Apr 2015 Financial News

T&T facing oil price challenges–Howai

Apr 16, 2015

With much attention on Shell’s-US $70 billion acquisition of British Gas last week, Finance Minister Larry Howai says the “balance of probability” is that the transaction will benefit this country. more on the upside for us.”

T&T accounts for 13 per cent of BG’s global volumes, according to Prime Minister Kamla Persad-Bissessar. She addressed the Summit of the Americas chief executive officers’ conference on April 10 titled: “Energy: fueling America’s growth” held at the RIU Plaza hotel in Panama.

Persad-Bissessar said she received written correspondence from CEO of Royal Dutch Shell Ben van Beurden, where he confirmed the acquisition and stated his commitment to continued investing in T&T.

Business Guardian spoke to Finance Minister Larry Howai last week Friday, to find out how important this transaction is to T&T.

“At this stage it will be too early for us to have any indication of whether there would be any such occurrence. We recognize the fact that T&T is very important to the merged entity. Shell will become one of the largest owners in the Atlantic trades,” Howai said.

Howai said BG’s T&T assets would be manageable as compared to other countries like Brazil and Australia where there is high risk.

“My own sense of it at this stage is that there is significant prospectivity in the fields that BG has, and Shell would be concerned to ensure that there is a continuous supply of gas coming into the four trains of LNG that we have.

“I think they will see an opportunity there that is much more manageable for them than perhaps what exists in many other areas or parts of the world-Brazil and Australia for example.”

Explaining the benefits which the LNG trains would have on Shell, Howai said there may be increased upstream activity as a result of the acquisition of BG.

“Our LNG trains are some of the most cost-effective trains in the world given the timing of when they were built, the excellent management, and how well they operate here in T&T. I think they will be and continue to be jewels in the crown of this merged entity.”

“I think the balance of probability is that we are likely to see more activity as a result of Shell’s deeper pockets and their ability to accelerate some of the work that could potentially take place as far as the upstream sector is concerned. While there are potential downsides in terms of any kind of rationalization we won’t know until everything is properly opened. The probability is more on the upside that Shell would see the opportunities that exist in these four well-established, very profitable, highly-cost effective LNG trains that we have and the significant degree of prospectivity that exists in the upstream offshore T&T. I think the balance of probability is more on the upside for us.”

T&T’s economy

Regarding the price of oil, Howai predicted that there would be challenges ahead, but measures are in place to cope with those challenges.

“Prices have come down in terms of what we are seeing in the reduction in the price of oil. We do see some challenges in terms of continuing to maintain our broad fiscal position. We’ve put a number of measures in place and we will continue to accelerate those measures on a well-timed basis, and in a way that it is brought into play in a very meaningful way. We think we have in place plans to cope with the challenges that will arise.”

Asked to elaborate on what challenges which T&T economies faced, he said: “I am talking about the oil revenues as a result that the prices will be lower. The lower revenues would create some challenges but we have been able to deal with them well.”

Howai’s comments about the economy comes even as the Economic Commission for Latin America and the Caribbean (Eclac) is projecting a decline in T&T’s economic growth forecast to 1.9 per cent this year. Eclac said in a report released in early April that: “While gas prices remain above the level assumed, oil prices have fallen steadily since mid-year from US$115 per barrel in June to below US$70 in November.”

But Howai said T&T’s budget is being managed well.“In the first quarter (2015), we showed a surplus of $328M even though prices were coming down. Although we said we expected this quarter to be even more challenging, we still think that for the first half of this year, we will do better than we had originally budgeted when we thought prices would have been above $80 per barrel.”

“We have been putting measures in place to gradually bring things under control. We have a number of other measures that we are working on now, as well as other contingencies, as well as the possibility that the price could go down even further.”

Responding to what he called “rumours” that the price of oil could drop, Howai said: “There is talk that the price of oil could drop between $5 and $15 more. It probably won’t be $15 right away because Iran itself cannot bring its production up to a level they would like to, immediately.

“There is a lot of work that is left to be done like phasing out of sanctions. It’s not going to happen right away but definitely it is something that we need to factor into the equation as we go forward. “We’ve already started to work our numbers on lower prices to see what the effect is likely to be, and to determine what we need to do. So far we see that the range of policy measures available to us should allow us to weather this particular cycle.”

Obama’s Energy Fund

At the recently concluded Summit in Panama, US President Barack Obama announced: “Today we are announcing new partnerships and a new fund to mobilise private sector projects in clean energy for the Caribbean and Central America.”

Commenting on the announcement, Howai agreed that there is need to develop, “the capability and potential of the region, in terms of being able to exploit the resources that we have. In addition, there is the recognition that there are challenges that a number of economies in the region face.”

He added: “Even though the price of oil has come down, there is still the global situation that continues to affect all of these countries. Therefore, it remains something that we need to be very proactive about. In terms of ensuring that when your neighbours house is on fire you have to wet yours a bit. If there are problems they are having we have to see to what extent we might be able to be proactive in ensuring that we manage our environment and that we help them to manage theirs so we don’t feel the fallout effects of what is happening in the region on economies such as ours.”

US Currency

Referring to the supply of US currency, Howai said it is a situation which the Central Bank of T&T continues to look at.

“The expectation is that most of the people in the cues within a week or two should be cycled off of the cues. Normally people have a window, you are billed but you are not required to pay the same day, you get 30 days credit as the case may be.

“The feedback that I have been happening, certainly the banks are not saying that they are having difficulty meeting the requirement unlike what had happened some months ago where they came to me and said we have a problem. We said okay, we will intervene and see to what extent, working cooperatively with all the stakeholders we could arrive at a solution. In this case we are not getting that type of feedback.”

 

Source:
NADALEEN SINGH
nadaleen.singh@guardian.co.tt
Business Guardian, BG4 and BG5
Thursday April 16, 2015