Economist Dr Terrence Farrell, who resigned as the chairman of the Economic Development Advisory Board (EDAB) earlier this year, does not expect the non-energy sector to grow in 2018 and 2019.
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Revenue from oil, gas better than expected
In his mid-year review of the economy, Finance Minister Colm Imbert will report to Parliament that over the first six months of his 2017/2018 budget, revenues from oil and gas have been better than expected.
For the first half of the fiscal year Brent crude prices have averaged US $63.86 per barrel, significantly higher than budgeted, while production has remained steady. On the natural gas side production is significantly higher than last year.
Crude prices from the east coast average US $1.50 more than Brent prices, so the real price of east coast crude would have been in the vicinity of US$$65.24 a barrel and 30 per cent of the country’s total production attract this higher price.
In his budget presentation last October, Imbert told Parliament revenues from the energy sector were based on an average crude price of US$52 and natural gas prices of US$2.75 per million British thermal unit (MMBTU).
“It should be noted that our assumed oil price is below the International Monetary Fund forecast of US$56.20 per barrel for 2018, and lower than the current oil price forecasts made by the World Bank, United States Energy Information Administration (USEIA) and International Energy Agency (IEA).
“Based on these assumptions we are projecting: Total revenue $45.741 billion oil revenue $6.412 billion.”
A January Cabinet note states that crude prices gained support from positive data from the International Monetary Fund (IMF) which signalled improved global economic growth.
“In its World Economic Outlook for January 2018, the IMF projected that world GDP will increase by 3.9 per cent both in 2018 and in 2019; this is 0.2 percentage points higher than the previous forecast. This upward revision reflects increased global growth momentum and the anticipated impact of US tax policy changes which are expected to stimulate economic activity through 2020 by increasing investments in the US.
“The Energy Information Administration forecasts that oil-weighted GDP growth to be 3.4 per cent in 2018 and 3.2 per cent in 2019. Global consumption of petroleum and other liquid fuels are projected to increase by 1.7 million b/d in both 2018 and 2019 to 100.23 million b/d and 101.95 million b/d, respectively. These projected increases are due to increasing economic growth and increases in world trade,” the Cabinet note stated.
Additionally, crude oil stocks in the US declined by six million barrels during January, which was partly due to increased crude oil exports and high levels of refinery inputs resulting from a cold snap in the US northeast in early January which increased demand for home heating oil.
In January inventories in the Organisation for Economic Cooperation and Development (OECD) was also lower during the period. Prices were also impacted by suggestions by a few members of the OPEC/Non-OPEC alliance to extend the production cuts beyond 2018. Compliance to this agreement has been outstanding and participants have achieved a record-breaking conformity level of 129 per cent.
However, almost 60 per cent of the crude oil produced in T&T is based on the lower West Texas Intermediate prices and even then the price has been higher than budgeted averaging in the mid-US$50 per barrel. This means that the government has already received at least $300 million in additional tax revenues.
In fact, the US Energy Information Agency is now projecting that WTI will average US$58.28/bbl in 2018 and US$57.51/bbl in 2019. Brent is expected to average US$62.39/bbl in 2018 and US$61.51/bbl in 2019.
On the natural gas side, production has significantly increased with the full production from bpTT’s Juniper field. It is expected that production will average closer to 3.75 tcf per day. This is about 400mmscf/d more than last year and with the increase in taxes based on production, the Minister of Finance should be in a better position in terms of revenues from the energy sector.
The issue is, of course, how much of a gap it can fill bearing in mind the overall size of government’s shortfall.
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