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Tag: petrojam

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Alternative Energy Crude Oil Electricity JPS LNG News Oil

LNG ushers in price stability — JPS

August 19, 2016

Screen Shot 2016-08-19 at 12.16.19

As LNG partner New Fortress Energy begins shipment of liquefied natural gas to the island, power distributor Jamaica Public Service Company (JPSCo) is indicating that savings will depend on pricing, which varies from month to month.

Chief Financial Officer of the Jamaica Public Service Company (JPSCo) Dan Theoc told the Jamaica Observer: “The cost of LNG at Bogue is likely to be cheaper than the cost of oil next month (September) when Bogue is expected to come on line.”

But, based on current price differentials and the fact that Bogue will only represent approximately 12 to 15 per cent of the generation mix, it is expected that total savings — based on this price differential – will be marginal (less than five per cent), all other things remaining equal, Theoc told the Business Observer.

Spot prices for LNG on the Henry Hub (HH) index registered US$2.82 per million Btu in July after starting the year at US$2.28 in January and falling to US$1.73 in March.

Crude, on the West Texas Intermediate index, started the year at US$30.32 per barrel and crested at US$44.65 in July.

“Unfortunately, we cannot say definitively what the impact of natural gas will be in the future because of the volatility in oil prices relative to natural gas prices,” Theoc said.

JPS will be buying natural gas from Fortress under a 20-year exclusive gas supply agreement and they will be responsible for all of the supply chain logistics and infrastructure costs.

That includes the mode of delivery to the island, the frequency of delivery, the storage of the LNG, the regasification and the distribution by pipeline to the property.

Theoc noted, “We will pay for gas based on the Henry Hub Index plus an agreed margin (which we cannot disclose), similar to how we buy fuel today from Petrojam based on the US Gulf Average Mean Index plus an agreed margin.”

In general, he added, “It is worth noting that the HH index in the past five years has been far less volatile compared to Oil-based Indices (like US Gulf, WTI and Brent Crude), so we view the move to HH as being a plus for price stability.”

It is expected that Bogue will actually make up 12 to 15 per cent of the generation mix on natural gas and that when the 190MW plant in Old Harbour comes on line in 2018, approximately 40 per cent of our generation mix will be based on gas-fired power plants.

In general, it is expected that renewables penetration will increase from five per cent in 2015 to 12 per cent by 2018.

The consequence, Theoc said, will be an improvement in fuel diversity from a situation where 95 per cent of production was oil-fired last year to a situation where less than 50 per cent is fired by oil.

The CFO said the pending award of a gas project to Jamalco will also potentially increase the percentage of generation units which are fired by natural gas by about ten per cent to further replace oil-fired units by 2019.

Jamaica Observer 

Biodiesel Crude Oil Electricity Government News Oil

As oil glut hits, GOJ oil hedge for 2016 set at US$65.90 strike price

January 22, 2016

The Bank of Jamaica (BOJ) indicated on Wednesday that to date, the Government of Jamaica (GOJ) has spent US$27.87 million or J$3.2 billion on oil hedge contracts. In total, five contracts have been signed with Citibank covering periods up to December 2016.

For the current period, the contract runs from January 2016 to December 2016 with a strike price of US$65.90.

The strike price means that Jamaica will begin to receive payouts if the price per barrel of crude hits that mark or exceeds it.

Some analysts to whom the Jamaica Observer have spoken say that it is clear a better deal could have been struck had the Government waited a while before spending money for the hedge in 2015, but they also note that it could not have been predicted that oil prices would continue to slip downwards to the extent to which they have.

Earlier this week, benchmark crude prices fell to their lowest since September 2003 on worries about a global glut.

A new drop came Tuesday after the International Energy Agency, which advises industrialised countries on energy policy, used the alarming term “drown in oversupply” in relation to the oil markets of 2016. The market has begun to react to plans by Iran to ramp up supplies to regain market share.

The West Texas Intermediate index slid 2.3 per cent to US$27.80 per barrel of crude on Tuesday, while Brent slipped 2.3 per cent to US$28.09 per barrel.

On Wednesday the downward spiral continued with Brent Crude down 5.2 per cent at US$27.28 a barrel, while WTI sunk 6.6 per cent to US$26.59.

Analysts note that oil price has plummeted 75 per cent since mid-2014 as oversupply, mainly due to US shale oil flooding the market, has driven down the cost, even while a slowdown in economic growth in China and Europe has cut demand.

Locally, technocrats had suggested a return to US$70 per barrel by year end 2016, a prediction informing the decisions by the GOJ technical committee set up to manage the hedges. The technical committee is chaired by Michael Hewitt of Petrojam and has representatives from the BOJ, the Ministry of Finance, and Development Bank of Jamaica.

