State of the Extractive Sectors Report 2021
Head, TTEITI Secretariat
Sherwin Long has served as TTEITI head since 2015. Previously, Mr. Long held the positions of Senior Research Specialist, Energy and Chairman of the Energy Efficiency and Alternate Energy Committee at the Energy Chamber of Trinidad and Tobago.
Since 2013, the Trinidad and Tobago Extractive Industries Transparency Initiative (TTEITI) has published an annual report on key developments in Trinidad and Tobago’s oil, gas, and mining sectors. This State of the Extractive Sectors Report 2021 is the latest effort to put leading economic indicators into context, describe how each sector works, and explain the ways in which both domestic and international developments impact government revenues and the resources available to citizens.
Key Takeaways
- Government must continue review of fiscal policies to gain as much value from oil gas sector
- T&T's mining sector still owes TT$200 million in outstanding royalties
- The Ministry of Energy's PSC audit unit disallowed US$77 million in costs for PSCs between 2018-2019, yet there are still 79 outstanding revenue audits and 304 outstanding cost audits
A global pandemic that has taken millions of lives. The world gripped in its worst recession since the Great Depression. Energy economies crumbling under the weight of falling oil, gas and petrochemical prices. These scenarios sound more at home in a disaster movie, but reality has matched fiction in 2020 where the Covid-19 pandemic has led to economic upheavals for many countries. Trinidad and Tobago is not immune to the fallout. The Government has been forced to trigger a massive $6 billion dollar relief programme to support workers and businesses impacted by the pandemic.
Covid-19 has added another layer of strain to the country’s economic recovery plans. However, pre-pandemic, the signs of decline were evident. Over the past year, the energy sector, the mainstay of the economy, also buckled. A price war between Saudi Arabia and Russia sent oil and gas prices plummeting. Actually, for the first time in history oil prices went negative (-$37 per barrel) on the spot market. Quite predictably, these developments impacted Trinidad and Tobago’s fortunes. Oil and gas revenue declined by 54 percent primarily because of royalties declining by 46 percent from $3.4 billion in 2019 to $1.7 billion in 2020. The share of profit the country earned from production sharing contracts slid by 20 percent from $2.2 billion in 2019 to $1.8 billion in 2020. The decrease in energy revenue reinforces Trinidad and Tobago’s status as a price taker and the country’s lack of control over global demand and supply variables. This should compel us to get the most from our resources.
Click to read the report
For the past five years, the Government has attempted to reshape fiscal policy and renegotiate several contracts to gain greater value from the country’s oil and gas resources. The Government cited the Gas Master Plan’s findings to highlight that the country was losing US$1.4 billion annually from tax leakage by oil and gas companies. In their quest for a larger slice of revenue, they have experienced both triumphs and disappointments. The successes include tax reforms while the disappointments revolve around the continued failure to sell the Petrotrin refinery, as well as maintain healthy returns for all players in the upstream, midstream and downstream of the country’s energy value chain.
The tax reforms started with an increase to the royalty rate to 12.5 percent in 2018. By 2019, there was an instant impact as the country earned the most from royalties in a decade. The Government also renegotiated terms with Shell and BP, resulting in tax settlements of just over 3 billion. In this year’s budget, Finance Minister Colm Imbert also adjusted the Supplemental Petroleum Tax rates for small producers to help spur investment. Despite these actions, the Government has also received flak from commentators for allegedly overplaying its hand in negotiations and impacting the country’s gas monetisation model.
This model was built on the National Gas Company of Trinidad and Tobago (NGC) purchasing gas from exploration and production companies like BP and Shell then selling onwards to downstream companies such as Methanex, using the gas as a fuel and feedstock for the world class Point Lisas petrochemical sector. The model now faces structural misalignment as all players do not believe they are receiving their fair share of returns. The links on our energy value chain have weakened considerably.
Gas producers faced with increased costs and smaller fields to develop charge the NGC more for gas. The NGC, in turn, has to pass this increase on to its downstream customers. Added to this, there are several gas contracts up for renegotiation at a time when the fall in demand and prices of methanol and ammonia have scuttled hopes of a short-term revival for the petrochemical sector. The important question is whether this slump signals a structural shift for the T&T model. This is where analysis and strategy come to the fore.
The Government plans to develop more financial models to evaluate the value chain, and a possible restructuring of Atlantic LNG, in hopes of preserving acceptable returns for all players. These initiatives will have far-reaching consequences for the economy. But with Covid-19 impacting air travel, driving and global economic growth, Trinidad and Tobago must not only initiate a policy reset but also drive systemic changes linked to how we monitor and improve revenue collection.
Click below to read the rest of the State of the Extractive Sectors Report 2021.
For a more complete understanding of the industry, download the full country report.
Related Reports
