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Trinidad Confronting Major Shock From Fall In Oil Prices — IMF

March 21, 2016 Webmaster

Trinidad & Tobago is confronting a major shock with the sharp fall in energy prices that accelerated early this year.

In a statement following the conclusion of a mission from the International Monetary Fund earlier this year, head of the IMF mission Elie Canetti said that based on available information, including that of job losses and continued supply-side constraints in the energy sector, Trinidad’s economy is expected to contract one per cent this year.

The mission also said that declines in energy-based revenues will constrain the government’s ability to act as an engine of growth.

Still: “With substantial financial buffers and low, albeit rising levels of public debt, Trinidad and Tobago is not in a crisis. Nonetheless, in recent years, taking into account the size of energy revenue windfalls, the country has under-saved and underinvested in its future,” the IMF said.

“As a consequence, the imbalances that are now starting to build up could lead the country to uncomfortable levels of debt and external financial cushions absent further action. The new Government agrees that policy adjustments are needed.”

The fund noted that in the half-year since they took office, the Keith Rowley-led administration has already taken “some difficult but necessary steps”, such as widening the value tax base, cutting fuel subsidies, and cutting the number of ministries.

BUDGET DEFICIT

Despite these measures, the IMF said it projects a 2016 Budget deficit at some 11 per cent of GDP. However, if asset sales were to be counted as revenue rather than financing, the deficit would be equivalent to about five per cent of GDP, it said.

“Continued projected deficits of this size call for further fiscal consolidation, perhaps of around 6 per cent of GDP over the next few years,” said the multilateral agency.

Trinidad has agreed to conduct a wide-ranging expenditure review, and will seek the assistance of the World Bank to rationalise and reverse the unsustainable increases in spending on transfers and subsidies over the last several years.

“We support the Government’s intent to conduct a national dialogue on fuel subsidies with a view to phasing them out over time,” said the fund. “The country’s external situation has been very challenging. Against a backdrop of foreign exchange shortages that have intensified since the beginning of 2015, the recent sharp falls in energy prices are further reducing the available supply.”

During the recent visit, the mission met with government officials, banks, and private-sector representatives to assess the foreign exchange market. The fund noted that the current shortage appears to be driven by business uncertainty but also speculative trades.

“While it is appropriate that the central bank paused in its interest rate hiking cycle in January, there is little scope, as the bank agrees, to cut interest rates, at least until shortages of foreign exchange are ameliorated,” the IMF said.

Gleaner

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Oil Price Appears To Have ‘Bottomed Out’, Says Energy Agency

March 15, 2016 Webmaster

The organisation that represents major oil-consuming nations said Friday that signs of a market that has “bottomed out” are emerging.

US crude prices jumped to a high for the year. Brent crude, used as a global benchmark, hit a high for the year Tuesday and rose one per cent Friday.

Energy companies have been shutting down rigs and laying off thousands of workers as oil prices plunged to around US$30 per barrel, from well over US$100 per barrel just two years ago.

A broad retreat by the energy sector played out again last Friday on both fronts.

The number of oil and natural gas rigs active in the US fell for the 12th consecutive week, according to Baker Hughes on Friday, to 480. That’s the lowest level in decades, and perhaps the fewest since the earliest days of the oil drilling industry.

And Texas driller Anadarko Petroleum Corp. said that it would cut 1,000 workers, 17 per cent of its work force.

The pain at Anadarko and other energy companies may finally be translating into a reduction of a massive and global oversupply of oil, the International Energy Agency said Friday.

OPEC production tumbled by 90,000 barrels a day last month, the IEA said. US production that had surged due to new drilling technology, is expected to fall by almost 530,000 barrels a day this year, according to the IEA.

The Paris organisation, however, said that the recovery in crude prices in recent days from multiyear lows does not mean that there will be a significant and sustained rebound in the short-term. There have been sharp declines in demand, particularly in the United States and China, it said.

China, the world’s second-largest oil consumer, is attempting to quell anxiety over a slowing economy and labour unrest. Earlier this month, it cut its growth expectations for the year.

Goldman Sachs said last Friday that production is unlikely to increase in the US until 2017, and that prices could volatile in the next few months.

