President Obama's Visit Bode Well For Energy Security In Jamaica

Following significant beautification and road repairs across the city of Kingston to welcome president Obama on April 8, 2015, It is safe to say the visit went remarkably well. On his visit to Jamaica, president Obama had bilateral talks with the prime minister of Jamaica, the honorable Portia Simpson Miller.

President during a recent visit to the Bob Marley museum in Kingston, Jamaica. Source of image: PRI.org

In addition, the president met with various Caribbean heads; discussions focused on security, trade and energy. Not to forget, president Obama wow the crowd at a university of the West Indies (UWI).

On January 18, 2015, I wrote an article entitled Could The US Help To Solve Jamaica's Energy Woes?, it spoke to possible benefits of the ongoing shale boom in the US. This, in turn, may help to diversify Jamaica's energy mix, thereby reducing the rate of electricity.

This is a necessary step, as Jamaica seeks to replace up to 300 megawatts of antiquated power plants. These plants have significantly burdened Jamaicans with electricity rates hovering in the region of 40 US cents/kWhr four times the figure in the US, and up to eight times the figure in Trinidad and Tobago. 

Efforts to secure lower energy costs have long eluded Jamaica; from a failed push to secure liquefied natural gas out of Trinidad and Tobago, to the EWI debacle. Likely spurring the creation of the electricity sector enterprise team (ESET), the team includes public and private sector individuals, with the aim of securing up to 360 megawatts of new capacity. 

It is important to note that commitment was given by two entities to construct 330 megawatts of the aforementioned 360 megawatts of new capacity; Jamaica public service (JPS) has been given the go-ahead to construct a natural gas powered 190 megawatts plant in St Catherine, and 140 megawatts by Aluminum partners of Jamaica (ALPART) in south east St Elizabeth. It's envisioned that both plants should be completed by 2017 or 2018.

A statement of intent was signed on the 8th of April with the US (same time as the presidential visit), the statement of intent is intended to facilitate energy cooperation between the US and Jamaica. The statement of intent can be seen as an overture to something of greater significance. If all goes well, Jamaica should eventually source the long elusive LNG, a commodity (natural gas) that US has in abundance. Plus, the US is said to have the cheapest available natural gas. However, petroleum exports out of north America is restricted by the US, but energy experts foresee a lifting of the restriction  by the time aforementioned power plants are completed.

It will be interesting to see what pans out.

References:

ESET approves 330 megawatts of additional power for Jamaica. RJR News
http://rjrnewsonline.com/local/eset-approves-330-megawatts-of-additional-power-for-jamaica

Jamaica, US sign energy cooperation agreement. Jamaica Observer.
http://www.jamaicaobserver.com/news/Jamaica--US-sign-energy-cooperation-agreement_18724881

Precipitous Crude Oil Decline Should Benefit Jamaica...

Crude oil, a naturally occurring hydrocarbon, has been a major source of energy for over a century. By products of crude oil are used in the transport sector, power generation, cooking, etc. In Jamaica, crude oil accounts for close to 90 per cent of our energy demands.

Crude oil barrels. Source of image: Presstv

Data available on the petroleum corporation of Jamaica's (PCJ) website, suggests that 46 per cent of Jamaica's petroleum consumption is used in the transport sector, 33 per cent in electricity generation, 14 per cent in the bauxite/alumina sector, etc. Additionally, it is said that crude oil accounts for approximately 40 per cent of local imports; estimated to be in excess of US $2 billion. A figure comparable to earnings from the hospitality and tourism sector.

However, as we've seen over the years, the price of crude oil has been quite volatile. Placing Jamaica in a vulnerable position whenever a global oil spike occurs. Conversely, a precipitous decline in crude oil prices should benefit Jamaica. This scenario is playing out at the moment. The precipitous decline began in July 2014, largely attributable to excess crude oil supply, and weak global demand.

Chart showing a precipitous fall in Crude oil prices. Source of image: Financial Times

Additionally, as stated in my blog post entitled Could The US Help To Solve Jamaica's Energy Woes?, technological developments in hydraulic fracturing has led to a shale oil boom in the US. Moreover, America's demand for foreign oil has decreased significantly. In addition to the shale oil boom, organization of petroleum producing countries (OPEC) is insistent on maintaining current production levels. Combined with an increase in more efficient cars, this has led to an oil glut.

Should We Hedge?

For the first time in years, motorists are enjoying the benefits of lower oil prices. Not to forget lower Chicken, Bread and electricity prices. On the government side, lower crude oil prices has resulted in a moderation of the inflation rate. This bodes well for consumer spending, and should allow for greater general consumption tax (GCT) intake. Additionally, a shrinking import bill should follow the lower oil prices.

