SEPTEMBER 2015 by Caribbean Energy Information System

CALL: 1-876-927-1779 | CARIBBEAN PETROLEUM UPDATE : SEPTEMBER 2015

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

September 2015 ISSUE

Cleaner Fuel for Power Generation:

Challenges of Integrating LNG

In the aftermath of the natural gas renaissance in North America, and the active development of new LNG export projects, there has been renewed interest in conversion to LNG for small- and medium-scale power generation in the Caribbean among other regions. High electricity prices are a concern in Jamaica, and affect the life of residents, as well as the competitiveness of businesses and industries throughout the country. Amid such concerns, the government and major stakeholders have identified the use of LNG as a possible reform to improve the current electricity system operation. Nonetheless, despite the potential environmental and economic benefits de-

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rived from substituting fuel oil with LNG, small and medium-scale power generators face significant commercial challenges. The aim of this issue of the Petroleum Update is to explore the use of LNG in electricity production in Jamaica. The current electricity tariffs in Jamaica (including fuel rates and non-fuel rates, and excluding taxes) are: •US$0.35 per kWh for residential customers with a monthly consumption of 100 kWh •US$0.39 per kWh for residential customers with a continued on page 2/

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Cleaner Fuel for Elec tricity Generation: Challenges of Integrating LNG continued from page 1/ monthly consumption of 300kWh •US$0.39 for small commercial customers (R20 rate) with a monthly consumptionof 1,000 kWh •US$0.33 for large commercial and industrial customers (R40 rate) with a monthlyconsumption of 35,000 kWh and a maximum demand of 100 kVA •US$0.32 for industrial customers (R50 rate) with a monthly consumption of500,000 kWh and a maximum demand of 1,500kVA. It is in fact true that electricity tariffs have increased in Jamaica mainly due to increases in fuel costs, but whilst this may have affected the country’s entire population from small, low income households, to small businesses and large firms, tariffs in Jamaica are in fact not the highest in the Caribbean—Figure 2.1 below shows this. The figure compares electricity tariffs for domestic customers across various countries of the Caribbean for 2014.

scale projects as in the case of Jamaica include the ability to effectively address the mismatch between power generators and the LNG suppliers’ pricing expectations. In recent times, however, expectations that the shale gas revolution and LNG exports from the United States will provide a “cheap” fuel alternative are reinvigorating efforts to substitute fuel oil with LNG. Fuel cost-savings would greatly benefit small-scale power generators, but only once the LNG infrastructure connecting them to the global LNG markets is put into place. Unlike other existing large buyers of LNG, many small-scale power generators lack the know-how and capital needed to support the development of the LNG infrastructure required to meet their needs. Furthermore, the lack of economies of scale that prevails in small markets makes it impractical and uneconomic for the power generators to justify the large infrastructure investments required to serve these markets. Another challenge is the ability to secure the commitment of international players to participate in the LNG infrastructure needed to service small-scale markets. Buyers can source LNG from major suppliers, regional LNG providers, or from portfolio sellers on the shortterm and spot markets. There are advantages and drawbacks to each sourcing option. In buying supplies from the global LNG market at short-term or spot rates, small-scale power generators compete directly with large international buyers. The intensity of competition drives bargaining leverage between buyers and sellers, with sellers benefiting from the heightened competition. As a result, buyers inadvertently become price-takers and are exposed to price volatility.

However, this does not change the fact that tariff levels are a problem in Jamaica. The main reason electricity costs are high in Jamaica and most countries of the Caribbean is that these countries are heavily reliant on oil-based fuels, such as Heavy Fuel Oil and Diesel Oil. This however will change for Jamaica in short order as the government has advanced its plans in making LNG available to be used as a fuel in electricity generation. At current prices, LNG is substantially less expensive than diesel fuel: in 2010, the OUR estimated that the price of LNG delivered at plant site would be US$8.50 per MMBtu, compared to a current price of about US$24 per MMBtu for Automotive Diesel Oil (ADO),and Additionally, small-scale customers face significant US$17 per MMBtu for Heavy Fuel Oil (HFO). challenges in securing long-term supply contracts. To Furthermore, natural gas burns cleaner than other hy- date, many existing and new full-scale LNG liquefacdrocarbon fuels such as oil and coal, and produces less tion plants have expressed reluctance to service smaller carbon dioxide per unit of energy released. Combined LNG ships directly due to docking and loading capacity cycle power generation using natural gas is thus the concerns. In addition, many established LNG produccleanest source of power available using hydrocarbon ers/sellers tend to focus on developing large-scale profuels, and this technology is widely used wherever gas jects and marketing to either larger existing or emerging markets. The size and remoteness of many small and can be obtained at a reasonable price. medium-range markets have generally been disincenOne of the major challenges of integrating LNG in small tives for major international suppliers to incorporate

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small buyers into their marketing portfolios. Furthermore, there is the challenge of infrastructural changes. The ability of power generators to integrate natural gas into the existing supply chain will be of utmost importance. Power generators need to ensure that natural gas conversion allows for multi-fuel capabilities to be retained in order to guarantee fuel security. Also, sourcing and managing the quality of a back-up supply of fuel oil may be costly, and result in economic challenges to maintaining parallel fuel supply chains.