One analyst in Kingston, who spoke on condition of anonymity, commented, “To be honest, hindsight is 20/20. We could not have anticipated the current prices. It is easy to say the obvious, which is that if we had waited we could have got a better deal, in the form of a lower premium. In fact, it is obvious, based on where things are, the hedge (for contract periods already covered) was not needed.”

The BOJ informed the Caribbean Business Report that the GOJ is prepared to write new contracts for the period beyond 2016, before year end.

Funds already spent on hedging, provided for in the FY2015/16 budget, were paid out of the Consolidated Fund to facilitate the upfront purchase of the hedge contracts, the central bank stated.

It said that the advance is now being repaid from the proceeds of the new special consumption tax introduced in March 2015 to pay for the hedge.

The amount paid out so far is only about half of what the Government plans to raise from the SCT of $7 per litre on petrol — about six US cents per litre — which is expected to fall in the ball park of $6.4 billion by year-end.

The five existing contracts for hedging are all with Citibank which was the successful bidder for that round of contracting.

Periods covered by the contracts range from June 2015 to May 2016 (two contracts) with a weighted average strike price of US$66.55; and September 2015 to August 2016 (two contracts) with a weighted average strike price of US$66.80. The last is the contract for January 2016 to December 2016 with a strike price of US$65.90.

Regional governments have been eyeing hedging as a new strategy to protect against changes in the price of crude. Mexico, which hedged against a fall in prices, collected US$6 billion under hedge contracts in 2015.

Jamaica Observer

Alternative Energy Biodiesel Climate Change Crude Oil Electricity Government News Oil

Government Oil Hedge Underwater

January 15, 2016

Gov’t oil hedge underwater

In June 2015, the Government of Jamaica booked a hedge transaction to buy six million barrels of oil for delivery 15 months later at a strike price of US$66.74.

The mechanism used in this kind of transaction is called a ‘call option’, which gives the purchaser of the option the right, but not the obligation, to purchase the asset at a specified price the ‘strike price’ within a specified time. A month later, it bought another 15-month futures contract for two million barrels of oil and the average strike price of the two contacts is US$66.53.

We paid about $30 million to Citibank for the privilege of placing this bet on oil prices going higher than our strike price in 15 months.

When these contracts to buy crude oil were booked, prices on the world market was trading at about US$63 a barrel and had rebounded from about US$45 in January 2015. The government placed a bet based on its belief that crude oil prices would continue to rise well above the $66.53 strike price. If that were to happen and oil prices were to increase to, say, US$80-US$90 per barrel, the Government would be in the delightful position of having to pay only about US$66.53 per barrel for oil that would be trading at the much higher spot price on the international commodity market. The Government of Jamaica, senior executives at the Bank of Jamaica, and members of the oversight and technical committees created by the Government to manage the hedges, all seem to have bought into the belief that oil prices would climb higher than US$67 before the expiry date of the options.

The oversight committee is comprised of the financial secretary, Devon Rowe; the governor of the Bank of Jamaica, Brian Wynter; the managing director of the Development Bank of Jamaica, Milverton Reynolds; the managing director the Petroleum Corporation of Jamaica, Winston Watson; and Dr Vincent Lawrence. Mr Watson is known to have experience in oil trading and markets. Only Michael Hewett, an executive at Petrojam, was named as a member of the technical committee.

Wrong direction

One has to believe that the intention of the members of the government-appointed committees and all of those involved in the hedge transaction was a good one to try and protect Jamaica against that time in the 15-month period when oil prices might spike above US$67. While there is still considerable time to the maturity of the call options, right now the bet is not looking good and the best projections are for oil prices to fall even lower than the below-US$30 they traded at this week.

This week, three important financial institutions released projections indicating that oil prices could fall to US$10-US$20 per barrel and stay there for sometime. Goldman Sachs’ projection was at US$20, Morgan Stanley’s was US$20 and Standard Chartered, a bank with strong roots and connections in the Middle East and Asia, projected US$10 a barrel oil.

In the futures trading business, which is where these call options reside, when an option is bought with the expectation that the price of the commodity will increase but the opposite occurs, the option is said to be ‘underwater’. Given that these options were booked with the expectation for oil price to rise above US$66, and they are now heading in the direction of US$20, Jamaica’s call options on oil are seriously underwater.

