Monday, September 25, 2017

Economic drought – budget 2018 and beyond *


I hate to be the bearer of bad news but the economic drought will continue into 2018 and maybe beyond. While the recession will end, thanks to increased gas production from the Juniper project, Government revenue in 2018 will not be vastly different from 2016 and 2017.

Our “energy experts” should know that oil and gas revenue is not only a function of production. It is also a function of price and the prevailing tax regime. Government revenue was down in 2016 and 2017 because of lower oil and gas prices and production. The accelerated capital allowances for exploration and production introduced in April 2014 have had no major impact on Government revenue as was the once popular myth. They however did their job and stimulated drilling the results of which will be realised in 2017 and beyond.

As a consequence, the economy will grow in fiscal 2017 by about 0.5 per cent due mainly to new natural gas production from three projects that were initiated in 2014-2015. Juniper should take bpTT back to a production level it last enjoyed in January 2011. Sustaining that is the challenge. That increase in production will benefit both Atlantic and the National Gas Company (NGC). This is good news but the impact on revenue in fiscal 2018 is debatable when you consider carry-forward losses, low LNG prices and low ammonia prices.

 

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