Analysts with Goldman said that if US drillers ramp up production with any rise in oil prices, “we believe a self-defeating rally in oil prices/equities could result.”

The report buoyed stocks of energy companies last Friday, making the sector the second-best performer on the Standard & Poor’s 500 index.

In the energy markets on Friday, US crude added 66 cents, or 1.7 per cent, to US$38.50 per barrel on the New York Mercantile Exchange. Brent crude, which is used to price international oils, gained 34 cents, or 0.8 per cent, to US$40.39 a barrel and natural gas gained 3.4 cents to US$1.822 per 1,000 cubic feet.

Gleaner

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New Fortress Secures LNG Ship For Jamaica Project

March 4, 2016 Webmaster

The JPS power station at Bogue, Montego Bay, which is being converted to run on LNG.

New Fortress Energy, the company seeking to supply liquefied natural gas (LNG) to Jamaica, has secured a two-year contract for an LNG vessel and is to start shipping gas this month.

Golar LNG Limited, a Bermuda-registered company which operates the vessel Golar Artic, revealed the contract details to its investors.

“Golar has now concluded a two-year charter agreement with New Fortress Energy Transport Partners LLC (NFE) for the employment of Golar Arctic in Jamaica,” said Golar its statements obtained by the Financial Gleaner.

New Fortress has an agreement with Jamaica Public Service Company (JPS) to supply gas to its 120MW power plant at Bogue in Montego Bay, a contract New Fortress will service via gas infrastructure under development at the Montego Bay port. JPS has been mum on the price at which the gas will be supplied to Bogue.

The American company is also expected to develop gas infrastructure and supply JPS’ Old Harbour plant with LNG once it is built, but those negotiations continue.

Bogue is currently being converted to run on gas as well as diesel oil, the fuel on which it was originally commissioned in 2003. General Electric is doing the retrofitting under a US$22.74-million contract from JPS. Bogue will become a combined-cycle plant, capable of switching between gas and diesel.

New Fortress Energy assumes the costs for delivering gas to the burner tip. JPS has no stake in the gas infrastructure project.

New Fortress’ ambition Golar said the deal it has with New Fortress solves a long-standing problem regarding the cost of regasification, and that it fits with New Fortress’ ambition to become a regional supplier of LNG to Caribbean countries.

“Jamaica has long sought to replace liquid fuels with LNG, however, the size of the market has always made it difficult to justify the cost of a conventional floating storage and regasification unit,” said the fuel shipping company.

“New Fortress have now solved this challenge by utilising ship-to-ship transfer of LNG from Golar Arctic on to smaller LNG carriers to service a number of locations within the country of Jamaica.”

Golar Arctic is scheduled to load the first LNG cargo in support of this new business “during March 2016”. Golar and New Fortress believe this new approach to delivering LNG to niche markets has wide application within the Caribbean and other similar markets around the world, stated Golar.

“New Fortress have, with their entrepreneurial approach to business development, shown that downstream LNG markets can be developed within a much shorter time frame than is customary. Similar fast-track solutions will be essential if consumers are to benefit from the large incremental volumes of LNG that will be delivered to market over the next three-four years,” stated Golar.

The Financial Gleaner sought a project update from both JPS and New Fortress, but none came up to press time.

Golar LNG this week reported a fourth-quarter adjusted operating loss of US$35.9 million.

The Gleaner

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Nigeria backs efforts to ‘stabilise’ oil market

February 25, 2016 Webmaster

RIYADH, Saudi Arabia (AFP) — The Nigerian and Saudi leaders yesterday supported efforts to stabilise the oil market but Africa’s top producer did not commit to a production freeze.

After talks in the Saudi capital Riyadh, Nigeria’s President Muhammadu Buhari and Saudi King Salman “committed themselves to doing all that is possible to stabilise the market and rebound the oil price,” Buhari’s office said in a statement.

Buhari was in Riyadh a week after Saudi Arabia, Russia, Venezuela and Qatar agreed at talks in Doha to freeze production at January levels in a bid to stem the dramatic fall in oil prices.

The agreement is conditional on other major producers joining in, as oil heavyweights seek to ensure others not to take advantage of output limits to win market share.

