THANKS TO climate change, and the return of El Nino, it’s been the hottest year on record since the late 1990s, the scientists say. But oil – a major contributor to this doomsday scenario – is still being produced in quantities that far outstrip demand. About two million barrels a day more than needed, in fact.
But, as the United States (US), Saudi Arabia, and other major players dig in for what is likely to be a long fight to be the last man standing in the oil business, the good news is that they are driving the price of the commodity down, down, down.
And although within the oil industry there are major winners and losers, and a Federal auction of oil leases in the Gulf of Mexico last week attracted the lowest interest from producers since 1986, the US output is still forecast to increase next year to just under ten million barrels a day before settling down in 2017 to around nine million. In fact, no side in this undeclared “game of thrones” over oil production is winning any battles: they all want to win the war.
On the same day that the auction, for those Gulf of Mexico drilling leases, attracted a mere US$22.7 million in sales from just five companies, the price of West Texas Intermediate (WTI), the oil benchmark for both the US and Trinidad and Tobago, fell by more than four per cent. For the first time since the recession began in 2008, said analysts, the WTI price was approaching the symbolic US$40 a barrel level. Last summer, it was above US$100 a barrel.
As a result, also for the first time, Barbados is actually seeing light at the end of the tunnel. While other tourism destinations in the region saw their tourism sector start to recover before the massive drop in oil prices began last year, we did not. That only started to happen for us in the last month of last year as it has continued into the first half of this year (at least), so that overall long stay arrivals have gone up by an astonishing 14 per cent in just six months.
Of course, there are other factors at work, but lower oil prices have led to lower airfares from our major source markets and have also been cited as the reason for Britain’s improving GDP growth. The Brits are on the move again. So are the Americans.
Overall, the Central Bank of Barbados reported in its most recent press release on the economy (June 2015, Page 2): “Foreign exchange outflows fell by $60 million, primarily because of lower fuel costs (while) payments for fuel imports were $171 million lower than for the same period last year.” Inflation is also down, with the bank noting that “lower commodity prices have continued to dampen inflation. The 12 month moving average rate of inflation fell to 1.4 per cent at the end of April 2015.”
New York Times reporter Clifford Krauss summarised the US oil industry view as follows: “In recent weeks, executives have expressed concern that the oil price collapse could last through 2016 and even 2017.”
But if I were to conduct my own little survey of local executives on the matter, barring what you would expect to hear from those in the oil sector, I think the word “concern” would change to “joy”.
If we have already saved around US$90 million in foreign exchange due to the lower price of oil – which, you may remember, had been recovering in the second quarter and was pushing US$60 a barrel – how much will Barbados save if the price stays, let’s say, around US$45 on average for the rest of the year.
How about US$200 million? That sum is five per cent of our GDP and although it might not all trickle down to the bottom line, it will in no small way assist the minister of finance in driving down the current account deficit to the under four per cent it needs to be.
And lest you think I am pulling a number out of a hat, the US Energy Department now says that the WTI oil price will average US$49 a barrel this year, US$6 lower than it estimated only last month.
And while it predicts the price will go up to around US$54 in 2016, that is still US$8 lower than it projected, again, last month.
Meanwhile, in terms of its energy plan, our good neighbour, Trinidad & Tobago, is like an alcoholic who promises to drink less.
Earlier this month, it sent its emissions reduction plan to the United Nations as part of the upcoming global climate deal due to be signed in Paris in December.
The government’s plan is to target greenhouse gas reductions of 15 per cent in power generation, heavy industry and transport over the next 15 years. That would mean cutting the country’s total pollution by 103 million tonnes of carbon dioxide or equivalent pollutants. This seems to be an ambitious plan for Trinidad & Tobago, which is among the world’s top contributors of carbon dioxide to the atmosphere, so no less can be expected.
But I haven’t heard much emphasis so far being put on their plan to incorporate renewable energy into the mix.
There will be a lot of retrofitting of the country’s industrial plants to reduce carbon dioxide emissions and other tried and true industrial methods to reduce pollution; in terms of public transportation, the government hopes to curb emissions by 30 per cent through the conversion of public transport vehicles to compressed natural gas but what about renewable energy?
I would like to hear how the Trinidad & Tobago government plans to incorporate photovoltaic solutions into its plan to curb carbon emissions. Are they offering incentives to the private sector to help businesses and residences covert to solar produced electricity? Are they planning to do so with any of their buildings, such as schools, airports and hospitals?
Or are they so committed to their fossil fuel-based energy industry that the best the country can offer is a Jurassic-lite version of what it does already?
