Oil fears prompt new energy mix

www.jamaica-gleaner.com published: Saturday | February 22, 2003

FEARFUL OF what a war in Iraq would mean for Jamaica's oil bill, the country is pressing aggressively ahead with plans to convert to liquefied natural gas (LNG) as a main energy source.

The move has become even more imperative in light of the continued oil strike in Venezuela, Jamaica's main source of crude. Jamaica is yet to resume lifting oil from the turbulent South American country, creating uncertainty in the energy markets here over energy price stability.

Prime Minister P.J. Patterson says the introduction of LNG into Jamaica's energy mix, is a major step towards diversification and a move towards greater security and stability of energy supply and price.

He was speaking in the context of a looming war in Iraq, and Jamaica's heavy dependence on imported energy and the domination of petroleum in the supply mix.

Imported petroleum accounts for over 92 per cent of Jamaica's annual energy consumption of some 26 millions barrels of oil, mainly from Venezuela, Mexico and Trinidad & Tobago.

While recognising the limited impact of Iraq's erratic oil production on world petroleum supply, the Prime Minister said the threat of military action against Iraq had added a war premium to the price of petroleum. He noted that in the context of globalisation, Jamaica could not continue to remain reliant on the volatility of the price and supply of crude.

Yesterday oil prices were trading at US$32.21 per barrel as recorded by the international benchmark Brent crude. By comparison Jamaica was paying US$23/24 per barrel when the troubles with Venezuela first hit.

Pointing to the continued volatility in world oil prices due to war and anxiety premiums, the PM warned that in the event of an attack on Iraq, the price of oil might further escalate, putting pressure on the cost of energy in the oil-importing developing countries.

Recalling the recent strike in Venezuela, during which the collection of petroleum was suspended, Mr. Patterson informed journalists that in addition to meeting the supply shortage by importing from Mexico and Trinidad & Tobago, Jamaica also had to buy from Ecuador on the open market at high spot prices.

"We have not as yet resumed uplifts from Venezuela," the Prime Minister said, adding that once Venezuelan production recovered to the pre-strike level, Jamaica was unlikely to face a serious supply threat.

"In the case of war, members of the Organisation of Petroleum Exporting Countries (OPEC) are expected to lift the supply quotas, and it is expected that the spare capacity in some of the OPEC countries would kick in to meet the supply shortage, if any," he said.

The Prime Minister said that prices were likely to continue to rise in the short run, and that in order to meet Jamaica's energy needs, the country would be required to buy petroleum at world prices as anyone else.

Representing a strategic shift to a cheaper and more environmentally friendly source of fuel, for long-term economic benefits and preservation of the environment, the proposed move to the use of LNG is expected to reduce electricity cost by one third, said JIS News, quoting Donald V. Graf, a consultant with MPR Associates Inc., in Virginia, USA, who worked on the feasibility study here.

The project could save Jamaica US$30 million a year in its fuel import bill, representing a reduction by five million barrels of oil a year, said Mr. Graf, adding that similar savings could be achieved by the bauxite and alumina sector.

The fundamental objective of the shift to LNG is to bring a source of energy that would enable Jamaica to become a much larger player in the industrial world, so that reducing the price of electricity was important, not just for itself, but for the total industrial improvement and economic benefits to Jamaica.

According to the pre-feasibility study, the LNG is to be sourced mainly from Trinidad & Tobago, where it had spawned several industrial processes, such as polyethylene and steel plants, because it is a cheap energy source.

However, existing generating plants would have to undergo some amount of conversion, in order to be able to use LNG. The building of new LNG plants would also be an option. Once the electricity is produced, it would go through the existing lines.

In the long term, LNG could potentially be used to provide fuel for motor vehicles. LNG vehicles are believed to be much cleaner-burning than gasolene or diesel-fired engines.

There is also the potential use of LNG to produce cooking gas, which can be taken to homes, not in tanks, but through a network of pipes, as is the case in major cities such as London.