Oil drops to six-year low
The National, Wednesday January 14th, 2015
By GYNNIE KERO
The price of oil as of Monday has dropped further below US$50 (K130) to a six-year low.
It has now fallen by more than half since last June, when the price stood at US$110 per barrel.
The Bank of Papua New Guinea has urged the government to closely monitor the drop in oil prices and its impact on the budge revenue.
Governor Loi Bakani said while the fall in oil prices will feed through to lower domestic fuel prices and domestic inflation, it can adversely affect oil export revenue and taxes paid to Government this year.
The 2015 National Budget had assumed a price of US$89.7 (K233.4) per barrel while the current price is now below US$50 (K130).
Commenting on the drop, Institute of National Affairs executive director Paul Barker said LNG prices are directly connected to oil prices.
He said the government needed to review its revenue and expenditure forecasts and plan promptly.
Barker said: “The government needs to recognise that revenue will be affected from this major (LNG) sector, which has been the bright economic hope for PNG for the medium term.
“There’ve been efforts in recent years to have a separate LNG market, but partially substitutes, they’ll invariably remain connected to some extent.
“LNG is almost entirely used for power generation and PNG’s production goes to the major East Asia market (China/Japan/S Korea/Taiwan).
“With several new LNG projects coming on-steam in late 2014, the Japanese re-commissioning nuclear power-plants, combined with a mild winter last year, there are plentiful stocks and a growing mismatch between supply and demand.
However, Finance Minister James Marape last week said the country does not see the drop as a ‘long term drop’.
He confidently said Papua New Guinea would weather the storm of global low oil prices. Marape said there were sufficient foreign reserves to sustain PNG during these trying times.
He said while oil prices had dropped, nickel prices had risen, and he was hoping that nickel exports would alleviate the effects of low oil prices.