August 2014

CALL: 1-876-927-1779 | CARIBBEAN PETROLEUM UPDATE : AUGUST 2014

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

AUGUST 2014 ISSUE

CAN THE CONFLICT IN

RUSSIA & UKRAINE

IMPACT THE CARIBBEAN’S ENERGY SECURITY?

Caribbean small states are a diverse set of countries. They are mostly grouped as commodity exporters, service-based economies, mainly tourism and financial services, and high importers of petroleum energy. Due to their small economies and open-ness to international trade, Caribbean states are highly vulnerable to economic shocks and natural disasters. To make matters worse, Caribbean economies face burgeoning debt to GDP ratios that jeopardize prospects for medium-term debt sustainability and growth. Additionally, countries in the Caribbean region are susceptible to volatile prices in the energy market as a consequence of a global connection. The shocks to the energy markets especially pricing, mostly takes an indirect approach through the United States, notwithstanding any other issues or conflicts in the Middle East and Europe. In this issue of the Petroleum Update we seek to look at how the conflict in Russia could impact the Caribbean?

Crisis in Russia Natural gas and Crude Oil are both state-run industries in Russia. After Saudia Arabia and the United States, Russia is the third-largest producer of oil and is the second-largest producer of natural gas (second to the United States). As of 2012 the oil and gas sector in Russia accounted for 52% of federal budget revenues and over 70% of total exports.

Based on preliminary data from the EIA, Russia’s average production stood at 10.5 million barrels per day (bbl/d) in 2013. The conflict in Ukraine grew tremendously when Russian troops seized Crimea in March 2014.

At that time, average crude oil prices stood at US$100.76/bbl. This price was 6.6% higher

continued on page 2/

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CALL: 1-876-927-1779 | CARIBBEAN PETROLEUM UPDATE : AUGUST 2014

Can the conflic t in Russia and Ukraine Impac t the Caribbean’s Energy Security? continued from page 1/ than the average WTI Crude prices in January 2014. If the crisis continues to escalate, the Russian government could respond to any actions by the international community by cutting off Russia’s oil and natural gas exports to the European Union. In 2010, 34.5 percent of the EU’s oil imports and 31.8 percent of their natural gas imports were from Russia.

Potential Risks to the Caribbean Whilst the United States is not hugely dependent on crude oil and natural gas from Russia, any shocks to the European energy market in terms of higher prices will likewise raise prices in the United States. However, while the effect of the crisis on the U.S. economy could be minimal, it will have global consequences as well. Russia has proven in the past that it will use its energy exports for political purposes: It closed pipelines carrying natural gas to Ukraine as recently as 2009. However, although not impossible, cutting off natural gas and crude oil exports to the entire European Union would be a drastic step as Russia relies on revenues from those exports to fund the government.

Energy production is the biggest economic risk from the crisis in Ukraine but there are other implications as well.

Investors’ fear of continued geopolitical disruption will see stock markets across the world trending downwards.

The West Texas Intermediate (WTI) is used as a benchmark in oil pricing.

Any increase in the WTI prices will impact the price at which Caribbean economies purchase oil on the international markets.

Although the Russian and the United States economies are not deeply connected, if the EU and the United States impose sanctions on Russia, the Russian government may withhold oil supplies to the European market. This in turn will raise prices in the United States and as a consequence the

Caribbean will be impacted through a resulting increase in the WTI. Caribbean economies are in most instances affected directly and indirectly by changes in international oil prices. Rising global oil prices also can indirectly result in increases in prices of fuel at the pump. This can have major impact on Caribbean consumers. Jamaica for example, over ten years (2005 – 2014) has seen a 74% increase in retail pump prices for Regular Unleaded Gasoline. These prices change weekly in a free market situation and impact on the spending power of the Caribbean consumers.

In some other Caribbean countries (mainly OECS countries) prices are more controlled, however, prices in these countries are heavily subsidized by Governments. In addition to the impact on retail petroleum pump prices, the situation in Russia could result in increases in international oil prices. This situation could create multiple challenges for already fragile Caribbean economies; through a widening import bill, the trade balance can deteriorate and the fiscal balance can weaken. Also, the increase in oil prices can also impact inflation rates, thereby reducing consumer confidence, raise uncertainty among investors and reduce competitiveness due to high power generation and transportation costs.

Conclusion The Caribbean consists of Small Island Developing States that are susceptible not only to natural disasters but volatile oil prices on the international scene which has the potential to significantly affect the energy security of these islands. Whilst the conflicts are concentrated in the Eastern section of the globe, this by no measure means that the Western parts of the world will not be affected. Increases in oil prices have far reaching implications for Caribbean nations. Their heavy dependence on foreign oil is

used mainly to fuel two major energy sectors of the economy - the electricity and transportation sectors. In any case, rise in global oil prices will result in an increase in the energy bill and a negative impact on the trade balances.

Additionally, the high and rising cost of energy adversely affects the manufacturing and service industries and as such makes the exports of Caribbean companies uncompetitive globally. In addition, electricity providers and petroleum marketing companies will offset increased fuel prices to the consumers in electricity rates and retail fuel pump prices in Caribbean countries.

