By NEIL HARTNELL
Tribune Business Editor
A Cabinet minister yesterday said the global oil market crash has presented The Bahamas with a "once in a lifetime opportunity" to ease the pain of the deep COVID-19 recession.
Desmond Bannister, minister of works, told Tribune Business that if Bahamas Power & Light (BPL) were able to purchase now and lock-in those prices for several years it could "offset much" of the anticipated $1bn decline in the nation's foreign currency reserves this calendar year.
He spoke after oil prices plunged into negative territory for the first time in history, as producers paid traders to take the supply glut of their hands due to the world's fuel demand drying up as a result of the global pandemic.
US onshore crude prices, as measured by the West Texas Intermediate (WTI) benchmark, collapsed from $18 per barrel to -$38 per barrel in a matter of hours as rising oil stockpiles threatened to overwhelm storage facilities.
Prices had barely recovered to positive territory last night, with per barrel costs standing at just $1.35 under the WTI benchmark. Brent Crude, meanwhile, was trading at $25.39 per barrel as global market developments reinforced the importance of The Bahamas doing everything it can - despite it and BPL's scarce financial resources - to exploit all-time oil price loans.
The prime minister's national address signalled that the government understands that it must act urgently given the potential for bringing energy and transportation cost relief to struggling Bahamian businesses and households, as well as reducing pressure on the foreign currency reserves and fixed exchange rate parity with the US dollar.
"With fuel costs being the largest single item in the import bill, a focus must be sustained on ensuring that BPL can lock in significant savings from the current external environment of low oil prices," Dr Minnis said in his address.
Mr Bannister yesterday confirmed that talks between BPL and the Ministry of Finance over the assistance the latter may be able to provide to exploit record oil price lows were "ongoing".
Yet, recognising the further potential relief that may come from the latest price crash, the minister told Tribune Business: "The country needs to move quickly on this. Quite frankly, when you look at where the market is now and how it could benefit BPL and the country, it might mitigate the recession we are supposed to see.
"It's an opportunity that doesn't come around very often in most lifetimes. If you look at BPL being able to buy in now and hedge on the prices for a few years to come, it would offset much of the loss we anticipate to come from the foreign reserves."
The oil price crash has triggered several other potential changes in Bahamian energy market dynamics. Several sources, speaking on condition of anonymity, questioned the wisdom of BPL and the wider Bahamas following through at present to seal the deal with Shell North America for the $250m liquefied natural gas (LNG) facility at Clifton Pier.
With oil costs so low they suggested it "doesn't make sense" to conclude that agreement, although BPL needed to proceed with the new power plant aspect of its arrangement with Shell. While many observers will likely argue that oil prices will rise once again after the COVID-19 pandemic has passed, Mr Bannister declined to comment on the implications for BPL's talks with Shell.
"The figures are very interesting, and definitely something to look at," he added. 'We're going to see what we can do to make a difference."
Meanwhile, Bahamas Petroleum Company (BPC), the oil exploration outfit that has pushed back the timeline for drilling its first exploratory well in waters some 100 miles south-west of Andros to early October, yesterday said the plunge in global prices and demand would not have any impact on its operations.
Simon Potter, BPC's chief executive, in an e-mailed response to Tribune Business questions, said: "The current oil price that has turned negative is specifically the onshore US crude price. This reflects a number of factors including the dramatic drop in demand (all staying at home - no car journeys, no flights), the finite amount of storage in such a closed market and therefore the very peculiar situation of having to pay to put the crude somewhere - hence the negative price.
"Any BPC production will be sold on the international (global) markets where traded crude prices are reflected by, say, Brent crude pricing (though there are many other crude price markers). Brent is currently trading around $26 per barrel - roughly similar to the last drop in price in 2015-2016.
"Further, any successful BPC exploration today won't be produced for a few years yet, so rather independent of today's oil price. Of more relevance is the crude price in say five years time; the future oil price. Our well is now timed for the fourth quarter 2020. Even by then crude pricing may well have recovered somewhat."