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CARIBBEAN ENERGY INFORMATION SYSTEM (CEIS) DECEMBER 2013 ISSUE

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hat if a Government Consumption Tax (GCT) was applied to petroleum products such as Gasoline, Diesel, Kerosene or even Liquefied Petroleum Gas (LPG)? How would this affect the demand of these vital commodities? Would it affect the demand of the commodity? How about supply? What would be the impact on consumers? These are questions that came to mind when talks of GCT on gasoline was being contemplated by the Government of Jamaica as part of a tax reform agenda. With rising crude oil prices and the devaluation of the currency, imposing a tax on the petroleum industry may prove detrimental to the industry and the livelihood of many Jamaicans. In this issue of the Petroleum Update, we seek to highlight the impact GCT would have on petroleum product prices and demand for the commodity. With respect to the application of GCT on petroleum products, it can be applied in two ways; GCT can be applied at source (wholesale price) or it can be applied to the retail price. Either way consumers will see an increase in the price at which they consume the commodity. A Special Consumption Tax and an Ad Valorem tax are already applied to the ex-refinery price of petroleum; applying GCT at the source will only make it more expensive for both local suppliers and consumers. Take for example the impact of applying GCT to the ex-refinery price as at December 2013 for unleaded 87 gasoline as shown in Table 1. With a 16.5% tax, the refinery billing price would increase to J$132.109 per litre, adding a J$18-20 to current prices. This would be the price at which the refinery sells fuel to the marketing companies and distributors. With an increase in the refinery

Table 1 Potential Impact of GCT on the Refinery Billing Price Using December 2013 Prices Description

J$/Litre

87 Octane Ex-Refinery price

88.14

Special Consumption Tax Ad Valorem Ex-refinery price plus Ad Valorem and SCT

16.11 10.42

Price with GCT Applied

113.40 132.11

billing price, marketing companies would then add their respective markups to cover the cost of the increase. Retailers markup may range from 13% -15%, however in a deregulated environment, prices may vary at service stations. Using the price with GCT applied as shown in Table 1 as an example and applying the retailers markup, the retail price may fall between $149.28 and $151.93 per litre. In any case, the increase will be passed on to consumers at the pump. However, the marginal increase in the retail pump prices will be significantly higher in this case as the marketing companies and distributors would seek to cover their costs in their markup. This may even give rise to price gouging as well as possible increases in haulage rates. In another instance, GCT can be applied to the pump price continued on page 2/

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Caribbean Energy Information System, Scientific Research Council, Hope Gardens, Kingston 6, Jamaica 1-876-927-1779 (Telephone) 1-876-977-1840 (Fax) ceis@src-jamaica.org www.ceis-caribenergy.org

CARIBBEAN PETROLEUM UPDATE

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is a monthly Bulletin which highlights petroleum issues affecting or relevant to the Caribbean, international developments that may affect the region’s way of life and movements in oil prices and retail prices for fuel regionally.


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Call: 1-876-927-1779 | Caribbean Petroleum Update : December 2013

Potential Impact if GCT is imposed on Petroleum products in Jamaica……...….continued from page 1 which directly affects the end consumers of the various commodities. Using the retail price of unleaded gasoline as at December 2013 as an example, the potential impact on retail pump prices is shown in Table 2 below.

Table 2 Potential Impact of GCT on Gasoline Retail Pump Prices Using December 2013 Prices Description 87 Octane Retail Price without GCT GCT Applied 87 Octane Retail Price with GCT

J$/Litre 128.297 16.5% 149.47

If GCT is applied to the retail pump price of unleaded 87 gasoline at the rate of 16.5%, the price paid per litre would amount to approximately J$149.47, an increase of J$21 more per litre. Increases in retail prices usually create a ripple effect with increases in the prices of all goods and services including food, transportation (bus and taxi fares). Therefore, whether the tax is applied to the wholesale price of petroleum products or directly to the retail price at the pumps, consumers will see an immediate increase in the price at which they consume the product. On another note, while the imposition of GCT may impact the retail prices of petroleum products and other goods and services, the question of whether or not this will impact demand for the product is brought to mind. To assess the impact on the demand for petroleum products if GCT was added, the elasticity of the commodity would have to be explored. Now the elasticity of the product will indicate how the market will respond to any change in price. Price elasticity of demand measures the responsiveness of quantity demanded by changes in the price of the good. The production or consumption of any product is considered to be either elastic or inelastic. By elastic, we assume that the quantity demanded changes by a larger percentage than does price. Inelasticity on the other hand simply means that quantity demanded changes by a smaller percentage than does price. Simply put, a change in prices has very little impact on consumption of a product. There are other reasons why con-

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sumer demand changes, however price has always been a fundamental factor. Whilst the cost of supplying and consuming the product increases the demand for the commodity will not change significantly. This is due to the elasticity of the commodity. For a product such as gasoline, a change in the price will not necessarily impact the demand in a significant manner as demand will change by a smaller percentage than price and as such the demand for gasoline is considered inelastic. Also, due to the essential nature of the product, the demand is inelastic regardless of how expensive the commodity becomes. Therefore, the question is not whether you consume it or not, it has more to do with how much can one consume considering the change in the price of the commodity. However, a greater inflationary impact would be a rise in transportation services such as bus and taxi fares.

