Business View Caribbean - January 2016 11
“You may recall that the 2015 budget was prepared
on an anticipated oil price of $80/barrel. As the oil
price continued its relentless downward slide we
were told early in the year that there was a new
budgetary horizon based on downward adjustment
to $45/ barrel. This never happened but expenditure
remained as if the revenue flows were coming in as
originally planned,” he said.
“You will also recall that the incoming new govern-
ment based the current 2016 Budget on an oil price
of US$45 per barrel, in October. Today the price of
oil is hovering around $36.00 per barrel,” he added.
Rowley failed to mention, however, that his People’s
National Movement (PNM) manifesto promises
ahead of the September 7th general election were
also based on an oil price of $80 per barrel, despite
clear signs that this was never going to be realized
in practice.
Similarly, the price of liquefied natural gas (LNG)
in the Japanese market declined from US$16.40/
mmbtu in June 2014 to US$15.70/mmbtu in Decem-
ber 2014 and is now around US$9.00/mmbtu.
LNG prices have declined by similar percentages
amounts in European and South American markets.
Even in the United States, where natural gas prices
had been lower than in other markets, those prices
have since fallen even further.
The Henry Hub benchmark price is now about
US$1.90/mmbtu compared to US$2.75/mmbtu that
was used in the 2016 Budget, just two months ago.
“All the forecasts and predictions from the best avail-
able data and expert opinions conclude that this kind
of situation is likely to get worse before it begins to
improve in the medium term,” Rowley pointed out.
“So the prices of our major exports have declined by
as much as 70 percent for crude oil, and 45 percent
for natural gas. If that were not serious enough, our
levels of production of both crude oil and natural gas
have been falling. Crude oil production has declined
from 90,000 barrels per day in 2010, to 80,000 bar-
rels per day in 2015.
“Our natural gas production currently stands at 3.8
billion cubic feet per day when we need about 4.2
billion cubic feet per day to adequately supply the
demand for LNG, petrochemicals, power generation
and other uses for our natural gas. It is clear that
the energy sector has been contracting for most
of 2015. This includes the petrochemical industries
which have been adversely impacted by curtailment
of gas supplies,” he continued.
What these developments mean, Rowley said, is
that the country’s export earnings have dropped sig-
nificantly. It is also evident that oil and gas prices will
not recover any time soon. Some analysts are of the
opinion that oil prices will recover to about US$80
per barrel in 2020, some five years from now.
The most recent projections of the World Bank indi-
cate that crude oil prices will recover to only about
US $65 by 2020.
“Remember we had pitched our revenue stream
and consumption lifestyle on $80 oil as far back as
October 2014. We are now being told that by 2020
we would still be substantially short of that price tar-
get and our projected revenues will be similarly cur-
tailed if we are not blessed by significant increases
in production of oil and gas. Without such increases
it means that in order to sustain where we are now
we will have to borrow substantially for the next five
years. Added to the last five years this would mean
ten years of heavy deficit spending and explosive
