Cur­tis Williams

cur­tis.williams@guardian.co.tt

En­er­gy Min­is­ter Franklin Khan has ad­mit­ted that if the on­go­ing price-war be­tween Sau­di Ara­bia and Rus­sia con­tin­ues for a pro­longed pe­ri­od this coun­try could be sig­nif­i­cant­ly hurt.

In a brief in­ter­view yes­ter­day Khan told Guardian Me­dia: “The Sau­di’s have their own agen­da, Rus­sia has a more geopo­lit­i­cal agen­da be­cause they are claim­ing that they want to squeeze the US out of the Shale mar­ket. But in any event both Sau­di and Rus­sia, for what­ev­er rea­sons, they can sur­vive on de­pressed prices for a pe­ri­od, as for how­ev­er long that pe­ri­od is I don’t know, but coun­tries like Trinidad who are price tak­ers—I mean we would be hurt se­vere­ly.”

Fear and a price-war be­tween two of the world’s largest oil pro­duc­ers have caused a pre­cip­i­tous col­lapse of crude prices and re­sult­ed in a team led by Fi­nance Min­is­ter Colm Im­bert, Khan and Min­is­ter in the Of­fice of the Prime Min­is­ter Stu­art Young work­ing on plans to ame­lio­rate the fall­out should the coun­try have to en­dure a sus­tained pe­ri­od of de­pressed prices.

Khan said Prime Min­is­ter Dr Kei­th Row­ley who is out of the coun­try has been con­tact­ed on the de­vel­op­ing cri­sis.

“It on­ly hap­pened a cou­ple days ago and took the pre­cip­i­tous dive yes­ter­day. So we are in dis­cus­sion, the Min­is­ter Fi­nance, my self and Min­is­ter Young made com­mu­ni­ca­tion with the Prime Min­is­ter. And we are dis­cussing what plans we can put in place in the event that this is a sus­tained de­pressed mar­ket,” Khan told Guardian Me­dia.

The Fi­nance Min­is­ter has called a news con­fer­ence for eleven o’clock to­day to up­date the me­dia and the coun­try on the state of the econ­o­my.

Over the week­end, the Saud­is slashed their of­fi­cial sell­ing prices by $6-7 a bar­rel to all mar­kets in­clud­ing Asia, and sig­nalled they would boost pro­duc­tion as of April, send­ing oil prices in­to a tail­spin on Mon­day to the biggest fall since 1991.

Late yes­ter­day evening, Brent Crude was trad­ing at US $33.48 down 26 per cent of US $11.84 a bar­rel from a day ago and West Texas In­ter­me­di­ate was down by 24.6 per­cent trad­ing at US $31.13 a bar­rel US$10.15 less than the pre­vi­ous 24 hours.

To put this in­to con­text the two mark­ers are im­por­tant be­cause oil from the T&T’s east coast and con­den­sate tend to fetch just above Brent prices, while Her­itage Pe­tro­le­um and crude from in­de­pen­dent op­er­a­tors on-land tend to trade at US $5 above WTI prices.

T&T pro­duces just un­der 59,000 bar­rels of oil per day and the gov­ern­ment gets rev­enue from tax­es and when prices are over US $50 a bar­rel al­so gets a wind­fall tax in the form of Sup­ple­men­tal Pe­tro­le­um Tax.

Khan ex­plained that there are a lot of is­sues that are af­fect­ing the oil price in­clud­ing the coro­n­avirus and the price war be­tween Rus­sia and the Saud­is.

The Min­is­ter said he is hop­ing it would not be a sus­tained pe­ri­od of very de­pressed prices but the gov­ern­ment is dis­cussing al­ter­na­tives and as they be­come clear­er will com­mu­ni­cate with the pub­lic.

When asked how this will af­fect Her­itage, Khan said: “Well Her­itage, for­tu­nate­ly, has been in­creas­ing their pro­duc­tion be­cause of the MOPU (Mo­bile Op­er­at­ing Pro­duc­tion Unit) is now up.

