Oil price crash spells trouble for Trinidad and Tobago’s economy

The oil price crash yesterday spells trouble for Trinidad and Tobago’s economy. 

An aerial view of Port of Spain Trinidad and Tobago. (Photo: london.ac.uk)

That’s the assessment of University of the West Indies (UWI) economist, Dr Roger Hosein, who has urged the Government to immediately seek to have a contingency meeting and develop a “plan B” to deal with the financial crisis. In addition, he argued that the administration must bring forward the mid-term review of the economy.

“I think they will have to do an entire re-look of transfers and subsidies to see if they can shave a further $7 billion from it. I think they will have to look at the Heritage and Stabilisation Fund if (the crisis) continues (like this) for some fiscal support for the fiscal gap that will emerge,” Dr Hosein told the Trinidad Express.

“In fact, I had argued last October that the natural gas price assumption was too high. I suspect the Government is struggling it make its recurrent expenditure commitments.”

– Former Energy Minister, Kevin Ramnarine

Hosein charged that Trinidad and Tobago should be worried because this plunge in prices will be a blow to revenue streams, adding “We should be worried the coronavirus plus this Saudi Arabia/Russia oil price war could take prices as low as US$20 a barrel…” He went on to say, “It is unfortunate that we didn’t diversify the economy enough or that the ease of doing business is so badly poised that we can generate business from other commodities so as to weaken the dependence on the oil sector.”

The UWI Economist contended that the situation is so bad “that all around, the debt is mounting, the fiscal gap would increase, the growth will fall and we need a comment by the Prime Minister and senior Cabinet members to explain to the population the way forward in this trying time period.” Hosein said if the price of oil stays below US$30 and the price of gas is US$1.50 per 1 million BTU (British Thermal Unit) MMBtu “we would not get revenues of the kind we budgeted and so we will be unable to pay our immediate bills and we would therefore need to turn to other sources for funding support be it wages, goods for the hospitals or any type of expenditure”.

The current budget was predicated on a US$60 per barrel price which has fallen significantly since.

Saudi/Russia clash

Former Energy Minister, Kevin Ramnarine said the events of the last three days were now well known as reports indicated that having failed to get Russia to agree to further cuts in oil production, the Saudis decided to increase their own production and discounted crude oil deliveries for April 2020.

He noted that the response of the markets to this information has been a predictable collapse in oil prices into the US$30s. Ramnarine pointed out that at one point it reached as low as US$28 per barrel and Goldman Sachs predicted prices could go into the US$20s.

Gopeesingh said he wants the Government to revisit the $53 billion budget amid falling oil prices.

He said this happened before and T&T suffered. “The Saudis have done this before. In 1985 they increased their production after they discovered other OPEC members had been cheating on their production quotas. The result then was the economic collapse of T&T,” the former minister said.

Ramnarine said given that oil prices are positively correlated with natural gas prices and methanol prices, the country can expect already depressed natural gas and methanol prices to also fall. Ammonia prices, he said are already 50 per cent lower than they were in 2015.

“All this comes at a time when markets are already over-supplied and demand has been battered by COVID-19. T&T is facing a full-blown economic crisis,” he added.

Ramnarine noted that the 2020 budget was predicated on an oil price of US$60 per barrel and a natural gas price of US$3 per MMBtu. He said even before coronavirus and the Saudi/Russia price clash, natural gas prices had significantly declined due to over-supply and the US/China trade war.

In 2019, he noted, natural gas prices in Asia fell by 44 per cent and in Europe by 41 per cent.  According to Ramnarine, “So, clearly these 2020 budgetary price assumptions are now irrelevant. In fact, I had argued last October that the natural gas price assumption was too high. I suspect the Government is struggling it make its recurrent expenditure commitments. I don’t see how they can make the revenue target in the 2020 budget of TT$47.7 billion. It will be far less than that.”

Caroni East MP Dr Tim Gopeesingh also yesterday issued a statement, arguing that the dramatic collapse in the price of oil, Trinidad and Tobago’s inability to meet its natural gas production targets, domestic economic stagnation and Government’s failure to diversify, among other issues, meant that problems the population has been facing over the past four-and-a-half years will worsen.

“I therefore call on the Government to urgently revisit its $53 billion budget, in the manner that then-prime minister Kamla Persad-Bissessar had done in January 2015 when commodity prices fell,” he stated.