CEIS Petroleum Update October 2012 by Caribbean Energy Information System

CARIBBEAN ENERGY INFORMATION SYSTEM (CEIS) OCTOBER 2012 ISSUE

Image source:http://megginson-associates.com/projects/jamaica-lng-project/

aribbean Governments (excluding Trinidad & Tobago) being net importers of Petroleum fuels (subject to price volatility in the international market place) have been scrambling to find cheaper fuels to run their economies. Jamaica one of the largest importers of petroleum fuels in the Caribbean for over a decade has been looking at the possible use of Liquefied Natural Gas – LNG as fuel to be used in

the Electricity and the Bauxite/Alumina sectors. In this issue of the CEIS Petroleum Update we will provide a background to the how the project started and a chronological update on happenings with the Jamaican LNG project.

To access CEIS website CARIBBEAN PETROLEUM UPDATE

2001 The plans for the inclusion of LNG as part of Jamaica’s energy mix came continued on page 2/ CONTACT US

Caribbean Energy Information System Scientific Research Council Hope Gardens, Kingston 6, Jamaica 1-876-927-1779 (Telephone) 1-876-977-1840 (Fax) ceis@src-jamaica.org www.ceis-caribenergy.org

is a monthly Bulletin which highlights petroleum issues affecting or relevant to the Caribbean, international developments that may affect the region’s way of life and movements in oil prices and retail prices for fuel regionally.

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Call: 1-876-927-1779 | Caribbean Petroleum Update : October 2012

Background and Update on Jamaica’s LNG Project.............................................continued from page 1 out of initiatives in 2001 by the then People’s National Party Government and Petroleum Corporation of Jamaica to formulate a National Energy Policy. This policy was to look at the diversification of Jamaica’s energy mix to include LNG, Coal and Renewable Energy. The proposal to include LNG was with the expectation that this cheaper more efficient fuel source would aid in the reduction of electricity cost by at least 30%.

Minister P.J. Patterson as special envoy at Office of the Prime Minister (OPM) and assigned to him the responsibility for furthering the LNG project as well as identifying the supply source. A major emphasis was placed on Trinidad and Tobago (T&T) as the source of supplies. As such negotiations began with Trinidad for supply of LNG during the period.

The then Minister of Mining and Energy Mr. Anthony Hylton was advised by Mr. Ahmad Zia Mian, Director General, Office of Utilities Regulation (OUR) to consider Natural Gas as a potential diversification fuel to generate electricity and steam for the Bauxite/Alumina sectors.

In 2004 Technical cooperation and LNG supply agreements were concluded between the T&T and Jamaican governments (Hon. Patrick Manning & Hon. P.J. Patterson) with the signing of a Memorandum of Understanding (MOU) in November of the same year. The MOU provides for the supply of approximately 1.1 million tonnes of LNG per annum by Trinidad to Jamaica at agreed prices (Trinidad Domestic Rates) for twenty years.

The specific recommendations were:  Erection of liquefied natural gas

(LNG) storage and re-gasification terminal that would facilitate the import of LNG.  The re-gasification of LNG was then to be transmitted to the major users in the bauxite/alumina and power sectors through a natural gas pipeline distribution network.

2004

A Joint Development Team was established to among other things refine the technical and economic parameters of the project, which include the construction of a re-gasification terminal in Jamaica. 2006

2002-2003 The 2002 elections resulted in a change of Minister of Energy to Minister Phillip Paulwell who had a preference for Coal as fuel of choice for electricity generation (cheaper and more abundantly available)

Resulting from the MOU in 2004 was a Front End Engineering and Design (FEED) study by Mustang Engineering which was completed in 2006 for LNG onshore, storage and re-gasification terminal located in Port Esquivel St. Catherine.

