Thursday, November 19 2009

The energy sector is taking body blows as it fends off reduced activity and declining energy prices. Rig activity, a core indicator of economic buoyancy in the energy sector, shows that there is less than half the number of rigs operating compared to 2008 with further declines expected.

Cost-cutting in the mid and downstream sectors could also lead to companies servicing the downstream sector being less active in the coming months.

Already, several downstream projects have been delayed or cancelled according to the latest findings of the Energy Services Sector Survey (ESSS) for the third quarter of 2009.

The ESSS, conducted by the South Chamber of Industry and Commerce, maps the performance and optimism of our energy service sector members, providing data on their business confidence and on some of the phenomena which impact on their operations and business prospects.

The results of the recent survey reflect the continuation of a trend, said the ESSs.

“While some energy commodity prices have started to trend upwards, activity in the sector has not followed the price increases,” the South Chamber said, noting that upstream energy service companies are coping with a slow-down in offshore drilling and rig operations.

For 2009, the energy sector is reeling from declining commodity prices, a concomitant slow down in upstream and downstream activity and a tightening of international credit for major energy sector projects.

In the survey, 65 percent of respondents reported a drop in their overall profitability for the quarter compared with 40 per cent for the second quarter of 2009.

Forty five percent of respondents also stated that the value of their business was down, 45 percent stated value remained the same while only 10 percent saw an upswing. For the quarter, 50 percent of respondents reported a decrease in their volume of business, 35 percent reported business volumes remained the same while only 15 percent saw an increase.

Seventy percent of companies are expecting a decline in the value of their business in the current quarter and sixty percent a decline in the volume of business over the same timeframe.

The ESSS findings do not come as a surprise, said the STCIC.

STCIC also expressed concerns about recent large gas finds in Venezuela, Peru and Brazil and whether foreign direct investment earmarked for Trinidad and Tobago will end up in other Latin American countries.

Foreign direct investment into the sector is one key component which helps stimulate activity, said the Chamber noting that any measure to stimulate activity in the energy sector will be welcome.

The recently released review of the economy 2009 has confirmed the extremely deep declines in the energy services sub-sector of the economy, with the sector predicted to record an astounding decline of 59 percent over 2009.

While the energy services sub-sector only contributes about two percent of the overall energy revenue it remains a very important element of the overall energy sector: it is the largest employer in the energy sector, accounting for over one third of total energy sector jobs.

Secondly, the sector includes a large number (around 200 – 300) of small to medium-sized Trinidad and Tobago owned and operated companies.