“They have been for­tu­nate al­so in get­ting fair­ly good prices for their crude, which is av­er­ag­ing WTI+5. And that has hap­pened for the first half of the fis­cal year be­cause re­mem­ber we’re halfway through the fis­cal year al­ready.” The Min­is­ter told Guardian Me­dia.

Khan ac­knowl­edged that for the last two months prices have been much low­er than an­tic­i­pat­ed. The En­er­gy Min­is­ter said he was hop­ing that if the prices are low for a cou­ple months it would not sig­nif­i­cant­ly erode the coun­try’s over­all fis­cal sit­u­a­tion.

“But hav­ing said that when you look at the dy­nam­ics of the mar­ket it is hard to pre­dict. Rus­sia and Sau­di could hug up to­mor­row and every­thing will be sort­ed save and ex­cept Coro­na (COVID-19) but a lot of these things we have no con­trol over, all we could do, just like as your­self as a jour­nal­ist is mon­i­tor the in­ter­na­tion­al mar­ket. We have no in­sid­er in­for­ma­tion, we are not a mem­ber of OPEC we have like how we are a mem­ber of the GECF (Gas Ex­port­ing Coun­tries Fo­rum) so that you could get some in­sid­er in­for­ma­tion. So we just have to mon­i­tor the glob­al mar­ket, it is af­fect­ing the stock mar­ket it is af­fect­ing Wall Street, so it is not a com­fort­able po­si­tion in the world. And with the coro­n­avirus, the world econ­o­my is go­ing down sig­nif­i­cant­ly in Eu­rope and Asia.”

On­ly yes­ter­day the In­ter­na­tion­al En­er­gy Agency pre­dict­ed that glob­al de­mand for crude oil will fall for the first time since the great re­ces­sion of 2009.

The re­port read: “While the sit­u­a­tion re­mains flu­id, we ex­pect glob­al oil de­mand to fall in 2020—the first full-year de­cline in more than a decade—be­cause of the deep con­trac­tion in Chi­na, which ac­count­ed for more than 80% of glob­al oil de­mand growth in 2019, and ma­jor dis­rup­tions to trav­el and trade”

In an in­ter­view with Guardian Me­dia (GML), Econ­o­mist Gre­go­ry McGuire re­marked: “Well that’s pret­ty ob­vi­ous. Low oil prices mean less gov­ern­ment rev­enue, means a larg­er fis­cal deficit, means the gov­ern­ment can’t meet its ex­pen­di­ture com­mit­ments un­less it bor­rows and/or draws down more on the Her­itage and Sta­bi­liza­tion Fund—be­cause that’s what it’s there for.”

En­er­gy Cham­ber CEO Dr Thack­wray “Dax” Dri­ver echoed McGuire’s sen­ti­ments, al­so in­di­cat­ing to GML “there will be a neg­a­tive im­pact on T&T’s econ­o­my” and “on the for­eign ex­change sit­u­a­tion.”

On Mon­day, Oc­to­ber 7th 2019, the Fi­nance Min­is­ter Colm Im­bert as­sumed an oil price of US$60 per bar­rel with an ex­pect­ed rev­enue of $11 bil­lion for the fis­cal year 2020.

McGuire stat­ed that if there is a pro­longed pe­ri­od of oil low oil prices, the gov­ern­ment will then have to seek ways and means of cut­ting its ex­pen­di­ture. He com­ment­ed that cut­ting ex­pen­di­ture has its own im­pli­ca­tions in terms of the num­ber of jobs or fur­ther re­duc­tions in gov­ern­ment sub­si­dies.

McGuire added: “We are al­ready not hav­ing as much as we used to, so for fur­ther pro­longed re­duc­tion in in­come will, in fact, ac­cel­er­ate the lev­el of dif­fi­cul­ty that we will face as an econ­o­my.”

When asked if the sav­ings from the low­er crude prices should be passed on to the T&T cus­tomers, where­by they will pay less at the pumps, McGuire said: “In the­o­ry, yes.”