September 2014

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

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

SEPTEMBER 2014 ISSUE A New Caribbean

Outlook:

Looking Beyond Petrocaribe & Gasifying the Caribbean

The driving factor for most Caribbean countries trade deficit is the ever escalating fuel bill that is fuelled by high world crude oil prices. Under the Petrocaribe agreement some Caribbean countries are able to import a set quota at preferential payment rates and conditions. However, the volatility in the oil price market presents an opportunity to pursue Natural Gas as an alternate power

generation source in the Caribbean; its introduction would also lower the environmental costs of fuel oil consumption. What if an agreement similar to the Petrocaribe was to be offered by the United States at the same preferential payment terms but for Natural Gas instead of Crude oil?

Of course, assuming that all facilities required for utilizing natural gas are in place and fully operational. In this

issue of the Petroleum Update we seek to juxtapose the same terms and conditions of the Petrocaribe agreement and apply them to a Natural Gas arrangement.

Using what is known as a Deffered Payment System, Caribbean countries have benefitted from rates of interest of one and two percent under the Petrocaribe Agreement. Addition-

continued on page 2/

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1-876-927-1779 (Tel) 1-876-977-1840 (Fax) ceis@src-jamaica.org www.ceis-caribenergy.org

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

A New Caribbean Outlook: Looking Beyond Petroc aribe & Gasifying the Caribbean continued from page 1/ ally, countries can import Crude Oil (each country is allowed a specific daily quota) and refined petroleum products from Venezuela. A part of the payments for the imports are put on hold and converted to loans with an extended repayment period of up to twenty five (25) years with a two year grace period.

The interest rate, period of the loan and amount financed, is linked to the price of oil in the international marketplace. If the price of oil exceeds

US$40/BBL between 30% and 70% of the invoiced amount is financed and this loan attracts a 1% interest rate per annum, repayable over 25 years inclusive of a 2 years moratorium period.

but also a constant supply of petroleum. Table 1 below provides an idea of how payments are calculated using the Deferred Financing Mechanism under the Petrocaribe arrangement.

If the price of oil falls below US$40/ BBL between 5% and 25% of each invoice is financed over 17 years (inclusive of 2 years moratorium) at a 2% interest rate per annum. This guarantees a favourable outcome for Caribbean nations, not only because of the attractive terms of repayment

Based on Table 1 (Column 8), by applying the Deferred Financing Method and using an example of 1000 barrels per day (oil imports), if the price of a barrel of oil is US$99, the percentage of cash paid up front to Venezuela for oil would be 50% (US$49,500) while the remaining 50% would be given

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

to a government as a loan. This loan amount is expected to be invested in infrastructural strengthening and social and developmental programmes aimed at improving the economic and social welfare of member countries.

At the current interest rate of 1% and a moratorium period of two (2) years, the amount that would be owing to Venezuela for example in October 2016 would be US$50,495.

With a booming Shale Gas industry in the United States, the country has now become a net exporter of Natural Gas to the World. Previously, approximately one third of the natural gas used in the US was imported from Trinidad and Tobago. The US shift from being a net importer to a net exporter has thrown a major dent in Trinidad’s earnings from the North American market.

Over the past ten years a number of Caribbean countries including Jamaica have been exploring the possibility of reducing imports of Crude Oil and refined petroleum products. This is with the goal in mind of reducing energy costs by replacing these products with cheaper energy sources such as Natural Gas. However, this has been hampered by the inability to finalize arrangements for consistent supplies of natural gas and agree on a price with Trinidad and Tobago. In addition, the lack of infrastructure to manage this type of energy source is currently not in place in most Caribbean countries Looking at the current abundance and high production of Shale Gas in the United States along with the existing situation in the Caribbean with so many economies being burdened with high energy import bills, a possible solution could be staring us in our faces.

What if a similar arrangement to the Petrocaribe agreement was in place for importation of Natural gas from the United States? How would this impact on the imports of Crude and refined petroleum products from Venezuela? What would be the impact

on GDP and the energy import bills of each Caribbean country who signed on to this agreement? Would the Caribbean still need a Petrocaribe?

These are all questions that come to mind when we think of “USA-NatGas Caribe Agreement.”

For the purpose of the analysis, let’s look at a scenario where one Caribbean country is importing the equivalent energy value of natural gas in British Thermal Units(BTU) to one thousand barrels of oil daily (1KBD).

By applying the Deferred Financing Method and using the equivalent energy value of Natural Gas in British Thermal Units (BTU) to one thousand barrels of oil daily (1KBD) and the current price of natural gas at US$3.92/ MMBTU, US$21,823 (95%) would be paid upfront to the United States while the remaining US$1,149 (5%) would be given to the government as loan. With a current interest rate of 2% and a moratorium period of two (2) years, the amount that would be owing for example in October 2016 would be US$1,195 as shown in Table 2 (Column 1: on page 5) .

At the current price of crude oil (US$93.29/BBL), the upfront payment required would be US$49,500 for 1000 barrels of oil as highlighted in Table 1 (column 8). Comparing this to the cost of the equivalent energy value of natural gas of 5860MMBTU, the cost of crude oil outweighed that of natural gas, as the upfront payment for natural gas using the current price of the product would be US$21,283.

Natural gas rates would have to peak at US$25 (see Table 2 as highlighted in column 6 on page 5) in order for the cost of Natural Gas to be significantly higher than the cost of crude oil.

