ENERGY SECURITY – Launch of E10

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In 2008, the global energy sector experienced broad fluctuations in petroleum prices, moving from approximately USD80 per barrel during early 2008, to a high of over USD140 per barrel during the summer months of 2008; an increase of over 30% compared with the same period in 2007.

“Rapidly rising petroleum product prices are being experienced by Governments in the procurement of petroleum products; and by both large and small industrial and commercial operations; but the greatest impact has been on residential consumers, at home and at the pump, who have had to pay ever increasing prices for electricity, gasoline, food and other basic goods,” said Dr. Jean Dixon, Permanent Secretary in the Ministry of Energy.

The dilemma is the same for small developing states in the Caribbean Region, where meeting the cost of reliable energy supplies presents a significant challenge for medium and long-term planning for national and regional development.

It is an issue of regional and global sensitivity. Petroleum prices have always been closely observed on world energy markets, and is a key economic indicator in virtually all commercial and trading relationships. Energy analysts/traders worldwide have also suggested that speculative market activity has largely influenced short and medium term prices in recent months; rather than price movements due to supply and demand. It is also generally held that geopolitical issues in major supply centers; social, political and economic concerns, as well as friendly Government to Government relationships with major petroleum-producing and non-producing nations, have all influenced the great importance of this commodity on the international markets during this year.

While rapidly growing demand for petroleum products from industrialized and emerging nations such as China and India has tightened supply, the international community has been focused on efforts to balance geopolitical issues, accelerate development of clean, indigenous energy from renewable sources, address climate change issues and plan strategies for long term supply security for energy.

“While seeking to manage our own challenges presented by the energy market, it was necessary for Jamaica to address energy security by strengthening Accords and Agreements with traditional regional partners.” Dr. Dixon continued.

Prior to 1990, Jamaica’s energy supply was managed by major international petroleum marketing companies, whose business was mainly to import petroleum products from international sources to sell on the local market at prices set by the Government of Jamaica. In 1964, Esso West Indies built the hydroskimming refinery, to refine and supply a range of products for the local market, which they sold through the multinational marketing companies operating locally. This changed in 1982, when the Government of Jamaica acquired the Refinery to ensure continuity of supplies; and to begin to manage and benefit from a domestic Energy Sector, mandated to be the least cost source of petroleum products. The stage was set for a pricing mechanism that would be fully competitive with other importers.

“Global, regional and national commercial interests worldwide have generally recognized petroleum as a finite resource requiring management under a range of approaches. Among these are first, increasing current levels of production by traditional suppliers; second, reducing demand, especially in the top-consuming transportation and power generation sectors; third, public and residential conservation; and fourth, developing alternative sources of energy. These initiatives have been advocated in the Government of Jamaica’s National Energy Policy Green Paper (2006 – 2020). The Ministry of Energy is vigorously pursuing related initiatives as active members of several Technical Working Groups established within the framework of Energy Cooperation Agreements,” states the Permanent Secretary in the Energy Ministry.

The PCJ is clear that as Jamaica is likely to remain petroleum dependent for the long term, currently with only 10% coming from indigenous sources, more sustainable alternative energy options must be put in place urgently.

According to the National Energy Policy Report and Recommendations 2006-2020 data, excluding energy imports for the bauxite sector, Jamaica’s petroleum imports for power generation and transportation averaged 74% of total petroleum imports over the period 2000-2006.

Like many non-petroleum producing countries, Jamaica’s national energy bill represents the largest allocation in the annual budget. To illustrate, Jamaica’s 2007 energy bill was equal to the country’s earnings from exports in that year. As is the case with many petroleum-dependent nations, Jamaica has to balance its resources between programmes in health, education and other social services, as well as meeting the cost of repairs to the national infrastructure damaged by storms and hurricanes.

Compared with commercial consumption patterns, although residential consumption beyond normal work hours hikes demand, Jamaica’s residential consumption levels are negligible. However, over time, results from efforts to encourage conservation habits have met with only partial success.

“Given this context of growing demand, more expensive supplies and partial success at conservation efforts, the Ministry of Energy’s proposed Energy Conservation and Efficiency Policy (ECEP) identifies strategies and key recommendations to address these issues. Apart from a 15% target for consumption reduction in the public sector, these initiatives include a targeted approach emphasizing public awareness, provision of financing, establishing an appropriate institutional framework and private sector participation,” explained Dr. Dixon.

Against the background of rising petroleum prices, the Jamaican Government has accessed reliable oil supplies by negotiating accords and agreements for assured supplies with regional producers Mexico and Venezuela; as well as ad hoc access to crude from Ecuador. Trinidad and Tobago supplies finished products by way of contractual agreement. Through Petrojam, Jamaica has benefited from accords with these regional producers that has allowed greater benefits from production margins.

Security of supply for Jamaican consumers and for the future viability of Petrojam, is based on a project to upgrade and expand the capacity of the refinery, to offer the complete range of products to the local market with surplus for export. The upgraded refinery, construction for which will begin in early 2009, will produce higher volumes of clean products from lower cost crude oil which will increase margins from sales on all products.

Producing higher-value refined petroleum products that are environmentally cleaner, as stipulated by the World Bank and the United Nations, are critical to meeting environmental guidelines for the Industry.

Developing alternative sources of energy for both commercial and residential use is one of the clearest solutions to addressing the energy issue, which has generated new “green” responses in engineering and environmental product development, for example the E10 alternative bio-fuel. The GoJ’s series of Public Consultations on Jamaica’s National Energy Policy 2006 – 2020, Report and Recommendations states that “all but two of the consultations indicated that Jamaica’s failure to fully utilize alternate and renewable energy sources was the single biggest energy related challenge facing the island.”

So what solutions are possible and practical? As Jamaica’s agency for developing the energy sector, the PCJ has invested in pilot project development in alternate energy from indigenous sources. Among these are solar and photovoltaic energy, wind energy at the Wigton Windfarm in Manchester and a recently announced extension to this facility; hydro electricity generated from rivers; bio-fuels in ethanol and now castor bean for biodiesel and bio-mass including “energy forests”.

Jamaica, like other non-oil countries must provide a significant portion of the energy mix from indigenous sources of energy to alleviate the deep economic impact of the rising cost of fossil fuels. As the country’s fuel bill grows, these initiatives should reduce pressure on the island’s limited foreign exchange resources.

The PCJ has established a target to achieve 20% of the island’s energy requirements from renewable sources, supplied from indigenous and renewable sources by 2020. While initial costs for financing alternate energy sources are high, the long term benefit is far outweighed by this investment cost. Ethanol, long identified as the most efficient renewable fuel of the future, is now presenting attractive prospects for greater economic benefit from the replacement of fossil energy that local sugar producers will reap.

Going forward, a relevant and sustained public energy information programme to communicate the message and encourage media to communicate to target groups is required, to significantly encourage change in patterns of energy use, and to prompt changes in lifestyles and culture towards energy efficient practices.

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