Alternative routes to energy security
A little over a week ago, Caribbean and Central Americanleaders met in Washington to discuss an extensive programme intended todiversify energy sources in the countries of the Caribbean Basin.
Although not specifically aimed at lessening the region’sreliance on Venezuela’s concessional PetroCaribe arrangement, the policyframework agreed may lead inevitably to that outcome. This is because what isproposed is designed to enable, with US, multilateral and private sectorsupport, the eventual delivery of an energy transition away from the presentreliance on oil to generate electricity, at a time when the global environmentfor hydrocarbons is changing and oil prices are low.
At the May 4 summit, the Chair of the meeting, the US VicePresident, Joe Biden, conscious of regional political sensibilities, put itrather differently. He said that the US wanted to see the countries of theCaribbean Basin become energy secure, generate opportunity, attract foreigninvestment and grow. An outcome that he said would be in the US’sinterest.
Although US officials say that the event was not connectedto existing PetroCaribe arrangements, they made clear that the need forrebalancing the region’s energy matrix, the impact of falling oil prices, andchanging buying patterns in the region, provided a backdrop to thediscussions.
The view reflects reports in leading petroleum tradepublications which note that in recent weeks that a number of Caribbean andCentral American countries, including the Dominican Republic, Jamaica, andNicaragua, have begun to tender for crude shipments from the US, in areflection of the changing economic dynamics of the PetroCaribe arrangement.
The background, industry analysts suggest, is that for aslong as oil prices remain low, the value of the long-term loan and developmentcomponent of the concessional arrangements offered by Venezuela is lessattractive. They also point to a growing awareness that for the foreseeablefuture, the promises made by President Maduro and his predecessor to undertakeextensive energy and tourism related investments across the region, as well asother infrastructural developments, are unlikely to be possible to finance as aresult of the country’s huge indebtedness, falling oil production and decliningrevenues.
The US-Caribbean Central America Energy Task Force reportdoes not mention the Venezuelan programme, however. It notes instead that whilethere are similarities in the energy challenges facing the Caribbean andCentral America, there is great diversity in the possible solutions.
More judgmentally, it observes that if the Caribbean haddiversified its energy sources earlier, the volume of GDP and foreign exchangespent on energy imports over the last decade, when oil prices were high, couldhave otherwise been directed at alleviating poverty and adapting to climatechange and sea level rise.
Looking ahead, it notes that the majority of Caribbeancountries face crucial choices within the next few years, and that ‘a largewave of energy infrastructure investment’ will be required ‘to replace aging,inefficient power plants with more modern, efficient alternative energyoptions, while increasing the available generation capacity’. The next step, the Task Force proposed, isfor the countries of the region and donors to agree to establish a prioritylist of clean energy projects.
In response, the summit endorsed the report and confirmedthat support for the Caribbean and Central America would include, the USissuing licences for the export of liquefied natural gas; encouraginginvestments in renewable energy; providing a clean energy finance facility toencourage regional clean energy investment; making tourism, the sector that isthe largest energy user in the Caribbean, more green; helping build localcapacity to achieve energy transition goals; and a number of specific measuressuch as supporting in future the government of Guyana in strengthening themanagement of its upstream petroleum sector.
The meeting also confirmed in comments made by commentsmade by some of the participants, the ways in which future thinking about theenergy matrix in a number of countries including the Dominican Republic, Jamaica,and Guyana had changed.
For example, Trinidad’s Prime Minister, Dr Keith Rowley,made clear that he believed that renewables will make a major futurecontribution to the region’s energy security and said that irrespective of hiscountry’s substantial oil and gas reserves, the Republic intended by 2031generating up to ten per cent of its needs, most likely from wind and solar. Healso noted that CARICOM is aiming at a 47 per cent target for power generationfrom renewables by 2027.
One country not present, although President Obama hadpersonally extended an invitation when he visited Havana in March, was Cuba.Although this was almost certainly a reflection of its symbiotic relationshipwith Venezuela, it too has in the last few years been heavily engaged indiversifying its energy matrix. This has variously involved the countrysourcing oil from alternative suppliers in Africa and the Middle East, whilespending time on studying and seeking international investment in renewableslargely involving wind power, biomass, solar and hydro.
The summit and the joint report confirms the sea-changethat has occurred in the last few years in the region’s thinking on energysecurity.
Only recently as indebtedness has climbed, in some cases tostratospheric proportions of GDP, and countries have undertakensocially-difficult IMF-led fiscal adjustment programmes, has reality takenhold; causing governments to become fully engaged with the US, the EU, donororganisations and development banks to seriously consider alternatives, despitethe need to diversify out of oil being clear for many years.
Whether the future of PetroCaribe was or was not thebackground to the summit, and irrespective of Central America and theCaribbean’s mainly good relations with Venezuela, common sense ought now tosuggest that building up long-term indebtedness and energy dependence on oilwith a country in turmoil, unable to meet its own oil production and domesticpower requirements generation needs, is likely to have a far from positivefuture outcome.
As a low on no carbon emitter at risk from global warmingand sea level rise, the Caribbean has been strenuous and successful indemanding internationally, reductions in greenhouse gas emissions. Despitethis, most Caribbean nations largely remain dependent on oil for power generation.
The policy framework agreed in Washington and the road mapproposed potentially enables the Caribbean with external financing todemonstrate its green credentials by changing its energy mix. If followedthrough on, what is proposed ought to enable the whole region to better balanceits sources of supply and enhance its long-term economic competitiveness.
David Jessop is a consultant to the Caribbean Council andcan be contacted at [email protected]
Previous columns can be found at www.caribbean-council.org