A better alternative

In November 2014, a public official asked me about hedging because someone had written him an email to encourage Jamaica to hedge oil transactions on the upside, based on a scenario the email writer concocted about the state of affairs in the international oil industry. The public official was aware that I had traded oil futures for many years and had lived in the Middle East for more than two decades. I share below an excerpt from my reply:

“The recommendation needs study because taking a position means the Government and Jamaica will be guessing the direction of the movement of the price of this commodity. The writer makes it sound like making money on these bets (options) is a sure thing. It is not.

“There is always a risk. Suppose we bet on a certain price increase in a specific time frame, which we would have to if we are going to hedge, and prices instead of rising to, say, US$70/bbl from US$50 falls to US$35/bbl during our hedge horizon, we would suffer an important loss depending on the size of the contract. This is what apparently happened to that forward position Jamaica took on that futures contract on aluminium with the Russians and/or Glencore, the debilitating result of which you are very familiar.

“When oil went to US$9/bbl in the 1990s, if you had dared to tell anyone about the US$147 per barrel price which occurred in July 2008 they would have declared you mad. It’s a commodity; any card can play. On review, if the writer sees the prices as going one way, down, and OPEC is ‘dead’, why hedge? Do nothing, stay addicted to imported oil and go for the lovely ride to low-oil-price nirvana.

“The better alternative is to wean ourselves off the 98 per cent dependence on petroleum-based fossil fuels for our energy supplies. We really need to develop and use renewable energy from many sources, including bagasse, garbage, wind, water and solar.”

Aubyn Hill is CEO of Corporate Strategies Ltd and chairman of the Economic Advisory Council of the leader of the opposition.

The Gleaner

 

Crude Oil Government News Oil

Petrojam increases non-Venezuelan imports of crude oil

December 17, 2015

Petrojam, the government of Jamaica and Venezuela-owned refinery in Kingston, indicated on Monday that shipments of crude oil crude from Venezuela have increased somewhat, growing from an average 313,886 barrels imported per shipment between January 1 and December 1, 2014, to 344, 000 barrels per shipment this year.

For the 2014 period, 19 shipments were accepted compared to 18 shipments in 2015.

At the same time, however, the company shows that imports from non-Venezuelan sources have also increased over the period.

Petrojam said Monday that imports from source countries outside of Venezuela and including Mexico for 2015 covered five shipments averaging 323, 000 barrels each.

This compared to three shipments averaging 310,000 barrels in 2014 and in 2013 three shipments averaging 348,000 barrels.

The data on Venezuelan crude imports nevertheless runs counter to assessments made by Barclays Bank which says export of crude to PetroCaribe signatories in the region and Cuba had been cut significantly, analysis which has been widely recycled following last week’s congressional victory by the opposition party in Venezuela.

The repetition has accompanied the position that Venezuela might change the arrangement under which 18 Caribbean countries pay into its purses about half of the cash value of oil imports, then remit the rest over 25 years as a loan repayment at one per cent interest charge.

The report said that shipments to the Dominican Republic and Jamaica, which account for about half of the programme, have dropped 56 per cent and 74 per cent compared to 2012.

But Petrojam indicated by way of data that for Jamaica, at least for the last three years, supply from Venezuela has remained consistent in the main.

Andrew Baker, writing for BNamericas online on December 8, and citing new BNamericas Intelligence Series report said oil subsidies to Caribbean neighbours through the PetroCaribe initiative have cost the country US$50bn over the last decade.

He repeated the claim that “Nicolás Maduro, has quietly halved Petrocaribe shipments to about 200,000b/d from 400,000b/d in an effort to slow the bleeding, while continuing to publicly laud the programme.”

Petrojam, while indicating that it is now lifting more crude from other sources outside of Venezuela, showed that supplies have been consistent since January 2013.

Jamaica Observer

Crude Oil News Oil

No problem with PetroCaribe agreement after Venezuelan election results, says Petroleum Corporation of Jamaica boss

December 9, 2015

No worries for Ja over electoral change in Venezuela — PCJ

Screen Shot 2015-12-09 at 12.16.15

Up to November, Venezuelan president Nicolas Maduro had been promising more under the PetroCaribe programme to Caribbean countries, announcing more resources for the eastern Caribbean.

Now, following the parliamentary victory by Democratic Unity Roundtable (MUD) some expect that changes may be in the offing.

The PetroCaribe programme is an agreement between Venezuela and some Caribbean territories to purchase oil on preferential terms. It allows the Government of Jamaica (GOJ) to convert 40 per cent of payments annually to a loan repayable over 25 years.

The funds flowing from the arrangement are managed by the PetroCaribe Development Fund (PDF).

Despite the debt buy-back executed this year, Jamaica is still heavily reliant on PetroCaribe funds for low-cost budget support.