However, crude oil prices are unlikely be suppressed indefinitely. In fact, signs are emerging that the sharp fall in oil prices has abated, with crude oil prices ending the week above US $50 per barrel. It is in this regard, suggestions have been made by the private sector organization of Jamaica (PSOJ), that Jamaica should consider hedging. Hedging is done to limit price volatility of investments, oil typifies volatility.

In this instance, hedging should provide Jamaica sufficient time to correct perennial problems with electricity generation, thereby lowering the cost of electricity. Seemingly, this is the expectation. Word coming from the electricity sector enterprise team (ESET), implies that 330 megawatts of power should come on stream by 2018. 190 megawatts in Old Harbour by the Jamaica public service company (JPS), and 140 megawatts by Aluminum partners of Jamaica (ALPART).

If prudent steps are taken by the government, Jamaica should be well on its way to energy security.

I will certainly revisit the aforementioned topic in the near-term.

References

Consumption statistics by activity, petroleum corporation of Jamaica.
http://www.pcj.com/dnn/Statisticsbyactivity/tabid/143/Default.aspx

Could The US Help To Solve Jamaica's Energy Woes?

In my last post, the focus was on the implementation of 78 megawatts of renewable energy projects, these projects are aimed at lowering our energy costs by 2016. However, seeing that close to 90% of our energy output is derived from heavy fuel oil (HFO) and automotive diesel oil (ADO), additional steps are needed to significantly lower the cost of electricity in Jamaica.

To understand why, let's look at some figures. Data from the petroleum corporation of Jamaica (PCJ), suggests that Jamaica's oil import bill was approximately US $344 million in 1998. This rose markedly to US $1.84 billion in 2006, and now exceeds US $2 billion.

Of our oil import bill, 33% is used to produce electricity, 28% in road and rail transportation and 14% in the bauxite/alumina sector. Making the electricity generation sector the largest consumer of oil. You can see from these numbers, that it is foolhardy to continue on the same path.

Consumption of oil by sector. Source of image: Petroleum Corporation of Jamaica

Various projects over the years, sought to diversify our fuel source, we've had minor successes in this area. However, on the push to reduce electricity tariffs, there has been not any success.

US Shale Oil And Gas Boom, And Possible Benefits To Jamaica.

Thanks to new hydraulic fracturing (fracking) techniques; techniques used to extract natural gas from shale rock formations, and relatively high oil and gas prices, the United States have been able to do the improbable. It was once thought that the US had reached their peak petroleum output. 

However, data out of the US shows that, Crude oil output in 2014 was the highest since 1986. See vox.com for additional information The US Hasn't Produced This Much Oil Since 1986. This has spurred the US to loosen a four decades long export ban on Light crude. A step that should be beneficial to Jamaica and the Caribbean.

News emerged late last year, that the US may assist Jamaica to solve our perennial energy problem. Information was also available today in the Jamaica Gleaner, entitled A Hug From Uncle Sam.

The news piece suggests that, Prime minister Portia Simpson Miller and Energy minister Phillip Paulwell Will be meeting the US Secretary of sate John Kerry on January 26. The aim of the meeting is find solutions to Jamaica's Energy Woes, while exploring areas of cooperation. The article didn't elaborate on the extent of assistance. However, it is likely that Energy minister Phillip Paulwell will be seeking access to cheap natural gas to supply future energy projects, a step that has been futile over the years.

Let's hope for a fruitful outcome, as this would augment the renewable energy projects, diversify Jamaica's fuel mix and lower electricity tariff rates.

References

Frequently Asked Questions

http://www.myjpsco.com/about-us/faq/

Background, Energy Efficiency and Conservation

http://www.pcj.com/dnn/EnergyEfficiencyandConservation/Background/tabid/119/Default.aspx

Reducing the cost of energy in Jamaica

In light of recent issues with the 381 MW project, I want to add my take to this age old problem of high energy cost. The cost of electricity is estimated at 36 cents/kWh, some estimates are as high as 43 cents/kWh. Either way, Jamaica would be ranked among the highest in the world where electricity costs are concerned. Jamaica's installed power generation capacity exceeds 800 MW, this includes approximately 600 MW from Jamaica Public Service Company Limited (JPSCo) and approximately 200 MW from Independent Power Producers (IPPs).