The statement after yesterday’s talks made no mention of Nigeria joining the freeze but analysts say the OPEC member is likely to eventually support the move.

The official

Saudi Press Agency also reported that talks between Prince Abdulaziz bin Salman, the Saudi deputy oil minister, and his Nigerian counterpart, junior oil minister Emmanuel Ibe Kachikwu, focused on “the best way for (market) stability” and “the cooperation of producing countries inside and outside OPEC” to achieve this.

Saudi Arabia and its gulf allies in the Organisation of Petroleum Exporting Countries had been refusing to limit or reduce production, leading to a supply glut that has seen prices fall by 70 per cent since mid-2014.

Poorer OPEC members, including Nigeria, have been hard hit by the price drop but even the wealthy Gulf states have been forced to adopt austerity measures to cope with falling oil revenues.

“I wouldn’t be surprised to see them voice their support to the freeze agreed in Doha,” Abhishek Deshpande, lead oil market analyst at Natixis in London, said of Nigeria.

But he said that unless Iraq and Iran also commit to limit production such talks “carry very little weight”.

The two countries are OPEC’s second- and third-largest producers.

Iran, returning to world markets as sanctions are lifted under its nuclear deal, has insisted on boosting production to pre-sanctions levels.

“Some neighbouring countries have increased their production over the years to 10 million barrels per day and export this amount, then say let’s all freeze our oil production,” Oil Minister Bijan Zanganeh said yesterday.

“They freeze production at 10 million bpd and we freeze at 1 million bpd. This is a very funny joke.”

Saxo Bank analyst Christopher Dembik told

AFP that Nigeria’s position is “a bit ambiguous,” supporting the mooted freeze but at the same time wanting to increase its production to respond to domestic market needs.

Nigeria could be crucial

“In the longer term, there is no reason why the country won’t align itself with the position of Saudi Arabia and Russia,” Dembik said.

Nigeria and Saudi Arabia would also discuss their position towards Iran and Iraq, he added.

“Nigeria could have a crucial role in this respect because of its measured position” that Iran and Iraq should elevate their production before envisaging freezes, Dembik said.

“It is probable, then, that Nigeria meanwhile establishes a bridge for negotiations, notably between Riyadh and Tehran.”

According to OPEC’s Monthly Oil Market Report, Iraq produces about 4.4 million barrels a day, followed by Iran at more than 2.9 million.

Saudi Arabia’s output is close to 10.1 million barrels a day, according to January data.

Kachikwu, who is head of Nigeria’s state-run oil firm, also discussed joint oil and gas investments during his meeting with Abdulaziz, SPA reported.

Oil prices nudged higher Tuesday as the two OPEC members met.

US benchmark West Texas Intermediate crude for delivery in April was up one cent at US$33.40 a barrel. Brent North Sea crude for April rose 18 cents to US$34.87 compared with Monday’s close.

After the Saudi visit, the Nigerian delegation was to travel to Qatar for more oil talks.

Jamaica Observer

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Fossil Fuels Are A Terrible Investment, And They’re Only Going To Get Worse

January 29, 2016 Webmaster

A woman wears as mask while walking in a neighbourhood next to a coal-fired power plant on Nov. 26, 2015, in Shanxi, China.

The market is encouraging pension funds and institutions to jettison fossil fuels from their portfolios, waving a clear warning flag to investors about the financial future of oil and coal companies.

Fossil fuel stocks are performing poorly compared to the market as a whole — and perhaps most importantly, compared to renewable energy stocks, said Michael Liebreich, chairman of Bloomberg New Energy Finance, at a summit on climate risk put on by the nonprofit sustainability advocacy group Ceres.

Referring to investors who won’t divest and continue to own fossil fuel stocks, Liebreich pointedly said that the market was “divesting through value destruction” — in other words, cutting their holdings in traditional, polluting energy companies by slashing their value.

Renewable energy stocks have dramatically outperformed fossil fuels.

Over the last 10 years, the S&P 500 index is up just over 50 percent. Yet energy stocks over the same time period have risen only 1.3 percent.

For big investors to simply allow their holdings in big energy companies to fall toward a vanishing point of worthlessness is deeply irresponsible, observers say.

