No producer is making money at a US$37-US$40 oil price, insisted Scotiabank’s Mark A Ammerman in a recent presentation to the Trinidad Energy and Finance Forum.
Whether this applies to upstream companies in Trinidad and Tobago is unclear, since the banking executive did not include the break-even price for oil in this country in his paper.
He did, however, note that Kuwait had the lowest break-even cost at US$50 a barrel, while Libya had – by far – the highest, at US$207.60 a barrel.
In between were Qatar, at around US$58 a barrel, the United Arab Emirates (UAE) at US$68, Iran at US$70, Iraq at US$78, Algeria at US$92 and Saudi Arabia at US$95.
With oil prices low enough to bankrupt virtually all producers, it means that the introduction of renewable energy (RE) faces stiff challenges.
Why would any power generator want to abandon low-priced oil for higher-priced RE? Make no mistake, the price of oil would have to reach the levels desired by oil producers for RE to be competitive.
As it stands, oil importers have no incentive to switch unless, by some miracle, RE costs can be brought down drastically – which is unlikely, especially at the beginning.
Small-scale initiatives, such as those that have been undertaken by the Trinidad and Tobago Electricity Commission (T&TEC) are one thing, but large-scale projects – say, in the 100MW range – are another matter.
Bearing this background in mind, Ammerman is in no doubt that “there’s not a green project on earth that works at these oil prices.” Which means that “oil prices are killing the renewable plan of climate change.”
But not all hope is lost – at least, for exporting countries – because the predicted prices will not stay at their present level for long, particularly because the previously listed OPEC countries are not likely to be keen about losing money indefinitely.
The fact that “offshore and deep water projects” will “be cancelled in large numbers” – at the same time as “demand for oil continues to grow” – suggests that re-pricing beyond the US$40 level is not far off.
The Scotiabank executive is cautious enough not to predict where that re-pricing will go, but he believes it will begin to happen in 2017 and continue in 2018. If the Trinidad and Tobago government can “hold strain” until then, it will find that its incoming cash flow from taxation of oil companies will increase more quickly than it now seems to think.