Energy commodity prices decline continues

Between January and February 2012, the value of the Energy Commodity Price Index (ECPI) decreased, registering a third consecutive month of decline in the prices of T&T’s major energy exports. The ECPI’s value slid marginally by 0.58 per cent from 139.03 in January 2012 to 138.23 in February 2012. The fall in the ECPI’s value was sparked by significant price declines—ammonia fell by approximately 21 per cent , and natural gasoline and propane both slipped by 6 per cent . These three commodities account for about 18 per cent of the index’s value. Since July 2011, the price of natural gas has been falling consistently as indicated by a decrease of almost 50 per cent. However, it is important to note the ECPI’s LNG prices are based on Henry Hub prices—a US benchmark—and may not best represent the value this country receives from the commodity. T&T’s now exports less than 35 per cent  of its LNG to the United States and our LNG fetches higher prices in both European and Asian markets. Between a period of only two months (January and February), ammonia prices plummeted by US$102 per metric tonne, while propane fell by 7.2 US cents per gallon. The last recorded period of poor ammonia prices was in 2008, when ammonia prices fell by US$278.5 per metric tonne between November and December of that year. 

 

The significant price declines can be attributed to a fertiliser boycott by farmers in the US. After the ammonia and urea price hikes in Q4 2011, farming lobby groups have advised farmers to hold out on buying fertiliser until prices are significantly reduced. The spring planting season in the US usually leads to strong growth in ammonia and urea prices. Despite declines in ammonia, LNG and natural gasoline there was a steady increase in the prices of all other commodities between January and February 2012 (See Table 1). Year-on-year, the value of the ECPI 2012 of 138.23 worsened when compared to its value of 139.56 in February 2011, a downturn of 0.95 per cent (See Figure 1). The ECPI is a summary measure of the price movement of T&T’s top ten energy-based commodity exports, weighted by each commodity’s relative share of its value. The commodities and their weights are: US natural gas (40.0 per cent ); oil (16.6 per cent ); ammonia (11.8 per cent ); methanol (9.4 per cent ); diesel (7.0 per cent ); motor gasoline (4.3 per cent ); natural gasoline (3.5 per cent ); jet fuel (2.7 per cent ); propane (2.4 per cent ); and urea (2.3 per cent ). The ECPI is a joint collaboration between the Central Bank and the Energy Chamber.

 

Changing global consumption and production patterns

Recently, there have been positive signals of an economic rebound in the US. The property market is becoming stable and while new home construction starts fell in February, year-on-year, home constructions starts were up 35 per cent compared to the same month last year. Businesses also expressed greater confidence in getting equipment financing in March. According to an index by the Equipment Leasing and Finance Foundation, confidence in financing strengthened to 61.7, the highest index rating in 11 months. These phenomena impact T&T as in the short-term, global economic growth, geo-political conflicts and unclear weather patterns will influence the prices and demand for our energy commodities. As a country, we must also envisage how the changing global energy consumption and production patters will influence the price and supply of our major energy commodity exports.

We need only look to the US for evidence, especially as US natural gas accounts for the largest weight on the ECPI and is our main export.   

 

Once T&T’s major LNG export destination, US natural gas production is to surpass consumption within the next decade.  According to the US Energy Information Administration’s Annual Energy Outlook Early Release Overview, within the next four years, the US is estimated to become a net exporter of LNG. 

The US EIA also projects that the country will become a net pipeline exporter in 2025 and an overall net exporter of natural gas in 2021. The report cites “increased use of LNG in markets outside of North America, strong domestic natural gas production, reduced pipeline imports and increased pipeline exports, and relatively low natural gas prices in the US compared to other global markets” as driving factors. The recent growth spurts in US LNG production and decrease in LNG imports have even been underreported by the US EIA. In its 2011 Annual Energy Outlook Retrospective Review—an assessment of real energy outcomes compared to projected outcomes—they found that natural gas production had improved each year after 2005 with net imports peaking in 2007 and falling successively in each year since. 

 

The report rates natural gas as the fuel with the largest absolute per cent difference between the projections and historical consumption. Since 2005, the US EIA reference case has “generally overestimated natural gas consumption, in part, due to the tendency for significant underestimates of the natural gas wellhead price.”  For T&T, these figures highlight the need for us to continuously embrace new markets for our LNG, but also increase our own production—oil and LNG—by being an attractive investment destination. As always the Energy Chamber remains dedicated to promoting conversations on the issues which impact national and business development and will continue to track the prices of our major energy exports and the phenomena which impact price fluctuations. 

 

For more information on the article, please contact Sherwin Long at: 

sherwin@energy.tt, or 

Nazera Abdul-Haqq at: 

researchofficer@energy.tt. 

Visit: www.energy.tt.