The then former Minister Anthony Hylton was appointed by then Prime

Following the completion of the study, Jamaica was informed in late 2006 by

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the Trinidad and Tobago government, that the international marketing company that handles Trinidad's LNG (National Gas Company of Trinidad and Tobago Limited – NGC) had already committed its supply, leaving nothing for Jamaica and that it would not be able to supply Jamaica as early as it had agreed. This resulted in a fall through of the arrangement for LNG to be supplied by Trinidad and Tobago and the start of discussions with the Venezuelan government to supply Natural Gas although Venezuela did not expect to complete their LNG project until 2014/2015. 2007 - 2009 Up to 2007 and to date there are no storage facilities to accommodate gas from Trinidad or from any other country – neither has construction began in Jamaica. There was and still remain uncertainty regarding the timeline for construction of storage and regasification facilities which to some extent hampered finalization of discussions with Venezuela for the supply of the much needed fuel. In July 2007, the Office of Utilities Regulations (OUR) was given responsibility for the preparation of the leastcost generation expansion plan, and oversight of the procurement process for the addition of new electricitygeneration capacity to the national grid. In carrying out these activities, the OUR used the Jamaican National Energy Policy (then still in draft stage), and the legal and regulatory framework that were previously developed for the Electricity sector as guides.

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A general election in the same year resulted in a change in Government which saw a new Minister - Clive Mullings taking up responsibility for the Energy portfolio. In the same year the Petroleum Corporation of Jamaica issued a worldwide invitation to preQualify for the provision of Floating Storage Regasification Units (FSRU) for Jamaica.

It was alleged that then Chairman of the Board of PCJ, used insider information and was involved in bid rigging. The PCJ Chairman was allegedly a director in Caribbean LNG Jamaica Limited a local partner to the EXMAR Consortium that was selected. Details of the investigation can be seen in the Office of Contractor General’s - OCG report.

In 2009, after receipt of invitations, the PCJ issued a Request for Proposals (RFPs) for financing, development, ownership and operation of a FSRU LNG Terminal and Natural Gas Transport System.

http://www.japarliament.gov.jm/

Following the RFP, two bids were received. One of the bids was from EXMAR Consortium 2010 In 2010 the Jamaican Cabinet gave the go ahead for negotiations to begin with international oil and gas shipping company EXMAR and its consortium (chosen as preferred bidder) for the establishment of a LNG floating Regasification Terminal and Natural Gas Transportation System (LNG System) in Jamaica. In the same year the Office of Contractor General initiated investigations at Petroleum Corporation of Jamaica and the Ministry of Energy and Mining. The enquiry was to look into the PCJ’s LNG System tender and contract award processes. This was following allegations of impropriety and irregularity in the selection of the EXMAR Consortium as the ―preferred bidder‖ for the LNG project.

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ence Broderick. The Steering Committee was chaired by Special Advisor to the Prime Minister, Christopher Zacca, with support from a core technical team (unknown). The Steering Committee reported to the Ministerial Committee at least every two weeks and had responsibility for financial investment decisions, development of a project value chain, project commercial structure, and execution of contracts, among other things.

attachments/628_OCG LNG Special Investigation Report Part 1.pdf

An Engineering Consultant Company, CH-IV International was also contracted to advise Jamaica on the LNG project. CH-IV suggested that financiers would prefer open-market supply contracts, based on Henry Hub pricing. The Government also sought assistance from World Bank Consultant to be part of team advising the LNG project

During the same period, the OUR issued a request for proposal (RFP) in December 2010 for the construction 480MW electricity generation plant. The requirement was structured to procure 360MW of base-load generating capacity for 2014, and 120MW for 2016, in accordance with the generation-expansion plan. The objective was to replace 292MW of ageing and inefficient generators with more costeffective and efficient generation solutions, and to provide for demand growth.

2011 In February 2011 - Houston-based energy company, AEI, sold its majority stake in the Colombian gas pipeline operation, Promigas, the strongest financial member of the consortium - led by Belgium's EXMAR Corporation that was named as the government's preferred bidder for a LNG storage and re-gasification facility. This raised concerns about EXMAR’s ability to undertake the LNG project in Jamaica.

