ENERGY Minister James Robertson yesterday dismissed ethanol as a prime alternative energy source to help Jamaica reduce it debilitating oil bill in an apparent about-turn on Government’s energy policy direction.
“You will not hear me talking about ethanol,” Robertson declared at a special meeting held with energy stakeholders at the Observer’s Beechwood headquarters in Kingston to discuss the introduction of liquefied natural gas (LNG).
James Robertson shows projections for Jamaica
An older post from our friend Sam reminding us of the dangers of LNG.
LNG VS SOLAR POWER
FOR some time now the Minister of Energy and Mining James Robertson has been advocating Liquified Natural Gas (LNG) as Jamaica’s preferred energy source, maintaining that its cost would put less stress on the Balance of Payments than oil does. Last Tuesday he announced the selection of Belgium’s Exmar, and its consortium, as preferred bidder to develop a LNG project to supply Jamaica with cheaper energy.
Robertson proclaims switching to LNG could save Finance Minister Shaw US$350 million on the country’s annual oil bill and that manufacturers and householders are set to realise up to 30 per cent cheaper rates.
 ROBERTSON
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The Exmar consortium is expected to complete the LNG project by the first quarter of 2013.
At this point in time market conditions are favourable to LNG but like other commodities prices are subject to fluctuation and volitility. At this point in time there is little difference between the prices of oil and natural gas. It may be wise for the Government to consider a more diversified energy strategy that considers solar, wind, hydro and nuclear energy rather than opting primarily for LNG. Nevertheless the Government of Jamaica has actively been exploring the possibilities of LNG since 2001.
In real terms, therefore, Tuesday’s development is the culmination of efforts across two administrations and four Energy Ministers namely, James Robertson, Anthony Hylton, Phillip Paulwell, and Clive Mullings.
So why has the LNG option gained traction now?
Mainly because of two technological advances in the production of natural gas. Hydraulic Fracturing and Horizontal Completions have so dramatically changed the supply and pricing dynamics of the natural gas market, that it has become a buyers’ market for Jamaica and other importers.
For years, gas has been produced from shale with natural fractures. However, modern hydraulic fracturing has allowed producers to create extensive artificial fractures within the shale. Horizontal drilling has also revolutionised the industry by allowing the creation of extensive borehole surface areas in shale that is up to 10,000 feet deep. The resulting technological advances have birthed what is now commonly referred to as ‘Shale Gas’.
Shale gas production has literally shook up the entire global energy market, with proven reserves practically doubling in the United States in the last two years – to the extent that that country is an excess producer.
Even more significant, it is now possible to tap vast reserves identified in places as diverse as Qatar, Brazil, Algeria and Venezuela. Indeed, world supply of natural gas has so expanded that the buyers’ market now prevailing is expected to last for – at minimum – another 2 years. This is relevant because Jamaica’s consortium will be required to tie-down a long-term supply contract well within the next two years. In the LNG market, contracts typically run for twenty years and longer. The question that must be factored in here though is at what price? That must be the major determinant. Jamaica cannot afford to neglect its very own natural resources as it seeks to drastically reduce its fuel bill.
LNG’s potential was seriously considered by former Energy Minister Anthony Hylton. For to the point where he issued a Request For Proposal (RFP) for a facility to be established near Port Esquivel. The initial objective, he explained, was to supply the bauxite and mining industries in that area, as well as JPSCo. That effort was eventually dealt a body-blow, with Trinidad and Tobago coming up short on its agreement to supply the gas, as set out in a 2001 Memorandum of Understanding.
During the last Administration’s tenure Hylton said: “I became acutely aware of the extent to which the ‘energy component’ played a role in the cost structure of Jamaican products, and perhaps even contributed to the ‘de-industrialising’ of Jamaica”.
In addition to identifying a cheaper and more stable alternative to oil, Hylton aimed to a achieve “a certain coherence” in the then administration’s energy policy. “At the time, we were also looking at doing a major refurbishment of Petrojam, and it certainly didn’t make sense to look in the direction of a ‘dirty energy’ option such as coal – given the importance of Jamaica’s tourism industry, and given the fact that ‘carbon emissions’ was becoming a big issue”.
Hylton had a point. For despite the vast differences in manufacturing output, Jamaica has a larger carbon footprint per person than China.
