August 2015

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CARIBBEAN Petroleum Update A Publication of the Caribbean Energy Information System (CEIS)

August 2015 ISSUE

LNG FOR JAMAICA

What if the region’s highest manufacturing overhead cost (electricity) would be at a more cost effective level to allow competitiveness? This would definitely create an almost level playing field for all Caribbean countries as it relates to the cost of manufacturing and more avenues for increased productivity and increased foreign investments. One of the main factors affecting the competitive nature of goods produced in Jamaica is attributed to the high cost of energy. Jamaica has been wrestling with this road block for the last decade or more, but there seem to be a major energy sector transformation blossoming on the horizon amidst the dark cloud.

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The government of Jamaica and producers of electricity have for some time now been exploring the possibility of using Liquefied Natural Gas (LNG) in the generation of electricity. However, whilst efforts were undergoing to establish a LNG infrastructure and other requirements necessary for the introduction of LNG to the country, the project came to an abrupt halt in 2012 due to various factors.. Fast forward to 2015, there have been tremendous strides in the LNG movement in Jamaica as the Jamaica Public Service (JPSCo) announced recently that it has inked an agreement with continued on page 2/

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LNG for Jamaica: Char ting the Course Towards a Secure Energy Sec tor continued from page 1/ New Fortress Energy for the supply of LNG to Jamaica.

A forward move indeed, but how much of an impact will this have on the energy sector and by extension electricity costs? This issue of the Petroleum Update will take look at the possible benefits that can be derived from the utilization of LNG in Jamaica.

With the obvious exception of the twin island republic of Trinidad and Tobago, Caribbean nations are subject to price volatility in the international market place due mainly to the fact that they are net importers of Petroleum fuels. Jamaica, being one of the largest importers of petroleum fuels in the Caribbean, has been looking at the possible use of Liquefied Natural Gas (LNG) as fuel to be used in the Electricity and the Bauxite/Alumina sectors. Can you imagine if all countries in the region could enjoy the benefits of using Natural Gas for electricity generation? With current electricity tariffs in the region ranging at US$16 - US$47 cents per kilowatt hour for residential consumption, LNG would definitely be a welcomed change.

The Liquefied Natural Gas (LNG) project represents a major revolutionary move for Jamaica’s energy sector.

This undertaking points to Jamaica’s increased ability to manufacture and compete internationally, process bauxite to alumina and ultimately build a sustainable tourism industry. However, by not being able to adequately develop cheaper and more efficient energy sources, Jamaica lost revenue in many potential investments and projects. LNG may be the game changer to transform first the energy sector and second the economic landscape.

The added benefit of utilizing LNG in electricity generation is that it can substantially reduce the consumer energy costs. If reductions are seen in the energy costs, opportunities for new business and for new developments in the country can be created. Also, there is the added benefit of the reduction of the country’s carbon footprint or pollution often associated with generating electricity.

ern end of the island. The plant, which was first commissioned into service in 2003, is being converted to run on natural gas instead of automotive diesel oil. The reason that electricity costs are high in Jamaica and most countries of the Caribbean is that these countries are heavily reliant on oil-based fuels, such as Heavy Fuel Oil and diesel oil. However, there are opportunities for reducing costs by changing the main fuel used for electricity generation to cheaper fuels, such as natural gas. Obviously with the introduction of cheaper fuel such as natural gas the country stands to benefit from increased savings due to less importation of more expensive oil based fuels (Diesel and Fuel Oil) as well as reductions in the price of electricity. However, whilst this is good and well in concept, the reality in the short term is that consumers will not see an immediate reduction in electricity prices due to the introduction of LNG. The long term may be more realistic, but with just one plant being converted, consumers’ expectations or the country’s expectations should not be misguided where LNG is concerned. Optimism in this regard can be transferred but continued efforts to reduce electricity costs cannot be understated or overemphasized.

However, the country should remain optimistic in the revolutionary move the utility company has made and focus on the benefits that will be derived in the long run as well as the many possibilities of development that will spin off. Not only benefits financially, but in other areas such as diversity. The use of natural gas fuels diversity.

The overdependence on expensive oil leaves the country vulnerable to price volatility. Fuel diversity in an all encompassing way contributes to greater energy security.

Greater energy security will lead the way into industrial development - The introduction of Natural Gas to Jamaica will be an impetus for the development of new industries, new commercial applications and the retooling of large industries. One possible commercial application would be in the transport sector. If all of the state-owned buses ran on natural gas, this will more than likely result in lower maintenance costs for the buses and naturally Why Use Natural Gas? a reduction in fares. Additionally, natural gas will have Under the new agreement, US-based New Fortress En- a significant role to play in the bauxite and alumina inergy will provide JPS with Liquefied Natural Gas for its dustries, as they look to retool their own production fa120-megawatt power plant (Bogue) situated in the west- cilities.

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Once Jamaica becomes the third country in the Caribbean to start importing natural gas, after Puerto Rico and the Dominican Republic, there are other potential opportunities such as Jamaica being a possible base for delivering LNG to the rest of the Caribbean region. Not only due to its strategic geographic location but also being significantly close the US Gulf Coast where operational LNG export facilities are located. This may also give way for increased investor confidence in Jamaica from the major gas suppliers.

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current infrastructure for generation of electricity is still plagued by certain difficulties. One of which include generators that are old and obsolete and the obvious losses JPSCO incurs as a result which translate in the cost. This would require the utility company to not only convert their power plant to facilitate LNG but to ensure that other units (oil fired steam units) are reformed to facilitate greater efficiency. The cost of the infrastructure for LNG may prove quite enormous and not as easily replaced as one would think.

