The oil, gas and petrochemical sector in the Caribbean is facing an unprecedented crisis brought about by the COVID-19 pandemic and sharply falling commodity prices, mainly due to a massive and sudden global decrease in demand but made worse by the collapse of the Organization of the Petroleum Exporting Countries (OPEC) supply controls. In the Caribbean, this crisis is exacerbated by continued political uncertainty in Guyana, the region’s newest, and already its biggest, oil producer. Outside of the oil, gas and petrochemical sector, electricity utilities across the region, which typically benefit in periods of lower commodity prices, are facing liquidity problems as demand has plummeted with the shutting down of the tourism sector and with many of their customers unable to meet their monthly bills.
Dealing with these overlapping crises will be a major challenge for governments, the local private sector and the region’s international investors. This is going to require new and innovate approaches, and policy interventions not tried in the past.
The immediate challenge is coping with the current health emergency and controlling the spread of the virus. In this regard, most regional governments have moved hard and fast and implemented strict social distancing measures and closed their borders. At the time of writing, the number of reported positive cases has remained modest, with infection rates not increasing at the exponential rates seen in Europe or the USA. There are, however, serious concerns in some countries about the number of tests that have taken place and if there are many unrecorded positive cases in the respective communities.
Dealing with the health emergency has created a major economic crisis for the region that will last beyond the immediate health crisis. The energy sector is facing multiple serious challenges. The low commodity price environment coupled with the political uncertainty in Guyana has already led Exxon to announce that phase III of the massive Stabroek development will be delayed by up to a year. In Trinidad and Tobago, the COVID-19 crisis has led to scheduled major maintenance projects in some of the petrochemical facilities and the liquefied natural gas (LNG) plant being postponed to later in the year, placing additional pressure on the contractors and service companies who were relying on these projects for a much needed revenue injection.
With low commodity prices, operators will be seeking to further cut costs, but service companies and contractors were already operating on significantly reduced margins ever since the 2014/15 oil price crash. Any cost reduction will need to come from greater efficiency. Policy measures to improve the ease of doing business and cutting unnecessary regulatory red tape must be a central element of the recovery plan for the region. The COVID-19 crisis has forced everybody online and we must take advantage of this to really automate systems, especially government regulatory processes.
Labour market reforms must also be central to the recovery plans, as well as removing subsidies that promote inefficient use of resources. Greater integration of Caribbean Community (CARICOM) labour markets, especially for skilled but currently uncertified workers, will help the overall efficiency of the region’s energy sector to everyone’s advantage. Governments are going to have to work closely with the local private sector and international investors to ensure that the overall investment climate promotes new energy sector investment. This includes getting the right fiscal measures in place to ensure that we continue to attract capital into the upstream oil and gas industry. Without this investment, the petrochemical and LNG sectors have a very uncertain future.
All of this will require new ways of operating and new ways of thinking. But if the current crisis has taught us anything, it is that necessity is the mother of invention and the Energy Chamber of Trinidad and Tobago remains positive that the region can rise to the challenge. We are all in this together.