Indeed, former Vice President Al Gore, who shared the Nobel Peace Prize in 2007 for his work on climate change, compared the risk that some fossil fuel companies’ assets will become worthless to the danger of mortgage-backed securities, whose collapse triggered the 2008 financial crisis.

The nonprofit research group Carbon Tracker estimates that if the world changes its energy sources to keep climate change below 2 degrees Celsius, $2 trillion in fossil fuel assets will be stranded — that is, unusable, far less valuable, and in some cases, liabilities.

Huffington Post

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Jamaica Stands To Lose If World Bank’s Oil Price Prediction Holds

January 27, 2016 Webmaster

While Jamaica has spent US$20 million (about J$2.3 billion) to hedge against the risk of a sharp increase in oil prices, the World Bank has lowered its forecast for crude oil to US$37 a barrel from US$51 a barrel in its October 2015 predictions.

The bank, in its latest commodity markets outlook, said that oil prices fell by 47 per cent in 2015 and are predicted to decline, on an annual average, by another 27 per cent this year.

If the World Bank’s prediction prevails, it would mean that Jamaica would take a hit, given that its hedging contract, with a strike price averaging US$66.74 per barrel, started in June 2015 and is set to expire in about September this year.

Lower oil prices, as well as the ongoing economic adjustment under Jamaica’s economic support programme with the International Monetary Fund (IMF), have been attributed to the macroeconomic stability which the fund’s executive board reported last month has continued to strengthen.

Those factors have also been credited for the inflation and the current account deficit falling to historical low levels.

In the report released yesterday, the World Bank said the lower forecast for crude oil reflects a number of supply-and-demand factors.

These include sooner-than-anticipated resumption of exports by the Islamic Republic of Iran, greater resilience in United States production due to cost cuts and efficiency gains, a mild winter in the Northern Hemisphere, and weak growth prospects in major emerging market economies, according to the World Bank’s latest quarterly report.

However, from their current lows, a gradual recovery in oil prices is expected over the course of the year, for several reasons.

“First, the sharp oil price drop in early 2016 does not appear fully warranted by fundamental drivers of oil demand and supply, and is likely to partly reverse,” the report said.

“Second, high-cost oil producers are expected to sustain persistent losses and increasingly make production cuts that are likely to outweigh any additional capacity coming to the market. Third, demand is expected to strengthen somewhat with a modest pick-up in global growth,” it added.

The anticipated oil price recovery is forecast to be smaller than the rebounds that followed sharp drops in 2008, 1998, and 1986.

PROSPECT

“Low prices for oil and commodities are likely to be with us for some time,” said John Baffes, senior economist and lead author of the commodities markets outlook. “While we see some prospect for commodity prices to rise slightly over the next two years, significant downside risks remain.”

In the IMF report submitted to the board for the 10th review in December, the Jamaican authorities also observed that despite increased surrendering requirements since the beginning of last year and reduced foreign exchange demand from public enterprises, given lower oil prices, there has not been any trend increase in the central bank’s net foreign exchange purchases. “Indeed, net purchases were negative in September and October 2015,” it added.

When Jamaica purchased hedging contracts from Citibank NA, covering six million barrels of oil imports over a 15-month period, expectations last year were that crude prices may climb back to US$75-US$80 per barrel on the world market.

However, prices have since fallen to just over US$30 a barrel.

The transaction was the Jamaican Government’s first oil-hedging arrangement, resulting from a policy decision to manage the country’s exposure to a predicted spike in oil prices from lows of about US$40 per barrel reached earlier in 2015.

The fall in world prices since 2014 has boosted Jamaica’s balance-of-payments position due to a lowering of the oil import bill – crude imports total nine million barrels per year – even as it threw tax revenue collections off-target due to lower special consumption tax receipts from the state refinery Petrojam.

Jamaica imports about nine million barrels of crude oil per year.

A new Energy Stabilisation and Energy Efficiency Enhancement Fund (ESEF) has been introduced to, among other things, finance the purchase of the hedging instruments.

Legislation and regulations governing the use of the ESEF are expected to be adopted by February this year, ahead of the parliamentary debate for the fiscal year 2016/17 Budget.