Table 3: Potential Government Revenue from GCT on Gasoline Total Consumption of Unleaded 87 & 90 Octane (E-10) Gasoline in 2012 (litres) Avg Retail Price/litre - Unleaded 87 & 90 Octane (Dec. 2013)

657,846,700

Avg Retail Price/litre - Unleaded 87 & 90 Octane (Dec. 2013)

J$153.48

J$131.74

Total Revenue (Est. includes GCT)

J$100,964,403,760.6

GCT Component remit to the Government (Est.)

J$16,659,126,620.5

On the other hand, let’s assume that this tax was in fact applied to the retail pump price of gasoline and retailers remit the GCT component to the Government as revenue. What would this amount to in dollar value? Using the total consumption of Gasoline in Jamaica's transportation sector for the year 2012 and the average retail price at the pump for gasoline during the same year, Table 3 highlights the potential revenue.

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Caribbean Petroleum Update : December 2013 | Call: 1-876-927-1779

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Potential Impact if GCT is imposed on Petroleum products in Jamaica……...….continued from page 1 Conclusion In an attempt to increase revenue, the government is contemplation applying GCT to petroleum products. The application can be in two forms, to the wholesale prices and the retail prices of petroleum products. With the application at either ends, consumers will experience an increase in retail pump prices as the suppliers will pass unto consumers in their markup price any increase in price from their end.

Even though the application of the tax will impact the consumption price of petroleum products, a greater inflationary factor would be that the gas tax will trigger a rise in transportation services, (bus and taxi fares) and the price of all goods and services in the country Where the demand of the products are concerned, the demand appears to be inelastic and as such any price increase will not significantly affect the demand for the products. 

Image source: www.usnews.com

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Call: 1-876-927-1779 | Caribbean Petroleum Update : December 2013

PETROLEUM NEWS & HAPPENINGS OIL SPILL SOS [...]...Read more Power, energy projects lift BOI’s approved investments this year [...]...Read more CUC to roll out ‘smart meters’ [...]...Read more Petrotrin’s oil spill being monitored [...]...Read more LatAm, Caribbean leaders conclude ALBA-Petrocaribe summit [...]...Read more Derelict wrecks in Gulf linked to illegal diesel sale [...]...Read more

Petrotrin’s woes a warning for all [...]… read more Is Petroleum Sucking the Life out of the Planet? [...] ...Read more Problems run deeper than oil spills [...]...Read more NEL, BP seal deal on PowerGen [...]...Read more Venezuelan Car Owners Unfazed By Planned Fuel Hike [...]...Read more Trinidad oil spill classified as sabotage [...]...Read more Oil response firm to help clean up Trinidad mess [...] ...Read more Trinidad seeks international help in cleaning up oil spill [...]...Read more

Dominican Republic leader talks oil in Venezuela [...]...Read more Government of Grenada: Dec. 17, 2013 Changes in petroleum prices – December 2013 [...]...Read more System losses down, says JPS [...]...Read more Jamaica close to concluding PetroCaribe supply deal [...]...Read more Venezuela tries to lift trade with Petrocaribe [...] ...Read more Whatever happened of Treaty Belize Energy, the drilling at San Juan and its promises to the community? [...]...Read more Government of Barbados – Office of the Prime Minis : Ultra-Low Sulphur Diesel Launched In Barbados [...]...Read more T&T’s oil riches keep the promise [...]...Read more

Energy Chamber commends workers in clean-up effort [...]...Read more

New Generating Power plant – how will the ailing present last till mid 2015? [...]...Read more

Trinidad boosts security amid string of oil spills [...] . ..Read more

The government needs a solution to Essequibo’s blackouts [...]...Read more

Security beefed up at energy installations [...]...Read more

Canadian-based company invests heavily in Guyana’s mining sector [...]...Read more

Committee to Oversee 360MW Plant Project [...]… Read more

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continued on page 5/

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Caribbean Petroleum Update : December 2013 | Call: 1-876-927-1779

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REGULAR UNLEADED GASOLINE AVERAGE PRICES AT THE PUMP December 2013 Retail prices for Regular Unleaded Gasoline in the thirteen Caribbean countries reviewed at the end of December 2013 showed marginal decreases in prices for seven countries namely; Bahamas, Barbados, Belize, Dominica, Grenada, Guyana and Suriname between 0.7% and 5%, the highest of which Barbados experienced. Prices in Antigua and Barbuda, St.Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines and Trinidad and Tobago remained stable. However, there was a minimal increase in prices of 0.6% in Jamaica The average retail price at the end of November 2013 was 1.7% lower than the previous month.