Hylton’s forward-thinking replacement, Phillip Paulwell favours a more diversified mix which does not rely solely on LNG: He is reported to have commented, “I believe in natural gas as one of the fuel sources in a policy mix to diversify Jamaica’s energy sources”.
Paulwell, who assumed office in 2002, immediately embarked on an all-out mission to break Jamaica’s over-reliance on petroleum. It is widely acknowledged that under his stewardship, Jamaica witnessed the greatest push – up until that juncture – towards identifying a truly diverse energy mix.
Says Paulwell about his role in pursuing the LNG option, “I was the one who engaged Venezuela, and it resulted in the signing of an MOU. In fact, we were well on the way towards convincing the Venezuelans to exploit their natural gas reserves”. Having regard to the nature of the market, however, Paulwell was convinced that without a clear upfront gas supplier, he would not have taken the risk of advancing the project.
The country, however, changed leadership in 2007, with Clive Mullings serving as Minister of Energy. Under Mullings’ tenure, market supply conditions for LNG were not as favourable. He however continued the push to diversify the country’s energy mix.
Mullings was succeeded by James Robertson a politician renown for his “industriousness” He moved quickly to put together an RFP, initiated the bidding process, and selected a preferred bidder with whom to commence and complete negotiations by year-end. It does come as some surprise that only two bidders have stepped forward.
Says former Energy Minister and envoy Anthony Hylton about this week’s announcement of a preferred bidder: “I support the current administration’s push to ‘Catch the Curve’, because the country is in dire need of a more competitive form of energy. It is in the national interest that we do so”.
A consortium of foreign and local investors last Friday announced plans for a US$600 million investment in Liquefied Natural Gas (LNG).
Jamaica, however, will not begin using the cheaper source of fuel until 2012, provided the project remains on track.
THE possibility of electricity rates going up this month has triggered frustration in the island’s tourism sector which says it is already reeling from extremely high energy costs that are threatening to cripple its operations.
As a result, the sector is urging the Office of Utilities Regulation (OUR) to forego the annual inflation adjustment to non-fuel electricity rates, especially given that forward bookings have seen a significant decline because of the civil unrest in sections of Kingston last month.
Hoteliers and operators of attractions with whom the Observer spoke at the weekend all complained that their electricity bills have doubled over the past year.
“It’s killing us,” said Vanna Taylor, head of the Jamaica Association of Villas and Apartments. “It’s our single biggest expense. It is crippling, it really is.”
Pointing out that electricity costs vary depending on the product, Taylor said some stand-alone villas are receiving electricity bills of up to $40,000 per month, sometimes even in instances when the villas are not occupied.
“It’s still very, very expensive, just to run the pool and the basic things. Some small hotels are paying up to $1 million a month,” Taylor said.
“The OUR should forego any increase to JPS at this time; we just cannot afford it,” she said, adding that her concern was for householders as well.
Last Thursday, Spanish Ambassador to Jamaica Jesus Silva pointed out that the high price that local and foreign investors have to pay for electricity is hurting their ability to stay in business.
“The electricity factor is a very great hurdle to make investment in Jamaica profitable. It is a concern that the foreign investors have, and it is a concern also shared by some companies of the private sector,” Silva told the Observer after speaking to the issue at the Rotary Club of Kingston’s weekly luncheon at the Jamaica Pegasus Hotel in New Kingston.
He said that due to the high cost of electricity, Jamaica has become the second most expensive country in the Caribbean for Spanish hoteliers and that the problem is threatening their viability.
“There is only one country which is more expensive; Bahamas, which is only a little bit more expensive,” Silva said. “But apart from that they (investors) are paying something like 50 per cent more than in the Dominican Republic, which is an expensive country, and almost 100 per cent more than in Mexico,” he said.
Yesterday, Judy Schoenbein, area chairperson for the Jamaica Hotel and Tourist Association (JHTA) South Coast chapter agreed with Silva.
“You’re looking at small properties on the South Coast that have like 10 bedrooms with a swimming pool, some of them are up to $600,000 and $700,000 a month. Now how on earth are you going to be able to cover your operational costs with that kind of bill,” said Schoenbein, who is also a vice-president of the JHTA.
She gave an example of an attraction which, she said, operates six days a week from 9:00 am to 5:00 pm and is billed somewhere in the region of $420,000 per month for electricity.
