This year has been a challenging one for all economies and, with the exception of the tech companies, most other sectors have struggled under the weight of the COVID-19 pandemic.
The pandemic has had a particularly devastating effect on travel, tourism, restaurants and services as governments imposed lockdowns in an effort to reduce the rate of transmission by limiting interaction among the populace.
The knock-on effect has been a major drop in demand for goods and services including energy and energy related products.
Entering into 2020 the global energy market was already soft as the risky strategy by Saudi Arabia to drive shale producers out of the market while raging a price war against Russia has so damaged global markets, many think it is now unlikely that crude oil can ever return to the hay days of US $100 a barrel.
The way the global crude market works is not simply based on supply and demand although that is very important, but its also on sentiment and a built-in level of speculation.
The Saudis strategy seemed to be that their cost of production is so low they could sustain, for some time, low crude prices with the thought that shale producers that have far higher costs and that have not made a lot of money and therefore does not have cash on hand will face bankruptcy and fall-out of the market.
The Saudi strategy in 2019 did not seem to take into account the resilience of American businesses, the fact that efficiency and technology had reduced costs, the increase in crude production from non-OPEC members and that the supply and demand situation was not very tight, with inventories already built up and slowly on their way down, before the world’s largest oil producer decided to commit harakiri.
So when Covid19 hit the world economy at the end of the first quarter 2020, grounded planes, reduced domestic travel and crushed global demand; an already weak oil market naturally collapsed and we had the unprecedented situation where for the first time West Texas Intermediate prices fell into minus territory.
Crude prices have recovered somewhat and as of yesterday Brent was trading over US $50 a barrel and WTI just under US $50 a barrel.
Natural gas and in particular LNG prices were also negatively impacted by the demand/supply prices as shale gas production had changed the US market and the huge new producers in Australia and UAE caused the Asian market to significantly reduce its arbitrage from the North American market.
Petrochemical prices, in particular methanol and ammonia prices were hammered as demand remained weak and you see that T&T’s main foreign exchange earners were all under pressure at the same time.
You then add to that falling crude and natural gas production and the problems with the government policy, implementation and the fiscal regime and you see why we are in the position we are in.
Make no bones about it T&T’s energy sector is in trouble and what is increasing clear is that the government and the Minister of Energy seem incapable of finding solutions.
It would ordinarily be wrong to blame any single person for the state of the Energy sector. But we have had a minister in the person of Franklin Khan who has been at the helm for almost five years and it is worth examining his record to make a decision on whether he has delivered to the country.
This is not a time for party sympathies nor for issues of congeniality. Franklin Khan is the man in charge since 2016 having taken over from the ineffective and inconsequential Nicole Oliverre.
In 2016 when Khan became the Minister of Energy this country’s crude production had averaged 72,000 barrels of oil per day (bo/d). This has now fallen to 56,000 bo/d. That represents a decline of 23 percent.
In 2016 the average natural gas production was 3.3 billion standard cubic feet per day (bscf/d), In 2020 the Ministry of Energy’s own figures show it is down by 100 million standard cubic feet per day, averaging 3.2 bscf/d. So when you hear Khan and the government taking credit for what it has done in natural gas production the evidence says otherwise.
The story is the same with methanol, ammonia and LNG; all down.
Khan often insists that the country is a price taker and there is truth in that but it can impact its own production and the government’s policy of trying to take as much taxes as it can from a smaller and smaller pie is ill advised.
There are those who may argue that Khan is not the one to blame, they have seen how the minister of everything has all but usurped the power of the Minister of Energy, who is often forced to genuflect in his presence praising Stuart Young for doing the work that the substantive Minister of Energy should be leading, but there is also the question of Khan’s health and whether he has the energy to run the Ministry of Energy.
It is no secret that Khan underwent major heart surgery a couple years ago and we are all happy he was able to recover but as we looked at him shuffle to receive his letter of appointment from the President one could not help feel a sense of sadness that the Prime Minister would put such burden on a man who has given so much and who is clearly in the winter of his years and would better spend his time with family and taking care of his health.
It is not just the fall in production that we must judge Khan’s performance by. He has overseen a botched bid round where a year later no block has been awarded nearshore and the bids made by Royal Dutch Shell and BPTT were almost not worth the paper they were written on as sources in the Ministry say they were so below the threshold it appears they were only meant to save the government’s blushes.
Khan has been Minister of Energy and, to date, there is not a single deep water bid round. To be sure we will pay the price as a country down the road for his inertia.
All of the drilling including the Touchstone success were based on blocks given out by the former administration.
It may not be apparent but the PNM has been in power for 14 of the last 19 years. In the last 11 of the PNM’s 14 years it has failed to award a single block for exploration.
Khan has had the dubious honour of overseeing the closure of Petrotrin, the collapse of the Point Lisas Estate and it appears that he is only allowed to be the bearer of bad news or defend the indefensible in Parliament. Any good news is announced by the Prime Minister.
I have known Mr Khan for a long time and he is always a pleasant man. But when it’s time to go we must exit the stage. We must all know when we can do no more.
Rather than being pushed out, the Energy Minister should do the honourable thing and resign. The time has come when people need not to be wedded to office but to principles and surely Mr Khan must know this stint as Minister of Energy has been one of failure.
Over this Christmas season and as we prepare to enter a new year one can only hope Khan reflects and does the right thing.
Merry Christmas everyone!