The then Prime Minister, Bruce Golding named two high-powered teams to lead the country’s push towards the introduction of Liquefied Natural Gas (LNG) by December 2012: A Ministerial Committee and a Steering Committee were established to lead the effort – The Ministerial Committee was chaired by Prime Minister Bruce Golding. Other members included Energy and Mining Minister, James Robertson, Finance Minister Audley Shaw, Minister of Transport and Works, Mike Henry, and State Minister for Energy and Mining, Laur-

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In April 2011, through collaboration with Marubeni and Korea East-West Power (EWP), Jamaica Public Service Company Limited (JPSCo) submitted a proposal for the construction of a new generation plant using Liquefied Natucontinued on page 4/

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Call: 1-876-927-1779 | Caribbean Petroleum Update : October 2012

Background and Update on Jamaica’s LNG Project.............................................continued from page 3 ral Gas (LNG). This was the only response to the OUR’s Request for Proposals. During the same year the previous RFP process for the supply of LNG and construction of the LNG facility was aborted following response to the review of the tender process undertaken by the Office of the Contractor General (OCG). OCG report published May 2011 following investigations PCJ & MEM regarding the LNG tender award system. The report sited breaches in the bidding process that aided the selection of the EXMAR Consortium. OCG recommended a new bidding process. Subsequently the Jamaican Cabinet approved the issuance of a new tender for the LNG Infrastructure. The Cabinet also approved a separate and concurrent RFP for LNG Supply.

Source: www.cabinet.gov.jm/.../RFP%20for%20LNG%20Infrastructure.docx (SRT) for the Jamaica LNG Project.

pushing ahead with the project.

Submissions were received from three companies (Samsung, EXMAR Marine of Belgium and Sener Ingenieria y Sisternas, SA of Spain). These submissions were reviewed and Cabinet approved the recommendation of the Liquefied Natural Gas (LNG) Project Steering Committee that Samsung be declared the preferred bidder for the development and operation of the LNG infrastructure. The Committee commenced negotiations with Samsung.

Following the decision by the cabinet to initiate a new tender process, two Requests for Proposals (RFP) were issued in June 2011 by the Government of the day:

The second for the provision and operation of an LNG Floating Storage and Regasification Terminal

LNG Supplies - Tender documentation for the acquisition of LNG Supplies for the Jamaica LNG Project.

The consultants suggested to the Bruce Golding administration that it should put the LNG plan on hold until the middle of the year while the Office of Utilities Regulations (OUR) developed a new framework for regulating the industry.

LNG Floating Storage & Regasification Terminal - Tender documentation for the acquisition of a LNG Floating Storage and Regasification Terminal

Based on the document, the consultants also recommended a project restart, competitive tendering, and a front-end engineering and design study before

Following this decision, the Office of the Cabinet conducted a solicitation for the development of a Liquefied Natural Gas (LNG) Project for Jamaica. The procurement exercise for the project was divided into two categories:

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One for the supply of approximately 830,000 tonnes per annum of LNG with the first delivery scheduled for late 2014 to coincide with the start-up of the JPSCo’s new gas-fired 360 MW power plant.

In late 2011, following General Elections, the Government changed to the People’s National Party that had initiated the LNG project. After months of analysis, in December 2011, the OUR announced its approval of the JPSCo shareholders’ proposal to

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Caribbean Petroleum Update : October 2012 | Call: 1-876-927-1779

spend over US$620 Million to build 360 megawatts of new generating capacity using Combined Cycle technology. The proposal indicated LNG as the fuel source and projected a 2014 completion date for the first plant which will see 292MW of old base load generating capacity being replaced with more fuel efficient technology. 2012 In 2012 rumours were uttered that the LNG project would be scrapped by the new Administration. However, in February 2012, Minister Phillip Paulwell announced that Jamaica would make every effort to complete the country’s LNG project by 2014. The Chair of the LNG project steering committee – Christopher Zacca was replaced with Dr. Carlton Davis. New consultants (Worley Parsons) to the LNG project were contracted to undertake the oversight of the bidding process. In March 2012, the Jamaican Cabinet approved the formation of the Jamaica Gas Trust (―JGT‖) and the engagement of a placement agent to secure USD 100 million in funding for the establishment of the JGT. The Jamaica Gas Trust will be a cornerstone of the commercial structure for the Jamaica LNG Project, which is integral to the energy plan established by Government of Jamaica. (See chart above.) In April Draft Gas Sales Agreement was circulated to the foundation EndUsers. In July it was officially announced that

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Samsung won the bid for the establishment Re-gasification LNG facility and supply of LNG. It was highlighted that in order for the project to be successful there are three major components that must be addressed:

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planning and millions of dollars in expenditure, the Government announced that it just cannot afford the cost of setting up the infrastructure and other requirements for the introduction of LNG and decided that such infrastructure will be established by the private sector. It was indicated that the Government will now focus on regulations surrounding the LNG sector.