Despite the non-dependence of the United States on crude oil and natural gas from Russia, one has to bear in mind that any shocks to the European energy market in terms of higher prices will likewise raise prices in the United States and through this the Caribbean will be affected. The United States and Europe could place economic pressure on Russia for the annexation of Crimea by pushing down global oil prices by selling a portion of its strategic oil reserves. The lower prices, whilst favourable for the Caribbean economies would cost Russia lost income from oil and gas sales and the conflict may escalate as a consequence. World oil prices are affected by a number of external factors which are beyond the control of small oil importing states in the Caribbean. The price of raw crude oil is determined largely by factors affecting its demand as well as supply and the conflict in Russia is no exception. But given the volatility of the entire situation, it’s tough to predict how any events will affect the global economy with any confidence. Ultimately however, the already insecure Caribbean energy sector is likely to be negatively impacted should the situation in Russia continue or escalate.

CALL: 1-876-927-1779 | CARIBBEAN PETROLEUM UPDATE : AUGUST 2014

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CALL: 1-876-927-1779 | CARIBBEAN PETROLEUM UPDATE : AUGUST 2014

Prices at the Pump

AUGUST 2014

Retail prices for Regular Unleaded Gasoline in the fourteen Caribbean countries reviewed at the end of August 2014 showed increases in prices for Barbados and St.Vincent and the Grenadines (2.7% and 0.8% respectively).

Decreases in prices were observed in four countries namely; Belize, Dominica, Jamaica and Suriname. Price decreases ranged between 0.58% and 3.8% with Dominica experiencing the highest decrease. The other eight countries remained stable. The average Regular Unleaded Gasoline Retail Pump Price at the end of August 2014 was 0.2% lower than the average of the previous month.

Unleaded Gasoline: Regular : Average Retail Price – January - August (US$/Litre) 2014 COUNTRIES JAN FEB MAR APR MAY JUN JUL AUG AVG ANTIGUA/ BARBUDA

1.23

1.23

1.23

1.23

1.23

1.23

1.23

1.23

1.23

BAHAMAS [91 OCT]

1.36

1.36

1.38

1.38

1.43

1.43

1.43

1.43

1.40

BARBADOS

1.54

1.57

1.59

1.66

1.76

1.76

1.81

1.86

1.69

BELIZE [87 OCT]

1.41

1.43

1.47

1.49

1.51

1.48

1.54

1.52

1.48

B.V.I [87 OCT]

1.21

1.21

1.21

1.21

1.21

1.21

1.21

1.21

1.21

DOMINICA

1.15

1.16

1.18

1.19

1.19

1.22

1.30

1.25

1.21

GRENADA (95 OCT)

1.26

1.26

1.28

1.31

1.31

1.31

1.32

1.32

1.30

GUYANA

1.09

1.10

1.12

1.14

1.16

1.15

1.16

1.16

1.13

JAMAICA 87 Octane[E10]

1.23

1.24

1.25

1.27

1.25

1.27

1.26

1.25

1.25

ST. LUCIA

1.32

1.31

1.31

1.31

1.31

1.31

1.31

1.31

1.31

ST. VINCENT/ GRENADINES

1.08

1.07

1.09

1.10

1.10

1.13

1.16

1.17

1.11

SURINAME [95 OCT]

1.39

1.39

1.43

1.43

1.46

1.46

1.47

1.43

1.43

TRINIDAD/ TOBAGO [92 OCT]

0.42

0.42

0.42

0.42

0.42

0.42

0.42

0.42

0.42

TURKS/ CAICOS

1.52

1.52

1.52

1.52

1.52

1.52

1.52

1.52

1.52

NOTE: *US Gallon = 3.785 L *Imperial Gallon = 4.546 L *As at November 1, 2009 MTBE was phased out from all gasoline blends in Jamaica and replaced with 10% Ethanol.

Comparative Retail Pump Prices Regular Unleaded Gasoline 2.00

AUGUST Avg vs 8 Mths Avg (Jan - August 2014)

1.80

US$/Litre

1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00

14 Caribbean Countries

See prices for all products at www.cippet.org

International OIL PRICES

CALL: 1-876-927-1779 | CARIBBEAN PETROLEUM UPDATE : AUGUST 2014

Average Weekly & Monthly Crude Oil Prices (Jun August 2014)

110.00 108.00 106.00

107.23

105.52

104.00

US$/BBL

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102.00 100.00

102.19

98.00 96.00 94.00

Jun

92.00 90.00

Jul

Aug

88.00

Period

WK1

WK2

WK3

WK4

MTH AVG

Analysis of the International Crude Oil Prices for the period June to August 2014 ended with an average price per bbl of US$97.95. This shows a 5.7% decrease in price from the previous month, and a 7.4% decrease in average prices when compared to June 2014. The highest weekly price seen in August for the commodity was US$102.19/bbl-reflected in week one while week four accounted for the lowest price of US$94.95/bbl. The overall lowest and highest prices for the three months period respectively were US$94.95 seen in August 2014 and US$107.23 seen in week three of June 2014. The overall average price for the period was US$104.83.

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.

Scientific Research Council, Hope Gardens, Kingston 6, Jamaica 1-876-927-1779 (Telephone) 1-876-977-1840 (Fax)

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