in
car production are indicators which can influ-
ence methanol prices.
T&T is the number one exporter of both
methanol and ammonia globally and any fall
off in production here will impact world prices.
Not by coincidence, as production lagged
here, global petrochemical prices rose. 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.
While petrochemical prices, like other ener-
gy commodity prices, are cyclical, the reality
is even after the turnarounds in Q3 2013
downstream gas supply has not matched
demand. This disparity has impacted prices,
but there are other underlying factors at play
as well. Just over 80 per cent of ammonia is
used as fertiliser.
Globally, there is a greater need for fertiliser,
given the rising food demand in India and
China. United States farming activity also
helps 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 second quarter of 2014.
In T&T, the movement in energy commod-
ity prices should be followed eagerly with
sharp focus on how global developments
impact on the prices of our major energy
exports. 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-
For more information on the article, visit
www.energy.tt or contact Sherwin Long at
T&T energy commodity prices rise
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