TTEITI: Energy industry at a crossroads

WITH a 15 per cent decline in oil revenue projected for 2025, the TT Extractive Industries Transparency Initiative (TTEITI) says the energy industry is at a crossroads.

Its State of the Extractive Sectors report 2024 said oil revenue is expected to decrease from the $16.709 billion generated in 2024 to $14.174 billion in 2025.

These projections are based on a decreased oil price assumption which will see the price per barrel dropping to US$77.80 from the 2024 price of US$85.

The report also noted a 33 per cent decline in royalties sourced from gas taxation.

“Royalties declined by 20.92 per cent, from TT$3.8 billion in 2022 to approximately TT$3 billion in 2023. For fiscal year 2024, the government has received around TT$2 billion in royalties, with the three largest contributors being bpTT, Heritage and Perenco, paying approximately TT$1 billion, TT$712 million and TT$128 million respectively.

“In quarter one of fiscal 2025, the government received TT $555 million in royalties with bpTT and Heritage, paying approximately TT$315 million and TT$165.5 million respectively.”

A 50 per cent decline in production-sharing contracts (PSCS) share of profit, which outline the various fees, levies and contributions that operators must pay to the government was also observed.

“From 2014-2024, the government collected TT$44.29 billion in PSC profit shares and paid TT$29 billion in taxes from these profits on behalf of PSC partners to the Board of Inland Revenue (BIR).

“Between fiscal year 2022 and fiscal year 2023, PSC profit shares declined by 12.5 per cent from TT$9.6 billion in 2022 to TT$8.4 billion in 2023.

“For fiscal year 2024, the profit share received was TT$4.4 billion, with Shell and NGC being the largest contributors paying TT$2.2 billion and TT$866.7 million respectively. In Q1 of fiscal 2025, the Government received TT $896 million in PSC share of profit with Shell, EOG Resources and NGC, paying approximately TT$471 million, TT$236 million and TT$177 million respectively.”

The effects of these declines are far-reaching, affecting key components of the economy especially foreign exchange.

UWI economist Dr Vaalmikki Arjoon explained this impact at the private-sector
session on forex matters at the TT Chamber of Industry and Commerce on February 17,

“Exports are what primarily bring foreign exchange into the country, and the bulk of our exports primarily come from the energy sector.

"Unfortunately, within the last decade, oil and gas production would have dropped by about 38 per cent and LNG (liquefied natural gas) production would have dropped by about 50 per cent.

“Naturally, that would have caused our current account to shrink. Our energy revenues would have fallen within that time by about 53 per cent and our current account would have taken a drastic hit."

As explained by the Central Bank, the current account shows flows of goods, services, primary income and secondary income between residents and non-residents.

“Between 2011 and 2015 the annual average of the current account surplus was about US$4 billion and that’s since dropped. The annual average between 2016 to 2023 has been about US$1.6 billion...

"We are lucky that the current account still maintains a surplus. There are inflows of US dollars coming into the country but that has since dwindled substantially. So on the US side, our inflows have fallen but demand still continues to be very high and continues to grow.”

Arjoon said despite TT's being an import-intensive economy that relies heavily on foreign exchange, especially in the manufacturing and retail sector, that is not the only cause of increased demand.

“Since covid, international prices have gone up quite substantially in many instances. And not just that, periodically, shipping costs tend to go up as well and we have to pay it in US dollars.

“And now with the looming trade wars, as it seems, prices are going to go up yet again. So that means things are going to be more expensive to import. And when things are more expensive to import, given the necessity of imports in this country, we’re going to end up paying a higher price.

"So that demand for foreign exchange is likely to rise even further in the short term.”

Arjoon said to mitigate the effects of these decreases, the government has been supplementing foreign exchange reserves by borrowing on the international market and withdrawing from the Heritage and Stabilisation Fund (HSF).

TTEITI’s report says the HSF serves as a cushion to keep the country steady in economic crisis and as a savings fund for future generations. It notes that the fund’s total assets value declined from US$5.89 billion to US$5.76 billion in the second quarter of 2024. During this time the government withdrew US$209.5 million.

“Assessing the fund’s performance necessitates a look at both global trends in inflation, interest rate adjustments and how these impact market confidence and the trajectory of oil and gas prices,” the report said.

“In 2022 and 2023, buoyed by a surge in prices due to the Ukraine War, the Government made its first deposits into the fund since 2013. Based on the data available this calls for a deeper look at historical budget assumptions and actual prices as well as the rules for both deposits and withdrawals.”

The report said another issue which needs to be addressed is how the fund incorporates revenues from different sectors of the energy value chain.

“TT has an integrated gas value chain with upstream companies exploring for and producing oil and gas, midstream companies processing, transporting and marketing gas and downstream companies using gas as a fuel and feedstock for petrochemical production.

“Based on data from the Gas Master Plan, between 2009 and 2014, these midstream and downstream companies contributed TT$31.2 billion in corporation taxes. Taking the contribution of these companies into account, there is an opportunity to buttress the fund, especially when petrochemical prices are high. This may require restructuring the existing formula or developing an entirely new formula, with the petrochemical sector in mind.”

This also applies to foreign exchange, as tax remittances from energy companies play a major role in the foreign-exchange supply. While upstream companies pay their remittances in US currency, midstream and downstream companies do not.

This, the report says, provides an opportunity for the government to re-evaluate the foreign currency inflows of the energy industry.

“Addressing the forex issue requires a well-defined strategy to optimise the sector's US-dollar inflows.”