In July, Venezuela allowed the GOJ, based on the net present value of the debt outstanding at December 2014, to purchase the PetroCaribe debt totalling US$3.2 billion for US$1.5 billion.

But the Ministry of Finance and Planning still remains the fund’s largest borrower.

Some analysts have posited that the escalating budget constraint faced by the Venezuelan government could trigger a drastic amendment of the PetroCaribe arrangement.

However, chairman of the Petroleum Corporation of Jamaica (PCJ) and advisor to the Ministry of Science Technology Energy and Mining (MSTEM) Christopher Cargill says he expects to see business as usual.

“The election was a parliamentary victory. It was not the national election which is due in 2019. No change can be executed to PetroCaribe before the national elections,” Cargill explained.

He said that in retrospect, Jamaicans should show appreciation for the decade-old arrangement.

“I think Jamaicans really need to be grateful for the benefits received over the years,” he stated, citing the avoided pressure on foreign exchange resources.

Others, including US-based analysts, have projected changes in the offing based upon the effect in Venezuela of declining oil revenues where increasing socio-economic chaos has become evident.

Oil accounts for roughly 96 per cent of export earnings, about 40 per cent of government revenues.

Forecasts have placed oil prices to stay at US$60 per barrel on average due through to 2020 owing to levels of supply from OPEC members and the rapid increase in natural gas and shale oil production.

However, Cargill is convinced that the next three years will hold nothing new for PetroCaribe and its client countries.

He anticipates that a subsidiary of Petróleos de Venezuela (PDVSA) will move ahead to honour its promises to upgrade the Petrojam refinery which it partially owns, a move expected to make the company more competitive regionally.

Jamaica, in 2006, signed an agreement with Venezuela through PDV Caribe, a subsidiary of PDVSA for a 49 per cent stake in Petrojam with a subsidiary agreement to move production from an average of 30,000 to 50,000 barrels of petroleum products per day through expansion.

At last report, PVDSA was reviewing proposals received for the upgrade of the petroleum refinery from two Chinese sources.

The refinery currently supplies about 80 per cent of the local non-bauxite market and 70 per cent of the national market.

A 2008 estimate put the project cost for expansion at US$758 million, funds that Jamaica lacked and which Venezuela has been unable to deliver to date.

Jamaica Observer 

Government News

Jamaica To Raise Petrojam Upgrade At PetroCaribe Summit

June 26, 2013

A section of the Petrojam refinery in Kingston.
A section of the Petrojam refinery in Kingston.

The Jamaican government says it will establish a “firm” schedule to implement the upgrading and expansion of the Petrojam refinery, as it seeks to make the operations more modern and efficient.

Science, Technology, Energy and Mining Minister Phillip Paulwell, said the issue will be discussed at the 8th PetroCaribe Summit, scheduled for June 29, in Nicaragua.

“We have been talking too long about the upgrade of this refinery, it has been producing for us for close to 40 years. We are now on a firmer path, especially since the new president of Venezuela has assumed office, to pursue some of the things that were not done, over the last five years, including the expansion and upgrade of the Petrojam refinery,” he said.

Paulwell said the government is hoping to move this process a step closer to fruition, with the Venezuelan government having already committed, as part of the economic zone of PetroCaribe, a relationship which will see value added, along with efficiency.

In May, during the PetroCaribe ministerial meeting in Venezuela member states agreed on an economic zone to boost regional development and Paulwell said that Jamaica will eventually produce its own ultra-low sulphur diesel, as this will be synchronised with upgrading of the refinery.

“We are importing this fuel, and it’s not our intention that this will be a long-lasting activity. The day will soon come when we will be producing this fuel in Jamaica.”

2006 agreement

In 2006 Jamaica signed an agreement with Venezuela for a 49 per cent stake in Petrojam, and as part of the agreement, production should have moved from an average of 30,000 to 50,000 barrels of petroleum products daily, starting in 2007, but this output has not yet been realised.

“We are now back on track. We have to update some of the financials, and the first thing the Board has agreed to do, with the support of Venezuela, is to get that front-end engineering design project updated, so that we have figures that are more realistic than the2007/2008 figures,” Paulwell said.

Paulwell said that many of the features of the expansion project are now more positive than they were in 2007, to justify the expansion and upgrading of the refinery.

“It will enable us to produce those things that we use in Jamaica – LPG, gasolene, and low sulphur diesel – so that we will be almost self-sufficient, and be able to export some of it,” he said, pointing out that the by-product, petcoke, will enable the generation of 100 megawatts of cheap electricity.

“What we will be doing this weekend in Nicaragua is to establish the firm schedule towards its implementation and funding,” the minister said.

