Over the last week crude oil prices tum­bled more than 15 per cent on the news of a new vari­ant of the coro­n­avirus which ini­tial­ly ap­peared to be high­ly con­ta­gious, may be bet­ter at by­pass­ing vac­cines and is the most mu­tat­ed so far.

The fear in the mar­ket is that this mu­ta­tion could lead to more deaths, and lock­downs which could damper de­mand for oil and to a cer­tain ex­tent gas prod­ucts.

To un­der­stand how the price of oil works there are some things that must be kept in mind. The first is that the trad­ing mar­ket is a fu­tures mar­ket. There­fore the price of crude oil to­day is based on what the trad­er feels it will be worth in the fu­ture. So what do they con­sid­er? Well they must look at what they think the glob­al de­mand for the prod­uct will be and es­ti­mate what the sup­ply con­di­tions are to meet that de­mand.

In the case of 2021/22 there is con­sen­sus that crude sup­ply and de­mand will re­main fair­ly tight. A tight de­mand sup­ply equi­lib­ri­um usu­al­ly leads to strong, if not wind­fall prices. The glob­al de­mand/sup­ply sit­u­a­tion is based on the ex­pect­ed emer­gence of the world from lock­downs, as we be­gin to learn to live with the virus and as vac­ci­na­tion rates pick up, al­low­ing for few­er poor out­comes from get­ting the virus and places less pres­sure on the glob­al econ­o­my.

There have al­so been signs of a re­bound from the deep re­ces­sion faced by OECD coun­tries, in­clud­ing the Unit­ed States and with OPEC+ re­main­ing dis­ci­plined in its pro­duc­tion quo­tas one could ex­pect crude oil prices to re­main be­tween US$65 and US$75 a bar­rel for the rest of T&T’s fis­cal year 2022.

An­oth­er thing that traders are look­ing at in pric­ing crude oil would be the is­sue of whether there was un­der in­vest­ment in the glob­al en­er­gy sec­tor that will make it less like­ly that the oil and gas com­pa­nies can in­crease pro­duc­tion in a time­ly way to meet grow­ing de­mand.

T&T is an ex­am­ple of this, our nat­ur­al gas pro­duc­tion has been very low in 2020 and 2021 and part of that was the in­abil­i­ty of bpTT to get its Cas­sia C project go­ing on time. It is a les­son I am afraid seems not to have learnt, that is, oil and gas projects take time to come to fruition and the miss­ing of time­lines can have dev­as­tat­ing ef­fects on the coun­try.

It is why I was pleased that the Prime Min­is­ter Dr Kei­th Row­ley seems to have had a Dam­as­cus mo­ment.

Chris­tians would know that a Dam­as­cus mo­ment is a turn­ing point; a life-chang­ing ex­pe­ri­ence. It’s gen­e­sis is the Bib­li­cal sto­ry of Saul, who con­verts to Chris­tian­i­ty (and be­comes known as Paul) af­ter he has a vi­sion of Je­sus while on his way to Dam­as­cus to per­se­cute Chris­tians.

Row­ley ap­peared to have had this change of heart, this pur­ga­tion, al­most a cathar­sis up­on his re­turn from Lon­don where he met with the lead­ers of Roy­al Dutch Shell and BP PLC.

The Prime Min­is­ter who for months tried to con­vince us that the At­lantic LNG Train 1 deal was still very alive, who tried to con­vince us that the is­sues were too com­plex for cit­i­zens to un­der­stand, sud­den­ly ac­cept­ed that Train 1 was on life sup­port and about to be pro­nounced dead. It was mere­ly await­ing for the for­mal at­tempt to re­vive the pa­tient who had crashed, with no crash cart avail­able on the ward and all that was left was for the doc­tor to call the time of death.

An­oth­er thing the Prime Min­is­ter in­di­cat­ed was gov­ern­ment’s will­ing­ness to en­gage with the multi­na­tion­als to fa­cil­i­tate fur­ther in­vest­ment in T&T’s oil and gas sec­tor.

Part of this com­mit­ment is a relook at the tax­a­tion regime. Both the usu­al tax­a­tion called the Pe­tro­le­um Prof­it Tax (PPT) and the Sup­ple­men­tal Pe­tro­le­um Tax (SPT). It is ex­pect­ed that gov­ern­ment will in the case of PPT re­duce the PPT and ei­ther in­crease the thresh­old for SPT so that it on­ly be­comes ef­fec­tive when oil and gas prices are much high­er than over US$50 a bar­rel.

