The way forward for Jamaica’s energy

Nov 10, 2004 01:00 AM

by Dennis Morrison

Prime Minister Patterson of Jamaica, in a recent update on the work being undertaken to produce a revised energy policy, emphasised the threat of current oil price hikes to our economic prospects. Most important was his observation that the rate of increase of the country's oil bill is faster than that of the combined growth of our two major export earners -- bauxite and tourism.
So huge have been the oil price movements in the past 18 months and our insatiable appetite for consuming energy that the bill has gone from just over $ 300 mm in 1999 to just under $ 1 bn last year. This year it will exceed the $ 1 bn mark for the first time.

It is for these reasons that the subject of energy must be recognised as our most critical economic issue. For while all efforts must be maintained in the quest to raise the level of investment and speed up the rate of economic growth, the results could be undermined by an energy bill that is unsustainable.
And this could arise from the continued inefficient use of energy, as well as the overdependence on imported oil in a context where market volatility may persist because of geopolitical considerations.

There is also, of course, the emerging tight balance between supply and demand as rapidly developing economies like China and India become major consumers of imported oil.
Added to these factors is the prospect of strong economic growth in the USA, Japan and Europe in the immediate term, although the IMF and other economic forecasters expect that rising energy prices could themselves serve to deflate economic growth in these three growth poles of the world economy.

The situation therefore calls for long-term measures to diversify our energy source and to stimulate more efficient use of electricity and other forms of energy. Previous attempts have been made in the 1970s and 1980s to promote diversification and to even explore for oil in our territorial waters.
There were no significant results in terms of diversification, although Carib Cement introduced coal in its plant in the 1980s and residential consumers had developed some degree of consciousness about conservation. Unfortunately, the oil price crash of the mid-1980s wiped out whatever appetite had emerged for conservation and the return to profligacy was reinforced with the liberalisation of imports of private motor vehicles in the 1990s.

Between the first oil price shock of 1973 and the early years of the 21st century, the major economies adopted a mix of measures to reduce the intensity of energy use and their exposure to the risks associated with the oil market.
Some of them have diversified their energy mix to include coal and natural gas and, at the same time, have improved the energy efficiency of motor vehicles, commercial aircraft and machinery used in a broad range of industries. Cleaner technologies for coal-burning have made the use of coal more environmentally-friendly and facilitated the growth in its consumption.

The Japanese, in particular, havevastly expanded their use of natural gas as the transportation of that commodity in a liquefied form (LNG) has become more widespread. Not only is natural gas a clean fuel, but the value that can be extracted from each unit of it is far higher than other fuels.
First, regasification of LNG or the conversion from the liquid to gaseous form produces cryogenic or cold energy that can be used in a wide range of industrial applications such as food processing, cold storage and manufacturing activities.
Then the natural gas itself, when used to produce electricity with combined cycle generation plants, allows for a much higher level of efficiency than oil-fired plants.

In the case of Jamaica, we have hardly made any adjustments to our supply mix or efficiency levels since the early 1970s and, hence, our energy consumption per unit of GDP has not shown any real reduction. And as the bill for oil imports shows, we remain highly vulnerable to volatile oil price movements. With the negative outlook for energy prices, we must take action to reduce the risks to our economy.
This is the most urgent and strategic economic task that faces us at the current juncture, ranking higher than inflation or currency risk.

The way forward will have to include a strategic framework and smart policies that will drive efficiency and supply diversification over the next 10-15 years. Public and private sector collaboration is going to be an essential ingredient in both the formulation and implementation of the framework and policies.
Fortunately, the social partnership agreement that is being negotiated should make it easier for us to develop and implement an effective, national approach to energy policy.

Source: Jamaica Observer
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