Politics, Business & Culture in the Americas

Caribbean Energy Security is Good Business

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With the exception of gas-rich Trinidad and Tobago, the 14 other countries of the Caribbean Community (CARICOM) are energy importers. In fact, 93 percent of the region’s energy needs are met by oil imports, which average 13 percent of GDP. Venezuela is the main supplier of oil to the Caribbean through the PetroCaribe agreement, formed in 2005, which provides oil on attractive financing terms. However, declining oil production, deficient investment, and faltering leadership in Venezuela’s state-run oil company PDVSA cast doubt on the future of the arrangement. The termination of PetroCaribe would further wreak havoc on their tenuous fiscal situations. In many countries, Venezuela’s largesse has been a double-edged sword—affordable energy but increased reliance on imported oil.  

Energy dependence and vulnerability are serious issues in the Caribbean, where residents suffer from high and fluctuating electricity costs, frequent blackouts and poor service. Electricity prices are some of the highest in the world, averaging US$0.33 per kilowatt hour compared to $0.09 per kilowatt hour in the United States. Oil reliance is stifling the Caribbean’s economy and the region must work towards diversifying its matrix if it wants to be competitive.

Natural gas might just be the solution. The Inter-American Development Bank recently held a Caribbean Energy Conference where panelists called for a transition to natural gas as a cheaper alternative. While natural gas would not be able to compete with subsidized fossil fuels from Venezuela, the termination of the PetroCaribe program would open the door for expanding the natural gas market. Jamaica, for example, pays 60 percent of crude upfront at market prices ($103 per barrel), and finances the rest with 1 percent interest over forty years—essentially receiving a 40 percent discount on their oil imports. The price of natural gas in the region ($10 per million BTUs) is not competitive with this discounted price. But an energy market where buyers had to pay market prices would drastically change the game for natural gas.

Trinidad and Tobago has a deep history of oil and gas production dating back to 1907 and is currently the fifth largest exporter of liquefied natural gas in the world. For decades, the country has exported natural gas to the United States—in 2009, 80 percent of Trinidad and Tobago’s natural gas cargoes were destined to the United States—but today that number has dwindled to below 20 percent. Trinidad and Tobago has looked to China as a new natural gas export destination, but there is an enormous opportunity in its own backyard for the country and for private companies. The incentives for looking toward the Caribbean include strengthening regional trade and investment ties, capturing stable local markets, and aiding in reduction of carbon emissions. Fortunately, there is a growing number of opportunities for natural gas cooperation in the region.

Exploiting Trinidad and Tobago’s gas exports is a good option for Caribbean nations, but the exploding U.S. gas market may also provide another opportunity. If the U.S. government continues to issue natural gas export licenses (four have been granted), U.S. companies should find a way to partner with the Caribbean market. This play is good business for the United States as the region represents a captive and friendly market. The United States should also encourage this as a strategic initiative supporting Caribbean development and economic security.

But it will take more than just fixing the supply-side issues.  Caribbean governments must work to attract private investment and prepare their islands for a transition to natural gas. One main concern is their outdated, diesel-run generation facilities, which must be switched over to accommodate gas generation. This will be a large investment for such cash-strapped and indebted countries, but it is important to act now while the opportunity is at hand.

Investing in natural gas in the Caribbean is a step in the right direction toward energy independence and cooperation amongst its island neighbors. Natural gas collaboration is a win-win for the Caribbean region.

Tags: Caribbean, energy, natural gas
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