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.”