The Gleaner

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As oil glut hits, GOJ oil hedge for 2016 set at US$65.90 strike price

January 22, 2016 Webmaster

The Bank of Jamaica (BOJ) indicated on Wednesday that to date, the Government of Jamaica (GOJ) has spent US$27.87 million or J$3.2 billion on oil hedge contracts. In total, five contracts have been signed with Citibank covering periods up to December 2016.

For the current period, the contract runs from January 2016 to December 2016 with a strike price of US$65.90.

The strike price means that Jamaica will begin to receive payouts if the price per barrel of crude hits that mark or exceeds it.

Some analysts to whom the Jamaica Observer have spoken say that it is clear a better deal could have been struck had the Government waited a while before spending money for the hedge in 2015, but they also note that it could not have been predicted that oil prices would continue to slip downwards to the extent to which they have.

Earlier this week, benchmark crude prices fell to their lowest since September 2003 on worries about a global glut.

A new drop came Tuesday after the International Energy Agency, which advises industrialised countries on energy policy, used the alarming term “drown in oversupply” in relation to the oil markets of 2016. The market has begun to react to plans by Iran to ramp up supplies to regain market share.

The West Texas Intermediate index slid 2.3 per cent to US$27.80 per barrel of crude on Tuesday, while Brent slipped 2.3 per cent to US$28.09 per barrel.

On Wednesday the downward spiral continued with Brent Crude down 5.2 per cent at US$27.28 a barrel, while WTI sunk 6.6 per cent to US$26.59.

Analysts note that oil price has plummeted 75 per cent since mid-2014 as oversupply, mainly due to US shale oil flooding the market, has driven down the cost, even while a slowdown in economic growth in China and Europe has cut demand.

Locally, technocrats had suggested a return to US$70 per barrel by year end 2016, a prediction informing the decisions by the GOJ technical committee set up to manage the hedges. The technical committee is chaired by Michael Hewitt of Petrojam and has representatives from the BOJ, the Ministry of Finance, and Development Bank of Jamaica.

One analyst in Kingston, who spoke on condition of anonymity, commented, “To be honest, hindsight is 20/20. We could not have anticipated the current prices. It is easy to say the obvious, which is that if we had waited we could have got a better deal, in the form of a lower premium. In fact, it is obvious, based on where things are, the hedge (for contract periods already covered) was not needed.”

The BOJ informed the Caribbean Business Report that the GOJ is prepared to write new contracts for the period beyond 2016, before year end.

Funds already spent on hedging, provided for in the FY2015/16 budget, were paid out of the Consolidated Fund to facilitate the upfront purchase of the hedge contracts, the central bank stated.

It said that the advance is now being repaid from the proceeds of the new special consumption tax introduced in March 2015 to pay for the hedge.

The amount paid out so far is only about half of what the Government plans to raise from the SCT of $7 per litre on petrol — about six US cents per litre — which is expected to fall in the ball park of $6.4 billion by year-end.

The five existing contracts for hedging are all with Citibank which was the successful bidder for that round of contracting.

Periods covered by the contracts range from June 2015 to May 2016 (two contracts) with a weighted average strike price of US$66.55; and September 2015 to August 2016 (two contracts) with a weighted average strike price of US$66.80. The last is the contract for January 2016 to December 2016 with a strike price of US$65.90.

Regional governments have been eyeing hedging as a new strategy to protect against changes in the price of crude. Mexico, which hedged against a fall in prices, collected US$6 billion under hedge contracts in 2015.

Jamaica Observer

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Government Oil Hedge Underwater

January 15, 2016 Webmaster

Gov’t oil hedge underwater

In June 2015, the Government of Jamaica booked a hedge transaction to buy six million barrels of oil for delivery 15 months later at a strike price of US$66.74.

The mechanism used in this kind of transaction is called a ‘call option’, which gives the purchaser of the option the right, but not the obligation, to purchase the asset at a specified price the ‘strike price’ within a specified time. A month later, it bought another 15-month futures contract for two million barrels of oil and the average strike price of the two contacts is US$66.53.

We paid about $30 million to Citibank for the privilege of placing this bet on oil prices going higher than our strike price in 15 months.

