New global realities are encouraging more countries to work together on their energy policies

In 2015 it is clear that the Caribbean energy balance is beginning to change, creating new challenges and opportunities for regional governments. A number of things are happening simultaneously. Most Caribbean countries are heavily dependent on oil imports and have accumulated high levels of debt. For them, the sharp fall in oil prices since late 2014 is creating temporary breathing space; however, this will not last indefinitely. At the same time, the deep financial difficulties faced by Venezuela, which for over a decade has supplied the region with heavily discounted crude oil, suggests the country’s generosity will have to be curtailed. Meanwhile, fundamental shifts are at work in the US, where the shale oil and gas boom is positioning the country to be a net exporter of refined fuels. The thaw in diplomatic relations between Washington and Havana is also opening up the possibility of new investment in Cuba, altering patterns of energy use, production and trade. Across the region as a whole there is a new focus on improving efficiency in energy consumption.

The Caribbean Energy Challenge

As a group, Caribbean countries face a series of inter-related energy challenges. The obvious one is that, with the exception of Trinidad and Tobago, they are dependent on oil imports. Even T&T, one of the world’s largest natural gas exporters, is a net crude oil importer, as local crude production is not sufficient to meet the feedstock needs of the country’s refinery. Furthermore, the region’s most important industry, tourism, is heavily energy intensive. According to Jorge R Piñon, a specialist on Latin America’s energy industry at the University of Texas, “The economic Achilles’ heel for these small islands is really electric power generation. This is very important for their tourism and for hotels, so affordable and reliable electricity has a very high economic value for those small islands.”

Most electrical power is generated using more expensive carbon-burning fuel oil generators. According to a Barclays study, the average price of electricity across Central America and the Caribbean is nearly $0.20 per KWh, more than double the average of developing countries as a group. In addition, electricity transmission and distribution losses average 20%, one of the highest rates in the world, due to electricity theft.

Petrocaribe Winding Down

A big change is that Venezuela’s long-running PetroCaribe programme, which has supplied discounted oil to Central America and the Caribbean for over a decade, is expected to draw to a close. At its peak in 2012 PetroCaribe was providing 400,000 barrels per day (bpd) to the region and charging the importing countries only half the price in cash, with the rest being financed in the form of long-term loans. According to a recent estimate, in the decade to 2012 Venezuela subsidised Central American and Caribbean oil imports to the tune of $50bn. Since then, however, as Venezuela struggles to meet its foreign debt payments, PetroCaribe deliveries have fallen by around 50% to 200,000 bpd.

Energy Diplomacy

This is the background to a surge in energy-related diplomatic activity. In January 2015 US Vice-President Joe Biden hosted the first Caribbean Energy Security Summit in Washington DC. There he told Caribbean leaders that a “seismic shift” was taking place in the global economy, with North America now boasting more oil and gas reserves than the rest of the world combined. These reserves could be a major asset for the entire hemisphere. Biden said, “It’s profoundly in the self-interest of the US to see the Caribbean countries succeed as prosperous, secure and energy-independent neighbours, not a world apart but an integral part of the hemisphere where every nation is middle class, democratic and secure.”

It was at the summit that Kamla Persad-Bissessar, prime minister of T&T, proposed the creation of the $1bn Caribbean Energy Thematic Fund, with three main aims: improving conservation and efficiency; maximising use of renewables; and converting many of the region’s power generators to burn cleaner liquefied natural gas (LNG). The last suggestion might lead to greater demand for T&T’s LNG. Persad-Bissessar said the money would be raised through contributions from governments and multilateral lending agencies, such as the Inter-American Development Bank.

Calls for Integration

Energy cooperation was discussed further at the Summit of the Americas held in Panama City in April 2015. Attending the gathering, US President Barack Obama stressed the gains to be achieved by creating a more integrated energy market. “To the extent that we can create a single regional energy market, then the costs of production, of transmission, [of] distribution of energy become cheaper for all the countries involved, and you get certain economies of scale,” said Obama. On his way to Panama, Obama attended a CARICOM summit in Jamaica, where he again emphasised that the Caribbean has some of the highest energy costs in the world. “Caribbean countries are particularly vulnerable to the effects of climate change, and we have to act now,” Obama said.

CARICOM has developed its own energy sustainability objectives. These, the organisation has stated, include expanding the use of cost-effective locally available renewable energy sources. Member countries have committed to a 33% improvement in energy efficiency and renewables accounting for 47% of power generation by 2027. Several eastern Caribbean islands are actively pursuing the development of geothermal energy, which in some cases may cover 100% of their electricity needs, while others following more conservative hydrocarbons-reliant policies have nevertheless sought to use LNG, ethane or propane-fired generators to replace older diesel and fuel oil-fired plants.

In Jamaica the US announced the launch of a $20m Clean Energy Finance Facility for the Caribbean and Central America, which will provide early-stage financing for the development of alternative energy sources. Also involved in this initiative is the US Overseas Private Investment Corporation, which is already funding a 36-MW wind farm in Jamaica and working on a solar farm project in the same country. Also under way is a multilateral initiative known as the Caribbean Hotel Energy Efficiency and Renewables project, which is investigating ways of improving the efficiency of electricity and water use in the region’s hotels. Although many analysts are enthusiastic about the potential for renewable energy in the Caribbean, its development will clearly take a number of years.

Change Ahead

While the emerging energy market shifts could be very positive for CARICOM countries, they also carry risks. A country like T&T, for example, could boost its LNG exports and share its energy expertise. But it also may find itself struggling to maintain profit margins at its refinery, one of only three remaining in the Caribbean (the oversupply of competitively priced US refinery output is having an effect across the region). Further changes lie in store: Cuban officials have suggested that their country may be open to more private sector investment, including US investment, in oil exploration in the Cuban section of the Gulf of Mexico.