By Thomas Andrew O’Keefe*
The English-speaking Caribbean nations – whose heavy dependence on imported diesel and fuel oil to generate electricity has placed them among the most heavily indebted countries in the world (on a per capita basis) – will face massive headaches if PetroCaribe collapses. They eagerly signed up for the Venezuelan initiative, which sells them petroleum with one- or two-year grace periods and long repayment schedules ranging from 15 to 25 years at 1 or 2 percent interest. Participating countries can even pay with products or services in lieu of hard currency. In the case of Guyana, Haiti, Jamaica, and the Eastern Caribbean mini-states, PetroCaribe’s financing scheme represents an estimated 4 to 7 percent of their annual GDP. The worsening economic turmoil in Venezuela, however, raises serious concerns about PetroCaribe’s future. According to recent media reports, PdVSA, the Venezuelan national petroleum company, is shortening repayment periods and increasing interest rates.
No doubt this is one reason why the Obama administration launched the Caribbean Energy Security Initiative (CESI) in June. CESI seeks to diversify the Caribbean’s energy matrix away from its current heavy reliance on fossil fuels by using Overseas Private Investment Corporation (OPIC) loans and credit guarantees to encourage private sector investment in renewable energy. It is premised upon the Caribbean’s huge potential to generate energy from the sun, wind, geothermal sources, and maritime currents. In the past, the principal bottlenecks to harnessing these abundant resources have been hefty startup costs and small populations that make it difficult, if not impossible, for the private sector to recover profits within a reasonable period of time. Although the initial capital investment for solar- and wind-based technology has dropped considerably in the last few years, it is unrealistic to expect Caribbean nations to make a full switch to renewable energy resources anytime soon. A more realistic, short- to medium-term alternative is to make greater use of natural gas. Although still a fossil fuel, gas is more efficient – and therefore the generated electricity is less costly – than fuel oil and diesel. Moreover, electricity generated from natural gas emits 70 percent as much carbon dioxide as oil, per unit of energy output.
The shale gas boom in the United States generated by innovations in hydraulic fracturing has led to calls to lift restrictions on U.S. natural gas exports to those countries with which it does not have a free trade agreement. The Caribbean is potentially a major target market of this natural gas in liquefied form (LNG), but this would be a big mistake. Lifting restrictions on exports will inevitably raise natural gas prices in the U.S., thereby hurting consumers and putting the nascent revival of domestic manufacturing at risk. It would also require building expensive LNG offloading and regassification facilities in the West Indies, which would run up against the same economies of scale limitations (except in Jamaica and Hispañola) that have undermined a mass transition to renewable energy. A more realistic alternative is to revive plans to build a natural gas pipeline from Trinidad and Tobago to Barbados, and then up through the Eastern Caribbean. Proposed back in the early 2000s, it was scuttled with the appearance of PetroCaribe in 2005. Trinidad and Tobago has ample reserves of natural gas; at one point before the shale gas revolution it was the largest source of imported LNG in the United States. The pipeline would link islands with populations of under 100,000, where LNG is economically unviable, with the more densely populated French dominions of Guadalupe and Martinique. It would also help revive the floundering Caribbean Common Market and Community (CARICOM).
* Thomas Andrew O’Keefe is President of San Francisco-based Mercosur Consulting Group, Ltd.