Nat­ur­al gas, not oil, is the cor­ner­stone of T&T’s eco­nom­ic prospects. The move to the ex­port of liq­ue­fied nat­ur­al gas in 1999 cre­at­ed boom con­di­tions that last­ed un­til 2014 when in­ter­na­tion­al en­er­gy prices steeply de­clined lead­ing to a de­pres­sion last­ing from 2015 to 2021. The en­er­gy sec­tor gen­er­ates at least 80 per cent of the coun­try’s for­eign ex­change earn­ings and ac­counts for 30 per cent of GDP. T&T’s GDP growth has a strong re­la­tion­ship with glob­al com­mod­i­ty prices (gas, oil and am­mo­nia, methanol urea). When en­er­gy prices are high, the econ­o­my does well and de­clines when en­er­gy prices are low.

This en­er­gy sec­tor de­pen­dence di­rect­ly im­pacts the coun­try’s for­eign ex­change earn­ings and gov­ern­ment rev­enue from the en­er­gy sec­tor (petro­chem­i­cals in­clud­ed). This mech­a­nism af­fects the rest of the econ­o­my as most in­puts are im­port­ed, petrol, food, man­u­fac­tur­ing in­puts, house­hold items, clothes, etc, and ul­ti­mate­ly the rate of un­em­ploy­ment and the size of the na­tion­al debt. When tax rev­enues fall as they did in the 2014-21 pe­ri­od, the Gov­ern­ment bor­rows on the do­mes­tic and in­ter­na­tion­al mar­kets to sus­tain its ex­pen­di­ture and this in­creas­es the na­tion­al debt.

Giv­en this back­ground, three key da­ta points are im­por­tant. First, the vol­ume of nat­ur­al gas pro­duced, sec­ond, the nat­ur­al gas price, and third, the prices of the petro­chem­i­cals de­rived from the gas. The war in Ukraine and the roll­back of the pan­dem­ic es­ca­lat­ed en­er­gy prices giv­ing the T&T econ­o­my a wind­fall gain in 2022 and a bud­get sur­plus. That bang has now dis­ap­peared, and the econ­o­my is run­ning on the resid­ual ef­fect which will not last long.

The 2023 bud­get en­er­gy was based on an as­sumed nat­ur­al gas well­head price of USD 6 per MMB­tu and an oil price of USD 92.50 and re­alised av­er­age mar­ket prices (not well­head prices) are cur­rent­ly well be­low (60 per cent be­low) the bud­get­ed price of nat­ur­al gas and less so in the case of oil (20 per cent). The world price of am­mo­nia, our largest petro­chem­i­cal ex­port has tanked, falling from an av­er­age of USD 1,100 per met­ric ton in 2022 to $335-345 per ton on the spot and con­tract mar­ket ac­cord­ing to S&P Glob­al Com­mod­i­ty In­sights for the week end­ing May 4, a 70 per cent de­cline in prices. This price is ex­pect­ed to fall fur­ther.

These are cur­rent prices and sug­gest that the pro­jec­tions in­clud­ed in the re­cent­ly re­leased IMF Ar­ti­cle IV con­sul­ta­tion are un­re­al­is­tic. Giv­en that these pro­jec­tions were gen­er­at­ed in De­cem­ber 2022 (lat­est Jan­u­ary 2023) they are out­dat­ed and do not rep­re­sent the cur­rent re­al­i­ty. The fi­nance min­is­ter could quote these num­bers to present a rosy out­look with eco­nom­ic growth for 2023 pro­ject­ed at 3.2 per cent. This growth is pred­i­cat­ed on an en­er­gy sec­tor growth of 2.9 per cent which is not now pos­si­ble. If he were to do so that out­look would be false as the change in en­er­gy prices re­port­ed here­in sug­gest con­trac­tion not growth.

A fuller pic­ture could be ob­tained by re­fer­ring to nat­ur­al gas out­put for the first few months of 2023. Un­for­tu­nate­ly on May 5 pro­duc­tion da­ta on the En­er­gy Min­istry’s web­site is avail­able on­ly for the pe­ri­od end­ed De­cem­ber 31, 2022. No pro­duc­tion da­ta is avail­able for the pe­ri­od Jan­u­ary to May 2023. The re­al­i­ty is that nat­ur­al gas pro­duc­tion is in long-term de­cline as new gas finds have failed to keep up with pro­duc­tion. There­fore, since there have been no new finds and the lev­el of ex­plo­ration ac­tiv­i­ty has been sharply cur­tailed by the en­er­gy ma­jors, more gas in what­ev­er form can­not be ex­port­ed to com­pen­sate for the de­cline in prices.

In­stalled plant ca­pac­i­ty re­quires a dai­ly gas sup­ply of ap­prox­i­mate­ly four bil­lion cu­bic feet (bcf). In 2022 av­er­age dai­ly pro­duc­tion amount­ed to 2.7bcf. At this pro­duc­tion vol­ume, some plants will close. High­er prices in 2021-22 al­lowed com­pa­nies to op­er­ate at low­er through­put vol­umes where the op­er­at­ing cost is high­er. In this busi­ness, com­pa­nies re­ly on con­tracts that pro­vide them with some cer­tain­ty al­low­ing them to take medi­um to long-term de­ci­sions. NGC sup­plies gas to petro­chem­i­cal com­pa­nies in ac­cor­dance with ne­go­ti­at­ed con­tracts which are re­newed pe­ri­od­i­cal­ly. And there are pro­vi­sions for breach of con­tract.

In 2019 many plants were closed ei­ther be­cause there was not enough gas to sup­ply all the plants, or be­cause it was cheap­er to close the plants. Cur­rent­ly, some plants are closed for main­te­nance, ex­act­ly the sit­u­a­tion in which Kevin Ram­nar­ine found him­self in 2013 when the first gas short­age came to a head. The gas sup­ply short­age con­tin­ues. The Ju­niper, An­gelin, and Mat­a­pal projects pro­vid­ed on­ly short-term re­lief in 2018. Now that petro­chem­i­cal prices have soft­ened dra­mat­i­cal­ly the sup­ply prob­lem must be ad­dressed. Since there is no new source of gas and no re­al­is­tic op­por­tu­ni­ty for ad­di­tion­al sup­plies of gas in the short term, there is a strong pos­si­bil­i­ty that these plant clo­sures could be­come per­ma­nent.

There are oth­er knock ef­fects. If en­er­gy plants are closed, T&TEC be­comes less vi­able, re­quir­ing high­er prices from all cus­tomers. The same is true for De­sal­cott. This is a trou­ble­some out­look that re­quires a cool head, a strong heart, and ex­cel­lent com­mu­ni­ca­tion skills to per­suade the cit­i­zen­ry to adapt and trim their sails to trav­el through the rough wa­ters ahead.

Mar­i­ano Browne is the CEO of the Arthur Lok Jack Glob­al School of Busi­ness.