However, despite the fact that the equivalent energy of natural gas to a thousand barrel of oil at its current price would cost significantly less than crude oil, the amount given as loan is also significantly less. The fifty-fifty

PAGE 3

(50/50) allocation ratio as highlighted in Table 1 (column 8) and using US$93.29/bbl of oil would allow for US$49,500 to be used for infrastructural strengthening. However using the Natural Gas arrangement, the loan amount as shown in Table 2 (column 1: on page 5) would be USS1,149.

This indicates a 98% decrease in the loan amount when compared to that of the Petrocaribe arrangement. The Petrocaribe agreement would allow for a wider loan facility for Caribbean nations while the natural gas arrangement would reduce the loan allocations. However, the benefit derived from a narrower loan agreement is that the repayment due at the end of a particular period would be less.

For example, at the current price of Natural Gas (US$3.92/MMBTU) and with a similar arrangement to the Petrocaribe, a country would be given a 2% interest rate with a two year moratorium period. After the two years, the compounded interest and payments would amount to US$1,195 (as shown in column 1Table 2, see page 5). However, based on the similar arrangement for crude oil but with a 1% interest rate the total due at the end of the moratorium period would be US$50,495 (see column 8 – Table 1).

It is evident that both arrangements would have their benefits and draw backs and as such it would be wise for Caribbean nations to weigh the pros and cons if such an arrangement were to be explored with similar terms and conditions. The only exception with USA-NatGas Caribe Agreement would be fact that the fuel source would be Natural Gas and not Crude Oil. Some critical factors that must also be borne in mind include the fact that currently natural gas price is significantly lower than Crude Oil. Imports of natural Gas would reduce the impact on Caribbean economies to find scarce foreign exchange to pay upfront for energy supplies. In addition, the infrastructure cost for establishing Natural

continued on page 5/

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

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PAGE 5

A New Caribbean Outlook: Looking Beyond Petroc aribe & Gasifying the Caribbean continued from page 3/

Gas re-gasification facilities and distribution systems and the environmental and social benefits derived or lost must be factored in the long term costs and then quantified against the Petrocaribe arrangement.

Conclusion

products for a significant portion of its energy needs has increasingly come at a cost. Despite diversification efforts, as well as cut rate oil imports through the Petrocaribe agreement with Venezuela, the volatility of oil prices continues to hurt the economies of most Caribbean nations.

The Petrocaribe agreement has no doubt been of great benefit to the Caribbean economies. However, the Caribbean’s dependence on oil based

Natural gas burns cleaner than fuel oil and can provide the power needed as countries increase renewable deployment. The advent of large Shale Gas

production in the United States brings with it the opportunity to explore potentially cheaper and cleaner burning fuels. Policymakers in the Caribbean region now have an opportunity to move away from this costly reliance on oil for electricity generation. However, gasifying the Caribbean will require significant infrastructural strengthening but at this point the impetus for change has never been stronger.

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

Prices at the Pump

SEPTEMBER 2014

Retail prices for Regular Unleaded Gasoline in the fourteen Caribbean countries reviewed at the end of September 2014 showed decreases in prices for Bahamas, Barbados, Belize, Grenada, Jamaica and Suriname between 1% and 3% . Barbados experienced the highest decrease of 2.7%. The reduction in retail prices is attributed to a decline in international crude oil prices. Prices in all other countries remained stable. The average retail price at the end of September 2014 was 0.9% lower than the average of the previous month.

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

1.23

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

1.44

1.41

1.40

BARBADOS

1.54

1.57

1.59

1.66

1.76

1.76

1.81

1.86

1.81

1.71

BELIZE [87 OCT]

1.41

1.43

1.47

1.49

1.51

1.48

1.54

1.52

1.49

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

1.21

DOMINICA

1.15

1.16

1.18

1.19

1.19

1.22

1.30

1.25

1.25

1.21

GRENADA (95 OCT)

1.26

1.26

1.28

1.31

1.31

1.31

1.32

1.32

1.31

1.30

GUYANA

1.09

1.10

1.12

1.14

1.16

1.15

1.16

1.16

1.16

1.14

JAMAICA 87 Octane[E10]

1.23

1.24

1.25

1.27

1.25

1.27

1.26

1.26

1.23

1.25

ST. LUCIA

1.32

1.31

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

1.17

1.12

SURINAME [95 OCT]

1.39

1.39

1.43

1.43

1.46

1.46

1.47

1.43

1.41

1.43

TRINIDAD/ TOBAGO [92 OCT]

0.42

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

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

SEPTEMBER Avg vs 9 Mths Avg (Jan - September 2014)

US$/Litre

1.80 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 : SEPTEMBER 2014

Average Weekly & Monthly Crude Oil Prices (Jul September 2014)

110.00

105.52 105.00

US$/BBL

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102.19

100.00 95.00

94.06

90.00

Analysis of the International Crude Oil Prices for the period July to September 2014 ended with an average price per bbl of US$93.29.

This shows a 4.8% decrease in price from the previous month, and a 10.2% decrease in average prices when compared to July 2014. The highest weekly price seen in September for the commodity was US$94.06/bbl-reflected in week one while week two accounted for the lowest price of US$92.43/bbl. The average price in September 2014 (US$93.29/bbl) is the lowest prices have been since January 2014.

The overall average price for the period was US$100.91/bbl. Global crude oil prices fell in September due to lower consumption in the Asian and European markets. Also, supply of crude from Libya continued to recover, and sustained growth in U.S. production has put sustained downward pressure on crude prices.

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.

JUL

AUG

SEP

85.00

Period

WK1

WK2

WK3

WK4

MTH AVG

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

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