From Global Business Reports

An expert opinion on the Caribbean’s energy sector by Dr. Haydn I. Furlonge, Adjunct Lecturer at the Arthur Lok Jack Graduate School of Business, UWI

The Caribbean shares many of the same energy market challenges faced by other countries such as volatility of fuel prices, high inflation and low economic growth rates. But the region is also challenged by unique characteristics such low credit rating (with some exceptions), dispersed and small markets and high level of energy dependency. Despite this scenario there is space for investment opportunities and commercial astuteness to manage the energy equation, and help reverse a decade of macroeconomic underperformance of the islands. This short article gives an overview of energy supply-demand matrix and proffers some of the solutions for the near and longer term.

CARICOM Energy Policy

Just over one year ago, the regional governing body Caribbean Community (CARICOM) reached agreement on an Energy Policy. Several government ministers expressed a measure of relief after a 10-year journey, with the hope that this would ultimately bring about reduction in energy prices and associated benefits. Admittedly, there were a few issues such as the Energy Cooperation Agreement (PETROCARIBE) between certain Member States of CARICOM and the Bolivarian Republic of Venezuela that placed a damper along the way. Whilst this Agreement is up for renewal amidst an uncertain domestic situation in Venezuela, it has major implications for the supply side of the energy equation and implementation of the CARICOM Policy initiatives. In short, it provides a relatively low-cost, long-term loan arrangement for supply of crude oil and derivatives.

Several other Policy initiatives have been planned or already established such as a CARICOM Petroleum Fund (for relief under high market price conditions) and the Energy and Climate Partnership of the Americas for sharing of resources to promote sustainable energy. Both of these initiatives, whilst relatively inactive, can provide a means for advancing energy integration in the Caribbean, and opportunities for tapping into them remain open.

Demand Situational Analysis

All of the Caribbean countries have an electricity tariff greater than $0.10/kWh excluding Trinidad and Suriname. Jamaica, Barbados, Martinique, Guadeloupe are among the highest consumers of energy demand, mainly to the level of industrialization/commercial activity and size. The graph (2011 data) shows the mix of primary energy source for each country. Overall, petroleum is the dominant primary fuel (about 80% overall) in the Caribbean. All CARICOM Countries are non-producers and therefore importers of hydrocarbons (crude oil and derivatives, natural gas, LPG), with the exceptions being Suriname, Barbados and Belize which are all small producers but net importers. Of course, Trinidad and Tobago is a major exporter of hydrocarbons and petrochemicals due its natural resource base.

Growth in electricity demand has been and will continue to be low to modest. Essentially, new demand will come from either replacement of aging power generating equipment or increasing capacity for future demand (residential and commercial). The key question is how will this incremental supply be achieved given the Policy prescriptions of CARICOM?

Supply Technology Options

Because of market size, Jamaica, Barbados, Martinique, and Guadeloupe are candidates for natural gas as an alternative fuel. Commercialization of the delivery system has been the Achilles Heel of making this a reality, with CNG, LNG and pipeline receiving much consideration. CNG is noted for being applicable to very small volumes and short distances. Pipeline has been examined for at least a couple decades, and is still being studied. With regard to LNG, the larger markets in the four countries mentioned above are worthy prospects, whilst markets in the other countries are too small as the infrastructure for LNG (shipping, receiving terminals, storage and regasification) is expensive and will probably overcome any savings from gas displacing crude oil-based fuels.

Jamaica is a major candidate for new investment in power generation, with natural gas being the preferred fuel. A request for proposal was issued for both power and for natural gas supply and import infrastructure. Both the traditional onshore and floating storage and regasification unit (FSRU) technology options have been considered by successive governments. The FSRU option will eliminate certain costs such as dredging. Further, the country has no pipeline infrastructure so siting of the import terminal relative to the proposed power plant and other manufacturing users such as alumina processing facilities has been a troubling issue. Overall, this remains a work in progress and has proven to be challenging given the volatile global natural gas market with high competition of LNG volumes, which raises the expectation of LNG suppliers for a delivered LNG price to Jamaica. This issue traverses across the Caribbean territories: sourcing natural gas at a price that can beat conventional fuel prices.