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In addition to logistical and supply considerations, the role of the government is integral to LNG conversion. In all scenarios, the role of the government is key to financing LNG infrastructure projects and providing the policy and regulatory frameworks that support the successful conversion to LNG. Governments can assist greatly in the integration process addressing environmental permitting processes and stringent import/export regulations which at times stall the development of an LNG network thereby adversely impacting timeline, cost and viability of projects.

Figure 2.1: Caribbean Countries Domestic Customers Electricity Tariffs 2014.

Domestic Customer Using 200 kWh per month Country Base Rate Special Charges/ Fuel Sur(US$) Taxes (vat,levy,etc) charge (US$) (US$) Antigua and Barbuda 29.45 54.47 Curacao 31.91 N/a 33.10 Bahamas 21.90 0.00 47.00 Belize 41.00 N/a N/a Bermuda 31.50 15.00 26.00 Barbados 18.59 10.28 40.15 British Virgin Islands 45.90 2.50 30.59 Cayman Islands 24.74 10.38 33.46 Dominica 47.63 5.73 27.07 Grand Bahama 36.78 31.90 Grenada 30.59 6.00 39.89 Jamaica 26.30 33.03 St.Lucia 66.33 -1.47 Monsterrat 39.00 61.00 St.Maarten 16.29 0.14 35.70 Trinidad and Tobago 8.13 1.22 0.94 Turks and Caicos 46.73 47.81 US Virgin Islands 19.52 7.67 74.95

Total Typical Bill (US$) 83.92 65.01 68.90 41.00 72.50 69.02 78.99 68.58 80.43 68.68 76.48 59.33 64.86 100.00 52.13 10.29 94.54 102.14

Source: JPSCO

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CALL: 1-876-927-1779 | CARIBBEAN PETROLEUM UPDATE : SEPTEMBER 2015

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LNG Industry Chain System

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Prices at the Pump SEPTEMBER 2015

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Retail prices for Regular Unleaded Gasoline in the thirteen Caribbean countries reviewed at the end of September 2015 showed overall decreases in prices for four countries; Barbados, Dominica, Jamaica and St.Lucia of 1% , 6%, 10% and 4% respectively. Jamaica recorded the highest decrease of 10%. Prices in the remaining nine countries were stable. The average retail price was 1.9% lower when compared to the previous month.

Unleaded Gasoline: Regular : Average Retail Price – January - September 2015 (US$/Litre) COUNTRIES

JAN

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

8 Mths AVG

ANTIGUA/ BARBUDA

1.11

BARBADOS

1.53

1.42

1.43

1.51

1.55

1.60

1.64

1.62

1.55

B.V.I [87 OCT]

1.21

DOMINICA

0.92

0.85

0.83

0.98

1.51

1.60

1.59

1.49

1.19

GRENADA (95 OCT)

0.97

0.90

0.95

1.03

1.10

1.14

1.15

1.12

1.06

GUYANA

1.06

0.83

0.93

0.97

0.93

0.87

0.84

0.91

JAMAICA 87 Octane[E10]

0.96

0.99

1.06

1.12

1.15

1.16

1.15

1.09

0.98

1.07

MONTSERRAT

1.04

0.95

0.97

ST. KITTS/ NEVIS

0.96

0.94

ST. LUCIA

1.21

1.04

0.98

1.03

1.05

1.07

1.10

1.06

1.07

ST. VINCENT/ GRENADINES

1.03

0.93

0.85

1.01

1.03

0.94

SURINAME [95 OCT]

0.91

1.10

1.11

1.23

1.16

0.42 0.42 0.42 0.42 0.42 0.42 0.42 NOTE: *US Gallon = 3.785 L *Imperial Gallon = 4.546 L

0.42

TRINIDAD/ TOBAGO [92 OCT]

US$/Litre

*As at November 1, 2009 MTBE was phased out from all gasoline blends in Jamaica and replaced with 10% Ethanol.

1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00

Comparative Retail Pump Prices Regular Unleaded Gasoline September vs. 8 Mths Avg (Jan-September 2015) SEP

13 Caribbean Countries

See prices for all products at www.cippet.org

8 Mths AVG

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International OIL PRICES

CALL: 1-876-927-1779 | CARIBBEAN PETROLEUM UPDATE : SEPTEMBER 2015

Average Weekly and Monthly Crude Oil Prices (July - September 2015)

70 60

US$/Bbl

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57.92

46.73

44.94

30 20 Jul-15

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.

WK2

WK3

WK4

Sep-15 MTH AVG

Average Monthly World Crude Oil Prices (2012 - 2014) 110.0

US$/BBL

Analysis of International Crude Oil Prices for the July to September 2015 period showed an average price of US$42.55/bbl . This average price was 13% lower than the average price reported in July 2015 but 7.6%higher than the price in September 2015. The highest weekly price seen in September 2015 for the commodity was US$46.73/bbl-reflected in week one while week two accounted for the lowest price of US$45.33/bbl. An average of the three month’s average prices reflected US$47.04/ BBL Whilst there are growing concerns about Russian airstrikes in Syria, the build up in crude oil inventory in the United States have continued to place downward pressure on prices..

0 Period WK1

Aug-15

106.6

105.8

90.0

70.0

2012

2013

2014

50.0

Period

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

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