This is a coun­try with short mem­o­ries and there­fore it is im­por­tant that we are of­ten re­mind­ed about what brought us to where we are.

Re­mem­ber gov­ern­ment’s spot­light on en­er­gy? It was a look at the state of the coun­try’s most im­por­tant sec­tor and a lamen­ta­tion by the Row­ley ad­min­is­tra­tion that the coun­try was not get­ting what if felt was its fair share of the pie. It did three ma­jor things fol­low­ing the spot­light. The first was to in­crease the roy­al­ty on nat­ur­al gas. The sec­ond was to rene­go­ti­ate the Train 1 agree­ment and to get ex gra­tia pay­ments from the en­er­gy com­pa­nies that were ef­fec­tive­ly a frac­tion of what they ben­e­fit­ed from trans­fer pric­ing, the third was it ne­go­ti­at­ed new up­stream prices for nat­ur­al gas at high­er rates than the NGC and the down­stream com­pa­nies could af­ford.

The new roy­al­ty rates meant im­proved gov­ern­ment rev­enue but with the gov­ern­ment now be­ing forced to low­er tax­es it is like­ly this ben­e­fit would have been short lived. The Train 1 agree­ment is in place but there is no gas for Train 1 and it is now dead and third­ly it has not been able to rene­go­ti­ate down­wards the up­stream con­tracts.

Is there a pat­tern here? Is it that the multi­na­tion­als played the long game, played dead to ketch cor­beau alive and suck­ered gov­ern­ment in­to be­liev­ing it had wins on­ly to lose the war in the end?

At the sign­ing of the pro­duc­tion shar­ing con­tract for Roy­al Dutch Shell to pro­duce from its 2.7 tril­lion cu­bic feet Man­a­tee field Dr Row­ley ac­knowl­edged he need­ed the multi­na­tion­als if this coun­try’s gas pro­duc­tion is to be se­cured.

He said, “The key to re­duc­ing or elim­i­nat­ing any gas short­fall in the medi­um term is the ap­proval of the cur­rent un­sanc­tioned projects.

The Gov­ern­ment is en­gag­ing the up­stream com­pa­nies on the ap­proval of the un­sanc­tioned projects and we are pre­pared to fa­cil­i­tate the com­pa­nies to achieve this ob­jec­tive. Our re­cent meet­ings in Lon­don leave us very op­ti­mistic that more projects of cur­rent in­ter­est will be sanc­tioned as we go for­ward in­to the near and medi­um term.”

The Prime Min­is­ter ex­plained that nat­ur­al gas pro­jec­tions show that gas pro­duc­tion will steadi­ly in­crease to 2024, then un­der­go a brief de­cline be­fore re­bound­ing in the 2026/2027 pe­ri­od, hence the need to ac­cel­er­ate the ap­proval of un­sanc­tioned projects.

“Dur­ing the pe­ri­od 2026/2027, Shell’s Man­a­tee and BHP deep-wa­ter projects are pro­ject­ed to come on­stream. These projects to­geth­er have the po­ten­tial to sup­ply in ex­cess of 1.0 bcf per day of nat­ur­al gas in the pe­ri­od be­yond 2026, for the life of the projects. A key el­e­ment of the de­vel­op­ment plan for these projects is ac­cess to the LNG mar­kets. The suc­cess­ful com­ple­tion of the At­lantic LNG re­struc­tur­ing ef­fort will be crit­i­cal for these projects.” Row­ley re­marked.

Time will tell whether the Prime Min­is­ter will in­deed con­vert like Saul and recog­nise that the en­er­gy com­pa­nies played the long game and that all moves must be cal­cu­lat­ed with this in mind.

His pur­ga­tion must make him know that crit­i­cal analy­sis of the coun­try’s chal­lenges and the need to have a re­al plan for the econ­o­my and a move away from over de­pen­dence on en­er­gy is not an at­tack on gov­ern­ment but an urg­ing for a new ap­proach.

It is not easy lead­ing a plur­al so­ci­ety like this, a coun­try that has been spoilt on the rich­es of oil and gas but in this time of cathar­sis, of change of heart the Prime Min­is­ter must know we want him and his gov­ern­ment to suc­ceed be­cause that is in T&T’s best in­ter­est.