There have been also several attempts at a natural gas import solution for Guadeloupe and Martinique, which are also developing new gas-fired power plant projects, whilst Barbados has been actively pursuing an expansion of its natural gas supply for a long time. The good news for Barbados is that the leg of the pipeline from the offshore fields to Tobago has been completed, and that technical feasibilities studies for the Tobago to Barbados leg are to commence. There is some optimism that US export of its shale gas will contribute to the supply availability of LNG in the Atlantic region and that Jamaica and other Caribbean countries may be better placed to compete for volumes. At the Third Annual Global Gas and LNG Summit in Port of Spain, Trinidad (June 2013), Gasfin presented its case for a mid-scale sized LNG solution for the Caribbean. Trinidad is being targeted as a potential supplier, provided that the cost of the technology, despite the relatively low economies of scale, can leave enough margin for LNG suppliers whilst meeting the delivered gas price expectations of the countries in the region.

In recent years, Trinidad and Tobago boosted its power generation capacity on both islands with gas turbine plants in La Brea, Trinidad (720MW) and in Cove, Tobago (64MW). There are plans to decommission the plant in the capital city of Port of Spain and relocate it or build a new one outside of the city. In any event, the island has a high level of supply redundancy and in fact is pursuing new industrial and manufacturing customers for both the La Brea and Cove industrial estates.

With regard to transportation fuel, the CARICOM Policy prescription is to: “promote fuel switching in the transportation sector to cleaner energy sources and encourage greater efficiency of energy use in the transportation sector”. The government of Trinidad and Tobago is probably taking a lead role in this, particularly to reduce its heavy liquids fuel subsidy, which has been of the order of $500 million per annum and a strain on the treasury. The solution being pursued is the use of compressed natural gas, and this requires a large investment in CNG kits for vehicles (private cars and buses), pipeline distribution network and refueling stations. This program will need to be sustained over a period of time in order to build consumer confidence for switching before it can make a significant dent in the fuel subsidy bill. Of course, should the countries mentioned above successfully manage to land natural gas importation projects, the use of gas as a transportation fuel in cars, buses, and ships would be another application that can bring economic and environmental benefits.

Apart from the conventional options, one technology on the horizon is methanol-to-power (MtP) in modified gas turbine system. Previous studies have shown that this can reduce electricity cost by up to $0.10/kWh considering the various elements of this new supply chain. There are some technical hurdles which are being examined and the commercial arrangements would also require some careful consideration. Nonetheless, advantages include speed to market, normal temperature and pressure operating conditions (not cryogenic) and easily available commodity.

Renewables

In terms of renewables, the CARICOM Policy set as an objective to “diversify energy sources through increased use of RE”. Geothermal, hydro, solar water heating and wind are all good candidates for competing with natural gas as alternatives to the conventional diesel and fuel oil. In fact, wind turbines are used in Jamaica and St. Kitts and Nevis; solar water heating in Barbados; hydropower in Suriname, Jamaica and Belize; and small amounts of biomass in some countries. The government of Dominica is actively pursuing geothermal energy with a drilling program having commenced last November.

Clean development mechanism has been deployed in the past (e.g. Wigton wind farm in Jamaica), and notwithstanding the current post-Kyoto and carbon market uncertainty, this and other financial aids can be useful in enhancing commercial viability of alternative energy supply. Opportunities for biofuels remain somewhat on the back burner, but it has potential to create linkages between energy and other sectors, e.g. bioethanol from sugar cane or corn, and biodiesel from coconut oil or waste cooking oil.

Investment Strategy

CARICOM Energy Policy: Undertake the necessary reforms in a timely manner to encourage greater investment in the energy sector

If the Vision of the CARICOM Energy Policy to transform the energy sectors of member countries to provide access to modern, clean and reliable energy supplies at affordable and stable prices is to be achieved, then a commercial and regulatory space has to be made for business to bring technology, assets and product to these markets. Past successes in delivering innovative energy solutions, as well as lessons learnt from more challenging projects have helped to shape an informed outlook. The good news is also that there are options currently available on the horizon that require political will, financial engineering, and participation by all stakeholders to bring them to fruition.

Haydn I. Furlonge is an Adjunct Lecturer at the Arthur Lok Jack Graduate School of Business, The University of the West Indies. He lectures and researches project economics, renewable energy technology and green logistics. He previously led the establishment of the natural gas postgraduate research programme at The University of Trinidad and Tobago. He has twenty years of experience in energy research, business development and gas contracts negotiation and management.

The Arthur Lok Jack Graduate School of Business, established since 1989, caters to the education and training business needs of the Caribbean and the wider region, and is accredited by the Association of MBA’s in the UK. It delivers MBA and DBA programs in a diverse range of subject areas including Strategy, Energy, Human Resources, International Finance, Port and Maritime, Business Development, and Trade & Logistics.

PHOTO Credit: Hydrocarb TT

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