Energy fuels Trinidad & Tobago's woes

Prime Minister Keith Rowley (pictured) and his ruling PNM party face rising pressure from Trinidad & Tobago’s (T&T) oil workers union, fiscal woes and a weak economic recovery.

The president of the oilfield workers union (OWTU), Ancel Roget, attacked the prime minister at the union’s annual conference over alleged lies related to former state oil company Petrotrin.

“Could you imagine if [major opposition party] United National Congress had attempted to close Petrotrin what would have happened?” said Roget, according to local news outlet Newsday. “Let us be honest, the PNM and their supporters would have never remained silent as they are now. They would never have allowed the closure of the biggest state enterprise in the English-speaking Caribbean,” added Roget.

In August 2018, Trinidad & Tobago closed Petrotrin's oil refining operations at Pointe-a-Pierre, restructuring the company into a block of new companies. 

Roget now alleges Rowley and company officials lied regarding the number of dismissals and how layoffs would impact the economy at large. 

“Some of these same PNM party supporters actually gave their support to this atrocity. Why? Only because of party loyalty and race,” said Roget, referring to deep divisions between citizens of Indian ancestry, who founded the UNC party, and African descendants who belong to ruling PNM party. 

Meanwhile, opposition leader Kamla Persad-Bissessar announced UNC plans to restart Petrotrin and called on the government to halt the planned licensing or sale of the former refinery until after the general election in September 2020.

ENERGY RESTRUCTURE

But Rowley’s government has also made progress to solve fiscal problems, revitalize the slumping oil sector and further exploration and development of natural gas fields, with ratings agency Moody’s offering a favorable analysis.

“The government has successfully reined in expenditures, aligning them more closely to revenue intake,” Moody’s wrote.

“Additionally, the government has so far also shown effective policymaking in the restructuring of Petrotrin into Trinidad Petroleum, which could have devolved into a potentially hazardous political and fiscal situation,” Moody’s said.

The agency rates the government at the high end of its speculative investment grade – Ba1 (stable).

Other aspects of the restructure have also won praise.

Petrotrin transferred its upstream assets to the newly formed Heritage Petroleum Company, with Touchstone Exploration, a local junior, describing the transition as “seamless” from an operations perspective, and “only minor delays noted for existing well workover approvals.”

However, while the country still has a sizeable financial buffer, for example with its Heritage and Stabilize fund (HSF), it has had difficulties recovering from plummeting oil production and years of low international oil prices.

This is building toward sustained high deficits, and Standard & Poor’s, which continues to see the sovereign as investment grade, took action to reflect this. 

Citing “fiscal and economic stress” and “a subdued gas sector with a slow recovery in oil production,” S&P lowered earlier this month its long-term foreign and local currency sovereign credit ratings to 'BBB' from 'BBB+', clocking the outlook as stable. The new rating is still relatively higher than Moody’s ‘Ba1’, but shines a light on the deficit situation.

“We forecast the fiscal deficit to average 4.7% of GDP from 2019-2020 to 2021-2022, and do not expect the government to meet its previously established target of reaching a balanced budget by 2020-2021,” wrote the ratings agency in its rating announcement, with fiscal accounts continuing to be exposed to “significant” volatility ahead.

Moody’s sees upside risks to finances if oil and gas production increase.

REVERSAL OF FORTUNE

But this would require a serious reversal. As of February 2019 (the latest available data), oil production was 59,833b/d, down from an average 63,500b/d in 2018 and 98,200b/d at the start of the decade.

Much of the blame for the drastic fall has been placed on Petrotrin, “as much needed capital was diverted to other parts of the business, which in several instances offered little or no financial returns,” Rowley said at an event organized by the country’s energy chamber earlier this year.

S&P estimates real GDP growth of 0.4% in 2019.

“This low growth has contributed to negative trend growth in real GDP per capita … leading to stagnant income levels near where they were a decade ago. This growth also continues to fall below that of other countries with similar income levels,” added the agency.

ALARMING GAS DECLINE

S&P also raised alarms with its outlook on gas production, saying, “we believe that unexpectedly lower gas production over the next several years will limit the energy sector's contribution to economic growth.”

The ratings agency added that BP Trinidad &Tobago, which is the largest natural gas producer and contributes over half of the country's gas production, recently announced disappointing results of its infill-drilling program.

S&P wrote, “we expect the government's recent energy agreements related to liquid natural gas (LNG) pricing will benefit energy sector revenues over the outlook horizon.”

However, “even after accounting for the new LNG pricing agreements, we believe that energy sector revenues will remain subdued through 2022, and well below their peak at the height of the energy sector boom nearly a decade ago. These revenues accounted for over half of the government's current revenue at that time, but have dramatically fallen since, accounting now for about one-quarter of current revenue.”

UPCOMING PLAY

Still, the country has some serious gas production coming into play. 

The 283Bm3 Loran Manatee gas field, shared with Venezuela (73%) is being co-developed by the two countries, following an agreement signed in 2010.

Production from the field is estimated to reach 21.4Mm3/d in 2022 and the global unified offshore fields are expected to hold around 340Bm3 of natural gas. 

In June, the government gave Shell the green light to explore development possibilities for the Manatee side of the field.

“One of the things the government encouraged Shell to do is move towards production of the Manatee aspect of Loran-Manatee,” local daily Newsday quoted Rowley as saying.

Investment will focus on Manatee, he said, while Venezuela keeps control of Loran. 

VENEZUELA

A further political risk for T&T relates to its proximity to Venezuela, which remains mired in political turmoil. On Monday, energy minister Franklin Khan denied that his ministry was helping Cuba circumvent US sanctions against Venezuela.

Last week, US senator Marco Rubio tweeted “The [T&T energy ministry] helping Cuba circumvent sanctions related to Venezuela through shipment of LPG via a 3rd party would be an unnecessary irritant in our bilateral relationship.”

Khan replied according to Newsday, “we cherish our relations with the US. We will not attempt to undermine any sanctions which the US has with another country.”

The issue is likely tied to a previous arrangement where National Gas Company subsidiary Phoenix Park Gas Processors (PPGPL) sold LPG to Cuba's state-owned oil import and export company Cubametales, which provided it to the Cuban market.

Earlier this month, the US’ foreign assets control unit (OFAC) blacklisted Cubametales for its continued importation of oil from Venezuela. 

Khan said once Cubametales was blacklisted, PPGPL stopped LPG shipments to Cuba.