Figure 1: Chart showing the cost of electricity in Jamaica compared to the rest of the Caribbean. Source of image: The Caribbean has some of the world’s highest energy costs – now is the time to transform the region’s energy market

What is the main contributor to Jamaica's high electricity costs? Here's a quote from the Petroleum Corporation of Jamaica:

Jamaica has one of the highest energy intensity rates in Latin America and the Caribbean and is almost totally dependent on imported oil, accounting for over 90% of its total energy use. The total cost of imported oil to Jamaica increased from  US$ 344 million in 1998 to approximately US$ 1.84 billion in 2006. In 1998 the average cost of crude oil was US$ 14.17 per bbl and by 2007 the price has risen to over US$ 90 per bbl.

It is now evident that Jamaica needs to diversify its energy mix. Possible inclusions into Jamaica's energy mix are: waste to energy, geothermal energy, solar energy, hydroelectric energy, wind energy, coal and natural gas.

Waste to Energy

It is estimated that Jamaica's waste disposal sites receive approximately 1.2 billion tons of garbage annually. Energy conversion from waste would limit the calamitous impact the garbage is having on our ecosystem. Notably evident from past and recent fires at Jamaica's largest dump, Riverton City. It seems as if our policy makers are heading in this direction, as per this recent article: Government Finalising Waste to Energy Policy

Most recently, Mr Phillip Paulwell, is hinting at the possibility of going to the market to secure investors for a 30-40 MW waste to energy power. This move would definitely help to put us on the path of energy diversification. 

Geothermal Energy

Geothermal energy is essentially heat energy that is found within the earth. But large scale development is usually limited to volcanically active regions. Despite such a limitation, it seems as if Jamaica will have its first geothermal power power up and running within the latter part of the current decade. You have a look at this September 18, 2013 article: Geothermal Energy Project Sites Narrowed to Six.

Solar Energy

Jamaica lies within a region that makes it a suitable location for the implementation of solar energy projects. The generating capacity as it relates to Jamaica is quite limitless, making solar an option that will foster a reduction in the price of electricity. Solar energy would also limit our carbon footprint and significantly cut our annual energy bill, in excess US$ 2.2 billion. Despite the various positives, there are a few limitations. Limitations include: high upfront costs, lack of solar radiation at nights (fossil fueled power plants are needed as back up) and large areas are needed for industrial scale solar projects; about 5 acres are needed for each MW of electricity generation. Take for example a 400 MW solar PV (Photovoltaic) project, approximately 2000 acres would be needed to implement such a project. If we're able to attract cash rich investors, the benefits will no doubt outweigh the negatives. Speaking of projects, WRB Enterprise Inc will be implementing Jamaica's first solar PV project, to supply 20 MW in Content Village, Clarendon.

Hydroelectric Energy

Jamaica's hydroelectric potential is relatively limited. We have approximately 24 MW in installed generating capacity, with the potential for an additional 100 MW. There have been recent suggestions about damming Bog Walk gorge as well as provisions to development hydroelectricity. Let's hope that investors will be sought to develop small scale (5-10 MW) projects across the island. 

Wind Energy

Jamaica has approximately 41.7 MW in installed wind energy capacity, this can be tripled as evident from this recent article: Jamaica Can Triple Wind Energy Output. 58 MW of wind energy will be added to the grid by 2015, more than twice the current capacity. 24 MW of additional capacity will be installed by Wigton Windfarm LTD and 34 MW by Blue Mountains Renewables LLC.

Coal Energy

Coal is a touchy subject in Jamaica, largely due to the various negative impacts. These negative impacts include: Significant air pollution, massive release of fossil fuels, Blackwater,...etc. While we cannot fully mitigate against some of these negatives, modern coal-fired power plants would have less environmental impacts than the old (in excess of 30 years old) heavy fuel oil plants that we are currently operating. Coal would also provide the greatest reduction of all the fossil fuel sources. If done properly, coal could be a viable option, especially in the short term.

Natural Gas

Natural gas is classified as the cleanest fossil fuel, at least relatively. Going forward, it seems as if natural gas will be the primary source of fuel. Jamaica is looking to secure a 30% reduction in the cost of electricity by 2016, especially with natural gas as a fuel source. Natural gas has to be shipped to Jamaica via LNG (Liquefied Natural Gas) tankers, this will increase the cost of delivery. These costs will determine the feasibility of a large scale natural gas project. However, with the recent failure to construct a 381 MW power plant, this could possibly change. 

If all these fuels sources are incorporated simultaneously, then Jamaica could significantly reduce the current cost of electricity. This would no doubt, foster job creation and economic growth. But most significantly, reduce our risks to external shocks.