The magnitude of the effect that energy charges is having on the sector was reflected in the figures provided by the Sandals/Beaches group, which said it has experienced an average increase of just over 50 per cent in utilities costs for the first four months of this year.
“In April alone, for instance, our utilities costs came out at $138 million, and electricity accounted for the lion’s share,” said Sandals executive David Davies.
He pointed out that the cost would have been higher had the resort chain not employed strict energy conservation measures.
“It’s really, really killing us,” said Sandals chairman Gordon ‘Butch’ Stewart, who called on Tourism Minister Ed Bartlett to get acquainted with the operations side of the tourism industry and ensure that the product is not prohibited from being upgraded by high overheads.
“My advice, for free, to Mr Bartlett is to get with the important part of the industry and see to it that hotels, once built, can be efficient, modern and profitable,” said Stewart, who is also chairman of this newspaper.
It is impossible, he said, for an older product to successfully compete against products elsewhere that are able to refurbish with relative ease.
Stewart said that he and his marketing team — which is now engaged in extensive Jamaica sales blitzes across Canada, the United States, United Kingdom and continental Europe in an effort to counter visitor fallout from the civil unrest — are willing to do anything to support Jamaica’s tourism marketing efforts, however “we cannot stand by and watch costs soar and not say anything about the mixed-up, messed up policies that are strangling tourism”.
The view that the electricity rates are too high and that the OUR should forego the inflation adjustment was also supported by Evelyn Smith, chairperson of the JHTA Negril Chapter; and Ian Dear, CEO of Island Entertainment Brands.
Said Smith: “Any increase to the sector right now on any of the cost inputs would be incredibly burdensome. We can’t bear it.”
Dear, who said that his electricity costs have “more than doubled in the last two years”, lamented that even though the businesses in his group practice energy conservation they are having difficulty making anything looking like a profit.
While he accepted that JPS needed to make a profit, he said that a guaranteed percentage return “puts too much pressure on everybody else”, especially when you have no choice but to use the JPS.
SPANISH Ambassador to Jamaica Jesus Silva yesterday bemoaned the high price investors have to pay for electricity in Jamaica, saying that it is hurting the ability of local and foreign investors to stay in business.
Electricity consumers paid an approximately J$12.5-billion energy bill for fuel used by provider Jamaica Public Service Company (JPS) to power its grid between January and March this year.
The utility bills its fuel charges as a pass-through cost to customers. The current charges came close to doubling the March 2009 quarter’s J$6.8 billion, tracking with the near doubling of world oil market prices within that 12-month period.
World oil is now trading at around US$70 per barrel, trending down from April’s US$85 high, but Jamaica buys on concessionary terms from Venezuela.
For the quarter, JPS, which is majority owned by Asian corporations Marubeni and TAQA, collected just shy of J$20 billion in revenue from which it grossed J$5.9 billion after fuel expenses and payments to its contracted independent power suppliers.
Higher maintenance charges, however, pushed operating expenses five per cent higher to J$2.95 billion, from J$2.8 billion in the comparative quarter, erasing the J$207 million of gains on gross profit.
The surplus from operations, net of larger depreciation expenses, was close to flat at J$1.96 billion. (JPS publishes its earnings in US dollars, which have been converted at a rate of JMD 89.51 for this year’s results, and JMD 88.82 for the 2009 quarter).
Bottom-line profit outperformed the comparative quarter, swinging from a loss of J$142 million to net profit of J$840.7 million – a 693 per cent turnaround.
The company is now valued at about J$68 billion by assets but a substantial J$17 billion of that is in the form of receivables or funds owed by debtors.
RevenueUS$223.2mFuel BillUS$139.9mGross ProfitUS$66.02mEBITUS$21.86mNet ProfitUS$9.39mAssetsUS$757.6mWorking CapitalUS$104.9mNet CashUS$25.55m
THE nation’s electricity provider, Jamaica Public Service Company (JPS), earned US$9.4 million ($841 million) net profit after-tax due to a 40 per cent jump in revenues with core expenses remaining flat for the quarter ending March 2010, which reversed the US$1.6 million ($143 million) loss it made in the similar quarter in 2009.
The company’s profit performance resulted from a US$64.8 million jump in revenue over the corresponding quarter in 2009 to US$223.1 million, and only a 4.4 per cent increase in operating expenses to US$32.9 million from US$31.5 million comparatively, according to just-released financials to the Jamaica Stock Exchange.
JPS
