In the re­al world, mar­kets are im­per­fect and equi­lib­ri­um con­di­tions, where sup­ply and de­mand are even­ly matched, ex­ist on­ly for short pe­ri­ods. Mar­ket fac­tors are al­ways re­spond­ing to stim­uli and pe­ri­ods of over­sup­ply or un­der­sup­ply are the norm. Mar­ket prices are sig­nals which re­flect the pre­vail­ing mar­ket con­di­tions.

In tight mar­kets where de­mand is greater than sup­ply, if prices re­main high for long pe­ri­ods, they en­cour­age in­vestors to add new ca­pac­i­ty which has the ef­fect of re­duc­ing prices.

 The re­verse is al­so true. Mar­ket re­spons­es hap­pen with a time lag as there is a lead time to add new ca­pac­i­ty. All mar­kets be­have this way, for­eign ex­change mar­kets in­clud­ed. Giv­en glob­al­i­sa­tion, prices in any ge­o­graph­ic re­gion will re­flect price move­ment else­where. This sce­nario ex­plains the sharp rise in the oil and nat­ur­al gas prices af­ter the re­open­ing of economies in the post-COVID pe­ri­od.

The war in Ukraine added to the mar­ket in­sta­bil­i­ty in 2022 and prices moved sharply up­ward. In the two years since then, world nat­ur­al gas out­put has in­creased in re­sponse to the high­er prices. Un­for­tu­nate­ly, world eco­nom­ic growth has slowed and this win­ter has been milder (when de­mand for heat­ing should have been high­er) whilst gas out­put has in­creased in the rest of the world. Cli­mate change has led to warmer weath­er, mean­ing milder win­ters which has meant low­er gas us­age.

Nat­ur­al gas out­put has stag­nat­ed in T&T. The Unit­ed States has be­come the largest pro­duc­er of nat­ur­al gas and now ac­counts for more than 25 per cent of the world’s pro­duc­tion or ap­prox­i­mate­ly 105 bil­lion cu­bic feet (BCF) of gas a day. By com­par­i­son, T&T’s nat­ur­al gas pro­duc­tion is 2.6 bcf.

On Fri­day, Feb­ru­ary 16, Hen­ry Hub gas prices fell to the low­est clos­ing price since 1995 at US $1.60 per MMB­tu. This has re­sult­ed in a gas glut and ris­ing in­ven­to­ries as sup­ply has out­stripped de­mand. If these mar­ket con­di­tions per­sist, it will lead to plant clo­sures as in T&T in 2018. One might ar­gue that this sit­u­a­tion on­ly ap­plies to the US mar­ket, and the rest of the world is short of gas. How­ev­er, slug­gish mar­ket de­mand has al­so dri­ven down prices in oth­er parts of the world. In Eu­rope, prices for con­tracts trad­ed on the In­ter­con­ti­nen­tal Ex­change have fall­en by 22 per cent this year and con­tracts trade at $7.90 per MMB­tu or 90 per cent less than the 2022 prices.

The same is true for north­east Asia where the prices of liqui­fied nat­ur­al gas have fall­en by 23 per cent to 2021 lev­els. These price move­ments are ev­i­dence of a mar­ket im­bal­ance. Some LNG plants will close and oth­ers will ex­pe­ri­ence op­er­at­ing loss­es. The car­ry trade to Asia may still ben­e­fit T&T LNG. It is worth re­mem­ber­ing that T&T is now a high-cost pro­duc­er, and the mar­gins will be small­er. This sim­ply adds to T&T’s dif­fi­cul­ties. Since nat­ur­al gas pro­duc­tion has de­clined, LNG out­put will stag­nate. Petro­chem­i­cal out­put will al­so be af­fect­ed. For ex­am­ple, last week this col­umn not­ed that from Sep­tem­ber 2024 Methanex will be us­ing its small­er plant, Ti­tan and its larg­er plant, At­las, will be closed. Methanex’s ca­pac­i­ty util­i­sa­tion will now fall to 45 per cent down from 55 per cent in 2023 pro­vid­ed that it is sup­plied with enough gas to keep the Ti­tan plant ful­ly utilised.

T&T’s pos­i­tive eco­nom­ic out­turn for 2021-23 was due main­ly to in­ter­na­tion­al price in­creas­es as­so­ci­at­ed with nat­ur­al gas and its de­riv­a­tives. The mar­ket prices for LNG and petro­chem­i­cals sug­gest that T&T’s eco­nom­ic growth pro­jec­tions may have been too am­bi­tious.

Eco­nom­ic fore­casts are not per­fect as mar­ket con­di­tions change and those fore­casts were built on out­put and price as­sump­tions which are no longer valid. Now that prices have de­clined, the econ­o­my will re­turn to the same weak per­for­mance it ex­hib­it­ed be­tween 2017 and 2020. The per­for­mance of the Na­tion­al Gas Com­pa­ny (NGC), the na­tion­al eco­nom­ic flag­ship, is a rough guide to the pos­si­bil­i­ties.

Read­ers should note the in­con­sis­ten­cy and volatil­i­ty in the NGC’s re­port­ed prof­its. Be­tween 2018 and 2022, NGC re­port­ed a prof­it of $2.2 bil­lion in 2018, a sharp re­duc­tion to $482 mil­lion in 2019, a loss in 2020 of$2.1 bil­lion, and a prof­it of $2.5 bil­lion in 2021 and $2.4 bil­lion in 2022.

In­ter­im re­sults for 2023 are not avail­able on the com­pa­ny’s web­site. If the com­pa­ny fol­lows its nor­mal re­port­ing cy­cle we will not know the com­pa­ny’s per­for­mance for the next six months. Of even greater in­ter­est is the sharp rev­enue vari­a­tions. Re­port­ed rev­enues in 2018 were $16 bil­lion and $13.6 bil­lion in 2019. In 2020 the com­pa­ny re­port­ed a $2.1 bil­lion loss from rev­enues of $11.4 bil­lion. In 2021, rev­enues in­creased to $23.6 and in­creased again in 2022 to $33 bil­lion.

De­spite the $10 bil­lion rev­enue in­crease in 2022, prof­its fell from $2.5 in 2021 to $2.4 bil­lion in 2022. A prof­it of $2.4 from $33 bil­lion in rev­enue in 2022 does not com­pare well with a prof­it of $2.2 bil­lion from rev­enues of $16 bil­lion in 2018.

 The volatil­i­ty in NGC’s rev­enue and prof­its demon­strates the risk­i­ness of re­ly­ing on one sec­tor to dri­ve the coun­try’s eco­nom­ic per­for­mance. This has im­pli­ca­tions for gov­ern­ment rev­enues and the main­te­nance of a sus­tain­able ex­pen­di­ture path. Plan­ning growth and de­vel­op­ment based on a volatile rev­enue source is not pru­dent. There­fore man­ag­ing pub­lic ex­pec­ta­tions is crit­i­cal in main­tain­ing in­vestor con­fi­dence. What goes up will come down.

Mar­i­ano Browne is the Chief Ex­ec­u­tive Of­fi­cer of the Arthur Lok Jack Glob­al School of Busi­ness. ALJGSB is a not-for-prof­it cor­po­ra­tion.