1. The purchase of LNG by entering into a contract with a supplier. 2. The contracting of floating storage and regasification services from a provider. 3. The construction of pipelines from the regasification facility to the power plant.

It was also announced that the JPSCo who had won the bid for the establishment of 360 MW electricity generation facility is expected to proceed with construction of 360MW generation facility and will source and sell fuel (LNG) to the alumina producers which have long argued that the high price of electricity in Jamaica makes production uncompetitive.

All of these three components were said to be the responsibility of the Government and involves the coordination of, and commitment from, multiple stakeholders (fuel supplier, JPSCo, floating storage and regasification unit provider, etc.); each pursuing its own interest.

In early October, the Government announced that the LNG project Steering Committee was disbanded with immediate effect. However, the Government also reiterated that they will provide full support for the project and indicated that LNG will be in Jamaica within the next three years (2015).

In September media reports suggested a possible halt of LNG Project by Government. Dr. Carlton Davis’s and other advisers were saying the numbers don’t add up. Other technocrats in the ministry were saying the construction of the bid lends itself to a high price so the bid is flawed and Government was pulling out due to lack of money and as such JPSCo will proceed with project sourcing own fuel (LNG) supply. Following the media reports in September and after years of

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Call: 1-876-927-1779 | Caribbean Petroleum Update : October 2012

PETROLEUM NEWS & HAPPENINGS PAAC to probe Gov’t’s Handling of Multi-Billion Dollar LNG Project [...]..Read more Could Paulwell’s Plan Light The Path To Recovery? [...]...Read more Latin America years away from shale production – Regional[...]...Read more CFE receives north-northwest pipeline bids -[...]...Read more

Oil Prices fall after Warning from World Bank [...]...Read more

Editorial – Chavez’s Victory and the LNG Project [...]...Read more

Good going so far, Mrs Kelly Tomblin [...]...Read more Oil Prices fall after Warning from World Bank JPS Appoints Parish Managers [...]...Read more JPS to become more personal with customers [...]...Read more JPS gets personal with customers [...]...Read more Private Sector wants transparency in LNG infrastructure [...]...Read more Chavez gives Petrojam priority [...]...Read more Mexico most energy secure nation – study – Regional [...]...Read more Oil Rises slightly on Unrest in the Middle East [...]...Read more Gov’t to adjust electricity rates for Private Sellers of Electricity [...]...Read more

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Caribbean Petroleum Update : October 2012 | Call: 1-876-927-1779

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REGULAR UNLEADED GASOLINE AVERAGE PRICES AT THE PUMP October 2012 A comparative analysis of retail pump prices for Regular Unleaded Gasoline in sixteen Caribbean countries at the end of the tenth month of 2012 (October) revealed that six countries had increases in prices (Barbados, Belize, BVI, Grenada, Dominica and St. Lucia). These increases ranged between 1.2% and 9.1% over the period September to October 2012. One country— Montserrat saw a slight decrease in price while the remaining eleven countries had fairly stable prices when compared to the previous month. For most countries, retail prices seem to be on the increasing trend since the start of the year.

Regular Unleaded Gasoline Average Retail Price (US$/Litre) 2012 COUNTRIES

JAN

FEB MAR APR MAY JUN JUL AUG SEP

OCT

ANTIGUA/ BARBUDA

1.23

1.23 1.23 1.23 1.23

1.23

10 Mths AVG 1.23

BAHAMAS [91 OCT]