Last but not least, let us also give way to environmental benefits. As our tourism product serves a critical role in our earning capability as a small-island territory, caring for the environment should be an involuntary action.

The move to cleaner fuels and more flexible generation will reduce environmental footprint by allowing Jamaica to optimize the use of renewable while simultaneously reducing emissions from base load generation.

Natural gas is a major source of electricity generation worldwide, through the use of gas turbines and steam turbines. Power plants combining gas turbines with a steam turbine in combined cycle mode (Natural Gas Combined Cycle, NGCC) can achieve very high efficiency. Using LNG to generate a large portion of the electricity in Jamaica serves as a critical step towards Vision 2030 which envisions a modernized energy sector, with substantial improvements in energy security, On the heels of the recent agreement and the tremen- reliability and lower costs. Let us chart the course to a dous move made by the JPSCO, it is not clear as to the sustainable and secure energy sector. immediate impact this will have on electricity prices, if any at this time. What is certain though is that strides are being made in securing cheaper energy for the Jamaican consumers, how soon this will translate into savings and to what extent will require some patience.

Notwithstanding access to cheaper and cleaner fuel, the

Let us chart the course to a: Sustainable and Secure Energy Sector

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PETROLEUM NEWS & HAPPENINGS Gas Prices Down $2.91, Diesel Down $0.85 [...]...

Read more Oil Price Slumps To Lowest Level In More Than Six Years[...]...Read more Petrocaribe Successfully Manages $320-B Portfolio [...]...Read more 400 Barrels Of Crude Spilled In Bolivia Pipeline Accident [...]...Read more

Caribbean Energy

JPS Signs ‘Historic’ LNG Agreement With US Firm [...]...Read more

Schooled On Energy [...]...Read more Gas Prices Up $0.06, Diesel Up $0.18 [...]...Read more Light Bills to Drop by 7% this Month – JPS [...]...

Read more

JPSCO Powerplant in Bogue to be converted to LNG

Image source : jamaica-gleaner.com

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Prices at the Pump AUGUST 2015

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Retail prices for Regular Unleaded Gasoline in the twelve Caribbean countries reviewed at the end of August 2015 showed overall increases in prices for Bahamas, Barbados and St.Vincent and the Grenadines of 12% , 3% and 2.5% respectively. Prices decreased in Dominica,Grenada,Guyana and Jamaica between 0.1% and 5.2%.

Dominica experienced a small decrease in price of 0.1% while Jamaica experienced the highest decrease of 5.2% . Prices in the remaining five countries were stable.

Unleaded Gasoline: Regular : Average Retail Price January - August 2015 (US$/Litre) COUNTRIES ANTIGUA/ BARBUDA

JAN 1.11

FEB 1.11

MAR 1.11

APR 1.11

MAY 1.11

JUN 1.11

JUL 1.11

AUG AVG 1.11 1.11

BAHAMAS [91 OCT] BARBADOS DOMINICA GRENADA (95 OCT) GUYANA JAMAICA 87 Octane[E10] MONTSERRAT ST. KITTS/ NEVIS ST. LUCIA ST. VINCENT/ GRENADINES TRINIDAD/ TOBAGO [92 OCT]

1.15 1.53 0.92 0.97 1.06 0.96 1.04 0.96 1.21 1.03 0.42

1.36 1.42 0.85 0.90 0.83 0.99 1.04 0.96 1.04 0.93 0.42

1.38 1.43 0.83 0.95 0.93 1.06 0.95 0.94 0.98 0.85 0.42

1.39 1.51 0.98 1.03 0.97 1.12 0.95 0.94 1.03 0.85 0.42

1.23 1.55 0.98 1.10 0.93 1.15 0.95 0.94 1.05 0.85 0.42

1.17 1.60 1.51 1.14 0.93 1.16 0.95 0.94 1.07 0.85 0.42

1.17 1.60 1.60 1.15 0.87 1.15 0.95 0.94 1.10 1.01 0.42

1.32 1.64 1.59 1.12 0.84 1.09 0.95 0.94 1.10 1.03 0.42

1.27 1.54 1.16 1.05 0.92 1.09 0.97 0.94 1.07 0.93 0.42

NOTE: *US Gallon = 3.785 L *Imperial Gallon = 4.546 L

US$/Litre

*As at November 1, 2009 MTBE was phased out from all gasoline blends in Jamaica and replaced with 10% Ethanol.

1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00

Comparative Retail Pump Prices Regular Unleaded Gasoline August vs. 8 Mths Avg (Jan-August 2015) AUG

12 Caribbean Countries

See prices for all products at www.cippet.org

8 Mths AVG

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International OIL PRICES

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Average Weekly and Monthly Crude Oil Prices (June - August 2015)

70

60.07

60 57.92

50

US$/Bbl

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44.94

40 30 20

Jun-15

10 WK2

WK3

WK4

Aug-15 MTH AVG

Average Monthly World Crude Oil Prices (2012 - 2014) 110.0

US$/BBL

Analysis of International Crude Oil Prices for the June to August 2015 period showed an average price of US$42.55/bbl . This average price was 29% lower than the average price reported in June 2015 and 19.4% lower than the price in July 2015. The highest weekly price seen in August 2015 for the commodity was US$44.94/bbl-reflected in week one while week four accounted for the lowest price of US$40.73/bbl. An average of the three month’s average prices reflected US$51.75/BBL. Prices fell due to oversupply concerns and economic growth concerns across Europe and China

0 Period WK1

Jul-15

106.6

106.6

105.8

90.0

70.0

2012

2013

2014

50.0

Period

FEATURED OFFERS: P E TS TATS - t h e Ca r i b b e a n E n e rg y I n fo r m at i o n 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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