Regular Unleaded Gasoline: Average Retail Price – January - October (US$/Litre) 2013 JAN ANTIGUA/ BARBUDA 1.23 BAHAMAS [91 OCT] 1.37 BARBADOS 1.58 BELIZE [87 OCT] 1.43 DOMINICA 1.18 GRENADA (95 OCT) 1.29 GUYANA 1.06 JAMAICA 87 Octane[E10] 1.25 ST. KITTS/ NEVIS 1.35 ST. LUCIA 1.26 COUNTRIES

FEB 1.23 1.41 1.69 1.47 1.20 1.29 1.09 1.28 1.33 1.26

MAR 1.23 1.52 1.71 1.52 1.28 1.32 1.15 1.26 1.35 1.28

APR 1.23 1.50 1.71 1.54 1.28 1.35 1.16 1.24 1.22 1.30

MAY 1.23 1.43 1.71 1.53 1.28 1.33 1.16 1.25 1.17 1.32

JUN 1.23 1.43 1.63 1.55 1.28 1.31 1.16 1.25 1.24 1.32

JUL 1.23 1.42 1.64 1.53 1.28 1.32 1.14 1.26 1.21 1.31

AUG 1.23 1.44 1.64 1.53 1.28 1.33 1.19 1.27 1.20 1.31

SEP 1.23 1.44 1.69 1.53 1.26 1.33 1.19 1.27 1.31 1.31

OCT 1.23 1.37 1.63 1.46 1.21 1.30 1.19 1.22 1.26 1.33

NOV 1.23 1.37 1.60 1.41 1.17 1.25 1.14 1.20 1.20 1.34

DEC 1.23 1.34 1.52 1.40 1.15 1.24 1.12 1.21 1.20 1.34

AVG 1.23 1.43 1.65 1.49 1.23 1.31 1.14 1.25 1.25 1.31

ST. VINCENT/ GRENADINES

1.22 1.22 1.12 1.15 1.17 1.17 1.17 1.14 1.14 1.14 1.14 1.14 1.16

SURINAME [95 OCT]

1.42 1.47 1.54 1.47 1.45 1.46 1.44 1.51 1.46 1.38 1.36 1.34 1.44

TRINIDAD/ TOBAGO [92 OCT]

0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42

NOTE: *US Gallon = 3.785 L *Imperial Gallon = 4.546 L *As at November 1, 2009 MTBE was phased out from all gasoline blends in Jamaica and replaced with 10% Ethanol.

RETAIL PRICE CHART on page 5/

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Call: 1-876-927-1779 | Caribbean Petroleum Update : December 2013

Comparative Retail Pump Prices Regular Unleaded Gasoline DECEMBER Avg vs 12 Mths Avg (Jan - December 2013)

1.80

US$/Litre

1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00

13 Caribbean Countries

See prices for all products at www.cippet.org

Petroleum News & Happenings….continued from page 3 Govt to launch ‘drilling academy’ in Ste Madeleine [...]...Read more

EWI, JPS agree on Energy Price – Energy Minister expects 30 per cent reduction in bills [...]...Read more

Energy information, management in focus in Jamaica [...]...Read more

JPS, Energy World International make power purchase agreement in 360MW project [...]… Read more

PetroCaribe Development Fund to intensify renewable investment in 2014 [...]...Read more T&T’s first EITI report sets benchmark [...]… Read more

Electric car driver arrested for stealing 5 cents of electricity [...]...Read more

EITI to host open data workshop on oil and gas revenues [...]...Read more

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DBJ taps PetroCaribe for US$20m more to build BPO space [...]...Read more

Cargo Handlers gets into petrol [...]...Read more

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Caribbean Petroleum Update : December 2013 | Call: 1-876-927-1779

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Average Weekly & Monthly Crude Oil Prices (Oct December 2013)

104

101.51

102 100

97.85

US$/BBL

98 96 94

93.94

92 90

Oct-13

Nov-13

Dec-13

88

WK1

WK3 Period

WK4

MTH AVG

Average Monthly World Crude Oil Prices (2010 - 2012) 106.0

110

109.61

100

US$/BBL

Analysis of the International Crude Oil prices over the three months period October - December 2013 saw prices in December averaging US$97.61/BBL. When compared to the average prices seen in October and November this average price was approximately 4% lower and 3% higher respectively. The highest weekly price seen in December for the product was US$99.15/BBL - reflected in week four while the lowest price recorded was US$96.21 seen in week one. An average of the three month’s average prices reflected US$98.02/BBL.

WK2

88.14

90 80 70

2010

2011

2012

60

Jan

Feb Mar Apr May Jun

Featured Offers:

Jul

Aug Sep Oct Nov Dec

Period

Yr Avg

Caribbean Energy Information System (CEIS) primary report of historical annual petroleum energy statistics provided for 18 Caribbean Countries. Included are data on total energy production, consumption, and trade; overviews of petroleum, natural gas, electricity, as well as financial and environmental indicators for over twenty years.

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Ceis petroleum update december 2013 issue final