1.33

1.35

1.44

1.46

1.47 1.46 1.39 1.41

1.52

1.43

BARBADOS

1.55 1.41 1.26 1.12 1.23 1.11 1.23 1.19 1.20 1.21

1.59 1.45 1.27 1.14 1.28 1.08 1.30 1.21 1.19 1.22

1.66 1.51 1.29 1.19 1.36 1.09 1.32 1.29 1.32 1.22

1.72 1.54 1.29 1.25 1.42 1.09 1.37 1.39 1.29 1.24

1.77 1.55 1.29 1.30 1.42 1.16 1.32 1.41 1.28 1.25

1.70 1.58 1.19 1.17 1.29 1.06 1.28 1.28 1.25 1.25

1.70 1.58 1.19 1.16 1.32 1.06 1.33 1.30 1.25 1.22

1.73 1.61 1.23 1.28 1.41 1.06 1.30 1.29 1.25 1.23

1.69 1.51 1.26 1.20 1.33 1.10 1.30 1.30 1.25 1.24

1.19

1.16

1.13

1.17

1.21 1.17 1.21 1.19

1.18

1.40

1.43

1.49

1.52

1.54 1.46 1.43 1.45

1.45

1.46

0.42

0.42 0.42 0.42 0.42

0.42

1.58

1.61

1.70

1.78 1.68 1.60 1.54

1.51

1.62

BELIZE [87 OCT] B.V.I [87 OCT] DOMINICA GRENADA (95 OCT) GUYANA JAMAICA 87 Octane[E10] MONTSERRAT ST. KITTS/ NEVIS ST. LUCIA ST. VINCENT/ GRENADINES SURINAME [95 OCT] TRINIDAD/ TOBAGO [92 OCT] TURKS/ CAICOS

1.78 1.49 1.29 1.33 1.36 1.17 1.27 1.4 1.24 1.27

1.70 1.47 1.24 1.22 1.28 1.07 1.26 1.28 1.22 1.28

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.

SEE CHART ON PAGE 8 >>

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Call: 1-876-927-1779 | Caribbean Petroleum Update : October 2012

CHART OF RETAIL PUMP PRICES FOR OCTOBER 2012

Comparative Retail Pump Prices Regular Unleaded Gasoline OCTOBER Avg vs 10 Mths Avg (Jan - October 2012)

US$/Litre

2.00 1.80

OCT

1.60

AVG

1.40 1.20 1.00

0.80 0.60 0.40 0.20 0.00

16 Caribbean Countries

See prices for all products at www.cippet.org .

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Caribbean Petroleum Update : October 2012 | Call: 1-876-927-1779

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SOME LNG FACTS (Internationally) Reducing greenhouse gas emissions is a global problem requiring a global solution. LNG is a unique source of energy. It is less emissions intensive than all other fossil fuels and is able to contribute directly to the global reduction of greenhouse gas emissions when it is used to replace more emissions intensive fuels, such as coal. For every tonne of carbon dioxide emitted in the production of LNG in Australia, at least four tonnes of carbon dioxide emissions in customer countries are avoided when LNG is used to displace coal-fired power generation. This is even greater in China, where the impact of displacing coal with LNG for power generation ranges between 5.5 tonnes and 9.5 tonnes.

Source: http://www.woodside.com.au Source: http://www.kentonline.co.uk/kentonline/news/2011/april/19/nu-venture_supports_charter.aspx?theme=print

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Call: 1-876-927-1779 | Caribbean Petroleum Update : October 2012 Average Weekly & Monthly Crude Oil Prices (August October 2012)

100.0

97.56

98.0

US$/BBL US$/BBL

96.22

95.4

96.0

94.0

91.59

92.0 90.0 88.0 86.0 84.0

Aug

82.0

Sep

Oct

Mth Avg

80.0

WK 1

WK 2

WK 3

WK 4

Period An assessment of International Crude Oil prices over the three months period Sep—Oct 2012 saw prices in October averaging at US$88.81/BBL. When compared to the average prices seen in August and September, this average price was approximately 4.7% and 6.1% lower respectively and seen as a welcome change for net importers of the product. The highest weekly average price seen in October was US$91.52/ BBL - seen in the second week of the month . Prices seen from the third week in October were the lowest seen over the three months period. An average of the three month’s average prices reflected US$93.9/BBL. 

Average Monthly World Crude Oil Prices (2009 - 2011) 109.61

108

US$/BBL

88.14

88 78

76.19

58 48

2009

2010

2011

Featured Offers:

Jan

Feb Mar Apr May Jun

Jul

Aug Sep Oct Nov Dec

Period

Caribbean Energy Information 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.

Yr Avg

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