Upgrading of the refinery will ensure its viability in the long-term and allow for the installation of treatment facilities to meet new environmental specifications for diesel oil, and gasolene.

Additionally, Paulwell said discussions will be held at the Summit on the trade compensation mechanism aspect of the PetroCaribe Agreement, which allows Jamaica to trade goods and services, as part of the process of repaying PetroCaribe loans.

“We have a very significant development, which we hope will be crystallised this week, in Nicaragua,” he said.

Under PetroCaribe, Jamaica and other Caribbean countries benefit from preferential rates on crude oil, refined products, and LPG or its energy equivalent, from Venezuela.

The payment arrangement allows for purchase of oil on market value for 40 per cent up-front, within 90 days. The remainder of the payment can be made over a period of 25 years with one per cent interest, provided that oil prices are above US$40 per barrel.

– CMC

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News

Colour Change For Petrojam Diesel Takes Effect Today

June 17, 2013

As of today, the colour of the regular diesel supplied by Petrojam will be changed to red.

Petrojam say this is in preparation for the introduction of the new Ultra Low Sulphur grade of diesel.

The Ultra Low Sulphur Diesel which is to hit the market on June 24 will be light yellow in colour.

Petrojam says the red dye will enable users to differentiate the regular diesel and the Ultra Low Sulphur Diesel.

Read more:

Electricity Government JPS News

Reducefuel Prices For AllJamaicans – Mair

May 30, 2013

GREGORY MAIR, the opposition spokesman on energy, is pushing for a level playing field in the pricing of heavy fuel oil sold by Petrojam to the bauxite industry as against the Jamaica Public Service (JPS), and, by extension, the Jamaican consumer.

In his contribution to the Sectoral Debate in Parliament on Tuesday, Mair contended that players in the bauxite industry purchased heavy fuel oil from Petrojam for 15 per cent less than the state-owned oil refinery sells to the light and power company.

“Why don’t we level the playing field, have a real competitive environment in the fuel sector and give JPS, and, by extension, the consumers of electricity, the same status as the alumina/bauxite producers,” Mair asserted.

According to Mair, the Bauxite and Alumina Industries (Encouragement) Act, exempts alumina and bauxite producers from paying customs duty or similar imposition on the importation of petrol fuel oil or diesel.

“Let JPS initiate a tender process where all providers of HFO/ADO (heavy fuel oil/automotive diesel oil) in the world will compete and where we will see the consumers of electricity benefiting from close to a 15 per cent reduction of the fuel cost, which would be approximately 10 per cent of our bills.

Bauxite industry enjoys reduced rates

I say this based on information I have in my possession. The bauxite industry purchases HFO 15 per cent cheaper than JPS,” Mair told his parliamentary colleagues.

He explained that the HFO used in the generation of electricity is purchased by JPS from Petrojam at a cost of some $6 billion per month.

Turning to electricity theft, Mair wants the crafting of legislation to impose stiffer fines on persons involved in the illegal act.

“The Government must sit down with JPS and agree on a clearly defined strategy for tackling the theft of electricity,” Mair said, noting that it was costing legal customers of JPS about $3 billion annually for illegal connections. The JPS is said to absorb a similar sum each year.

edmond.campbell@gleanerjm.com

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Government News

CLARITY NEEDED ON GASOLENE TAX

April 5, 2013

PROFESSOR Rosalea Hamilton, head of the MSME (micro, small and medium-sized enterprises) Alliance, is calling for clarity on Wednesday’s implementation of an increase in gas tax.

“The ripple effect of this tax is devastating, as it affects all sectors. Therefore, more clarity and transparency are required on how it is being applied,” Hamilton told Auto.

HAMILTON… the ripple effect of this tax is devastating, as it affects all

Hamilton said with this week’s increase in fuel prices, a representative of the state-run refinery Petrojam should explain how the new tax is applied.

“It’s the responsibility of the people who have the authority to make these decisions to properly inform the public. They are to say, very clearly, that in addition to the US Gulf reference price and movement of the American dollar, we now have a tax of whatever the figure is so that we’re all clear,” she said.

According to Petrojam’s weekly billing prices, the price of gasolene went up on Wednesday by $2.31 per litre, while the price of diesel rose by $2.50 per litre.

The professor said this situation compounds an existing problem of Petrojam’s pricing formula “which is not transparent”.

However, in confirming the application of the new tax on fuel prices on Wednesday, Winston Watson, managing director of Petrojam, said: “The tax was applied and the effect was minimal. The tax is a like-for-like replacement.”

Watson explained that the Government had replaced the Custom User Fee (CUF)

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