When these contracts to buy crude oil were booked, prices on the world market was trading at about US$63 a barrel and had rebounded from about US$45 in January 2015. The government placed a bet based on its belief that crude oil prices would continue to rise well above the $66.53 strike price. If that were to happen and oil prices were to increase to, say, US$80-US$90 per barrel, the Government would be in the delightful position of having to pay only about US$66.53 per barrel for oil that would be trading at the much higher spot price on the international commodity market. The Government of Jamaica, senior executives at the Bank of Jamaica, and members of the oversight and technical committees created by the Government to manage the hedges, all seem to have bought into the belief that oil prices would climb higher than US$67 before the expiry date of the options.

The oversight committee is comprised of the financial secretary, Devon Rowe; the governor of the Bank of Jamaica, Brian Wynter; the managing director of the Development Bank of Jamaica, Milverton Reynolds; the managing director the Petroleum Corporation of Jamaica, Winston Watson; and Dr Vincent Lawrence. Mr Watson is known to have experience in oil trading and markets. Only Michael Hewett, an executive at Petrojam, was named as a member of the technical committee.

Wrong direction

One has to believe that the intention of the members of the government-appointed committees and all of those involved in the hedge transaction was a good one to try and protect Jamaica against that time in the 15-month period when oil prices might spike above US$67. While there is still considerable time to the maturity of the call options, right now the bet is not looking good and the best projections are for oil prices to fall even lower than the below-US$30 they traded at this week.

This week, three important financial institutions released projections indicating that oil prices could fall to US$10-US$20 per barrel and stay there for sometime. Goldman Sachs’ projection was at US$20, Morgan Stanley’s was US$20 and Standard Chartered, a bank with strong roots and connections in the Middle East and Asia, projected US$10 a barrel oil.

In the futures trading business, which is where these call options reside, when an option is bought with the expectation that the price of the commodity will increase but the opposite occurs, the option is said to be ‘underwater’. Given that these options were booked with the expectation for oil price to rise above US$66, and they are now heading in the direction of US$20, Jamaica’s call options on oil are seriously underwater.

A better alternative

In November 2014, a public official asked me about hedging because someone had written him an email to encourage Jamaica to hedge oil transactions on the upside, based on a scenario the email writer concocted about the state of affairs in the international oil industry. The public official was aware that I had traded oil futures for many years and had lived in the Middle East for more than two decades. I share below an excerpt from my reply:

“The recommendation needs study because taking a position means the Government and Jamaica will be guessing the direction of the movement of the price of this commodity. The writer makes it sound like making money on these bets (options) is a sure thing. It is not.

“There is always a risk. Suppose we bet on a certain price increase in a specific time frame, which we would have to if we are going to hedge, and prices instead of rising to, say, US$70/bbl from US$50 falls to US$35/bbl during our hedge horizon, we would suffer an important loss depending on the size of the contract. This is what apparently happened to that forward position Jamaica took on that futures contract on aluminium with the Russians and/or Glencore, the debilitating result of which you are very familiar.

“When oil went to US$9/bbl in the 1990s, if you had dared to tell anyone about the US$147 per barrel price which occurred in July 2008 they would have declared you mad. It’s a commodity; any card can play. On review, if the writer sees the prices as going one way, down, and OPEC is ‘dead’, why hedge? Do nothing, stay addicted to imported oil and go for the lovely ride to low-oil-price nirvana.

“The better alternative is to wean ourselves off the 98 per cent dependence on petroleum-based fossil fuels for our energy supplies. We really need to develop and use renewable energy from many sources, including bagasse, garbage, wind, water and solar.”

Aubyn Hill is CEO of Corporate Strategies Ltd and chairman of the Economic Advisory Council of the leader of the opposition.

The Gleaner

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Local Oil And Gas Exploration Enters Second Phase

January 14, 2016 Webmaster

Yang Xiaorui (left) shows Phillip Paulwell, minister of science, technology, energy and mining, an area of the oil and gas exploration vessel that docked at the Port of Kingston yesterday.

International oil and gas explorers are once again in Jamaican waters with the blessing of the National Environment and Planning Agency (NEPA) and promises to the local fishing community.

