As the region’s oil-rich newcomer Guyana looks to steadily soar production, neighbouring Trinidad and Tobago (TT) is struggling with decreased resources, declining output and Covid-19 related-contractions in its troubled energy sector.
Yet, in contrast to the two-month-old Irfaan-Ali administration, the re-elected Keith Rowley-Government intends to “negotiate with the major oil and gas companies (for) an even greater share of energy revenues and complete the assessment of the gas value chain to ensure its viability in the short and medium-term,” Finance Minister, Colm Imbert said recently. All major players will be encouraged to share infrastructure and services, he added, during his three-hour 2021 Budget presentation to Parliament, earlier this month.
In a grim overview of other regional economies, he singled out Guyana becoming an oil-producing country, months ahead of schedule, in December 2019, noting that this country is the only exception with revised growth expected at just over 50 percent this year, as tourism-reliant sister states brace for previous economic gains to be significantly eroded.
Annual Gross Domestic Product (GDP), which indicates the general health of an economy, contracted by 1.2 percent in TT in 2019, reversing a marginal recovery the year before. A 4.5 percent contraction in real GDP in the energy sector outweighed the slight growth elsewhere, with this sector slipping to 34 percent in 2019 from 35 percent in 2018.
During the period January to May 2020, TT’s top CARICOM trading partner remained Guyana which received exports of some TT$403M, followed by Jamaica, TT$297M and Barbados, almost TT$200M. Guyana’s trade deficit meant that this country only sold TT$78M worth of goods to TT. Jamaica and Barbados sent even less, TT$61M and almost TT$50M in products, respectively
Stating that the TT “energy sector is now in major transition” he acknowledged, “The challenges posed by the global energy industry and the associated over-supply situation as well as our own declining rates of production in the gas and oil sectors require us to develop our remaining oil and gas resources in a cost-efficient manner.”
“We are seeing demand destruction also arising from the COVID-19 shutdowns on a scale not seen before,” Mr Imbert added. Investment decisions by major upstream players are being revisited and several petrochemical plants are being idled given gas supply shortages, and lower international demand and price conditions.
But he stressed efforts will continue to build TT’s energy services as a key source of diversification and sustainable growth. “We have estimated that this sector has been employing approximately 40,000 individuals in 720 firms and although our resources are being depleted, we will develop Trinidad and Tobago as a regional hub for energy services,” given “the emerging and ready markets in Guyana and Suriname.”
He announced that the State-owned EXIMBANK will be restructured to provide project financing for Caribbean energy projects by TT companies. The Export Import Bank is the country’s only official credit agency, emerging from the former Trinidad and Tobago Export Credit Insurance Company Limited (EXCICO), established in 1973 by the Government to promote the export of goods and services.
It allows regional buyers access to a range of manufactured goods on credit terms. EXIMBANK is partly self-funded through profits accumulated from trading operations over the years, and by lines of credit from major financial institutions. Support also comes through a loan guarantee from the TT Government.
With still the largest economy in the Caribbean Community (CARICOM), TT remains highly dependent on hydrocarbons, which have contributed around 35 percent of its GDP over the last five years. Involved in petroleum for over a century, the twin-island sister state evolved in the early 1990s from an oil dominant to a natural gas-led sector, as the country became a large exporter of ammonia and methanol.
In August 2018, TT reeled from the drastic restructuring of the chronic loss-making Petroleum Company of Trinidad and Tobago (PETROTRIN), and the historic closure of its oil refinery, that meant the axing of over 1700 workers and hundreds of other associated employees. The State-owned company had bled some TT$8B in the preceding five years; was TT$12B in debt; and owed the Government more than TT$3B in taxes and royalties.
According to the Rowley administration, the Company then required a minimum TT$25B cash injection to refresh infrastructure and to repay debt. Focused on exploration and production, the Government transferred and vested exploration and production assets in the new Heritage Petroleum Company, established Paria Fuel Trading for importing and distributing fuel for domestic and sub-regional markets, and set up a refining arm Guaracara Refining.
While Heritage focuses on ramping-up oil output, the Government is still “engaged in protracted discussions and negotiations” to conclude the sale and purchase agreement for the Pointe-a-Pierre Refinery, hopefully by month-end. If not other options will be considered.
With a 2020 fiscal deficit of nearly TT$17B, the TT Government withdrew some US$900M from its buffer, the Heritage and Stabilisation Fund (HSF), equivalent to Guyana’s fledgling Natural Resources Fund which holds over US$150M. At the end of September TT’s foreign exchange reserves were US$7.3B and HSF assets US$5.7B, with the combined total equating to 59 percent of GDP. He insisted the withdrawals were “nothing unusual” arguing “Governments all over the world have been turning to their Sovereign Wealth Funds to finance the impact of the structural change in global energy markets and to deal with the economic fallout resulting from the COVID-19 pandemic.”
Citing TT’s “serious problems in the oil and gas sector” of declining gas production and the absence of long-term gas supply contracts, Mr Imbert alluded to subsidiary issues of gas pricing for medium-to long-term viability for upstream and downstream industries and the need for “a greater share for our citizens of the income earned in the extraction of our natural gas.”
The Finance Minister praised Prime Minister Rowley’s “astute leadership” saying the “skilful and purposeful dialogue with international oil majors has resulted in mutually acceptable solutions” after “years of circular discussions.” Now underway are the planning and execution of production from the Manatee Field, separate and apart from the Loran Field.
“We now have in place a gas pricing regime which establishes long-term viability for our up-streamers and down-streamers and importantly, gas production has been stabilized and we have in place an agreed share for our citizens of 12.5 percent as a royalty rate on the income earned in the extraction of our natural gas.”
In September, “because of continuing negotiations” British Petroleum (BP) TT received a ten-year extension on 92 of its exploration and production licenses in the Columbus Basin, with the State set to “reap a financial benefit of US$250M over the four-year period 2021-2024.” On completion of Phase One of the discussions in December 2018, BP received a ten-year extension of its southeast Galeota license and 91 Teak, Samaan, Poui and East Mayaro licenses. In return, the State received TT$1B for settlement of legacy issues. These renewals of exploration and production licenses, and the cash payments “have been mutually beneficial and have placed the energy sector on a more solid and sustainable footing,” Imbert stated.
With other investments down the energy value chain and in major renewable green energy initiatives, including the Caribbean’s largest solar project of 112 megawatts of power, “we will continue to be an attractive location for investment in the oil sector for years to come.” Guyana had better take note.
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