You are here
Cautious optimism on the rise
The energy services sector seems to be returning to a slightly more optimistic mood at the beginning of 2011, after experiencing very low levels of optimism throughout 2010. The Energy Services Sector Survey (ESSS), conducted quarterly by the Energy Chamber, maps the performance and optimism of our energy service sector members, providing data on their business confidence and on some of the phenomena which impact on their operations and business prospects.
At beginning of 2011, 40 per cent of responding companies reported that they were more optimistic and a further 40 per cent reported that their levels of optimism remained unchanged. This slightly more optimistic mood is most likely linked to the anticipated increase in offshore drilling activity during 2011, with bpTT, EOG Resources and Bayfield all mobilising offshore rigs for field development. The rebound in optimism has to be understood, however, in the context of the previous two years of extremely low levels of business activity: for many companies the only way is up.
Value and Volume of Business
Despite the increase in optimism, the energy services sector is still experiencing a period of extremely low levels in both the value and volume of business, as indicated by the respondents to the ESSS. This is directly related to the decline in new projects in the energy sector, in both the upstream and downstream parts of the industry. The lack of capital investments into the T&T energy sector has had a direct negative impact on the energy services sector over the past two years.
In 2010, the sector experienced a second year of very significant contraction with many of the service companies fighting for their very survival. The majority of respondents indicating that the value and volume of their business continued to decrease in the Q4 of 2010. Despite the slightly more optimistic mood, the vast majority of respondents share the sentiment that the value and volume of their business will not increase in the current quarter. A small percentage of respondents indicated that they expected the value and volume of their business to increase. (See Figure 1 and Figure 2).
The energy services sector has been at a standstill in terms of increasing employment, with most companies reported that they expected no change in their employment levels. The shedding of jobs that was a feature in 2009 seems to have ceased, however: while most companies would not be taking on new staff and they did not expect to decrease the current number of employees.
In Q4 2010, service companies continued to review their capital expenditure plans. With many of the major planned or proposed projects being been rescheduled, and a significant number of ongoing projects been deliberately slowed down or suspended, service companies have had less incentive to invest in new capital items to be able to secure new contracts. Most companies indicated they expected to spend less on new capital items. What they would be spending on would be the maintenance/ up keep of their assets. The uncertainty about demand and business prospects, diminishing expected rate of return on proposed investments and a lack of funding support for projects because of the tightening of credit markets are the main reasons for decline in capital expenditure in the last quarter of 2010 and expenditure plans for the beginning of 2011.
Due to the uncertainty in demand in the domestic market in T&T it is important for local energy services companies to seek international markets for their goods and services. Last year some of the members of the chamber participated in a very fruitful Energy Services Trade Mission to Uganda, Tanzania, Kenya and Rwanda. At the same time it is crucial that we once again attract capital back to our energy sector. Much of the investment into the T&T has come through direct foreign investment (DFI) and this will certainly remain the case in the future, especially with respect to larger capital-intensive projects.
At the same time there is opportunity for domestic capital to invest in the energy sector, and since the changes in the last national budget this includes pension plans. However, there needs to be the right projects available for local investors. Getting the right projects on the table for local capital will often mean some policy changes, especially with respect to the upstream oil sector on-shore Trinidad and in the Gulf of Paria. DFI also needs to meet the country’s strategic development goals. It is not just the quantity of DFI but also the quality: a major emphasis should be placed on attracting DFI into projects with strong linkages with the local economy.
This would include projects going further downstream into secondary and tertiary petrochemicals (where there is room for the domestic manufacturing sector) or which have strong linkages for the local services sector. With the return to economic growth in the global economy, the time is ripe for a rigorous analysis of what is needed to boost investment in this sector. The Energy Conference 2011 taking place from February 7 to 9, provides a crucial forum for this discussion.
For further information please contact
Priya Marajh at email@example.com
User comments posted on this website are the sole views and opinions of the comment writer and are not representative of Guardian Media Limited or its staff. Guardian Media Limited accepts no liability and will not be held accountable for user comments.
Please help us keep out site clean from inappropriate comments by using the flag option.
Guardian Media Limited reserves the right to remove, to edit or to censor any comments. Any content which is considered unsuitable, unlawful or offensive, includes personal details, advertises or promotes products, services or websites or repeats previous comments will be removed.