This time, the explorers are venturing on a data-collection exercise.

The first exploration company in 10 years to re-energise the search for oil offshore, the United Kingdom-based Tullow Oil has brought the gamut of data-capturing equipment for the second phase of its venture.

“This is a major deal for Jamaica’s oil-and-gas exploration,” asserted Phillip Paulwell, minister of science, technology, energy and mining, during a tour of the vessel, BGP Challenger, yesterday at the Kingston Port.

Paulwell, who was accompanied on the tour by State Minister Julian Robinson, said: “For them to start this work, they had to get approval from NEPA, and they have signed an important agreement with our fisherfolk in the event of any matter for full compensation.”

In November 2014, the Petroleum Corporation of Jamaica (PCJ) signed a production-sharing agreement with Tullow Oil (Jamaica) for oil and gas exploration in Jamaica’s offshore areas.

“We first started (explorations) in the 1980s when the then Government of Jamaica was responsible for funding,” said Paulwell.

He asserted that it has gained momentum with the private sector coming on board with Tullow Oil signing an agreement.

Paulwell told The Gleaner that US$70 million was committed to the project.

“They have so far spent US$10 million, and this exercise will cost them another US$4 million to acquire additional data.”

He added: “Although we are convinced that we have oil and gas in and around Jamaica, we really have to pinpoint the location before drilling can take place.”

He continued: “They have demonstrated a firm commitment, in spite of the fact that the price of oil has plummeted.”

The minister noted that when the agreement was signed 15 months ago, the price of oil was well over US$100 a barrel.

“Today, it is about US$30, but they are still committed, and not only them, since we signed the agreement, others have approached PCJ.”

NEGOTIATIONS ONGOING

Paulwell disclosed that negotiations are ongoing with another major firm.

“Shortly, we are going to sign another agreement,” he said.

“It means that there is a high level of ‘prospectivity’ and there is tremendous confidence in what we have done so far,” he added.

John McKenna, external affairs manager of the London-based Tullow Oil, who has been involved in the project since its onset, said the second phase related to the imaging of the seabed.

“This is the second part, which is the two-dimensional seismic expedition programme.”

He noted that it involves the acquiring of more than 3,000 kilometres of additional data.

“We are focusing initially on the eastern part of the offshore where very little data has been acquired in the past.”

The Gleaner

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As prices fall… BOJ predicts oil price rise in early 2016

November 25, 2015 Webmaster

WEST Texas intermediate benchmark pricing for crude was a low of US$42.63 per barrel yesterday and Wall Street analysts continue to predict a further slump into the new year. But the Bank of Jamaica (BOJ) is convinced otherwise.

The bank said in its latest quarterly monetary policy report (QMPR) that prices of international commodities, particularly crude oil, are projected to reflect some modest increases, starting in the December 2015 quarter, contributing to an increase in domestic inflation over the near term; a consequence of gradual improvement in global demand conditions as well as a reduction in shale production by the United States of America.

The BOJ indicates that it expects inflation to pick up in both the December 2015 and March 2016 quarters to end fiscal FY2015/16 within the target range of 5.5 per cent to 7.5 per cent, a forecast mainly based on a projected surge in food and oil prices.

Price declines in electricity and fuel resulted in deflation in energy and transport for the September 2015 quarter, largely reflecting the impact of the reduction in crude oil prices.

Headline inflation at the end of the September quarter fell to 1.8 per cent compared to 4.4 per cent at the end of the preceding quarter.

“The reduction largely reflected declines in the cost associated with energy and transport, while agriculture and processed foods prices increased at a slower pace,” the BOJ stated.

However, the BOJ thinks oil price increases will change the trajectory. It is the bank’s assessment that there will be an uptick in the price of crude oil in the last quarter of the fiscal year.

Additionally, year-end inflation will also be affected by prices of domestic agricultural commodities which the bank expects to increase in December due to the recent dry conditions.

Meanwhile, the bank is also predicting that inflation from agricultural commodities will be reduced in the latter part of the December 2015 quarter as drought conditions improve with concurrent price reversals in the March 2016 quarter.

Jamaica Observer

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