Natural gas for Jamaica, at last?

Dashan Hendricks

Barack Obama has come and gone, and for me, the biggest benefit the country has secured is a supply of natural gas from the United States to fuel the electricity generating plants of the future. With that being secured, I breathe a cautious sigh of relief; cautious, because we have been down this road before, being promised gas without it being delivered.

One would remember November 10, 2004 as a date on which then Jamaican Prime Minister, P.J. Patterson, and his then Trinidad & Tobago counterpart, Patrick Manning, signed a deal at the 10th Special Meeting of CARICOM Heads for that country to supply Jamaica with 1.1 million tons of LNG per annum, at prices agreed for 20 years. The LNG was to be supplied, starting 2009. However, by 2007 Jamaica's Energy Minister Phillip Paulwell was scrambling in Venezuela, trying to secure gas, after Trinidad & Tobago said it had problems honouring the agreement because of supply issues.

In 2009, Conrad Enill, who was Trinidad & Tobago's Energy Minister, seemingly suddenly finding gas, was willing to rekindle serious talks for the supply of LNG to Jamaica, after his Prime Minister, Patrick Manning, said it was "a matter of priority," leading James Robertson, Jamaica’s then Energy Minister, to tell Parliament that the country would get LNG from Trinidad & Tobago by around 2012. At that time, we were told about other sources being exploited, such as Qatar, and possibly Kuwait, as well as Venezuela.

By 2011, in the now infamous Wikileaks cables, the country was left to realise that Trinidad & Tobago was not willing to sell LNG to Jamaica to generate electricity, because it would challenge "TT firms’...significant competitive advantage in the region due to their low electricity costs....(leading) Jamaican firms to replace some of the goods now being imported from T&T, thereby narrowing T&T's U.S.$500millon trade surplus" with Jamaica.

Then, in 2013 the country thought it would finally solve the issue of securing natural gas, which studies show could cut electricity costs by up to 30 per cent, when Energy World International (EWI) entered the fray with a promise to build a 381 megawatt power plant, using gas as fuel from its own gas fields in Indonesia. The feeling was that Jamaica had finally secured the gas it needed to produce electricity much cheaper than oil has been doing, which would give the country's industries a chance to compete at least on a cost basis with its trading partners. But things did not work out there either. 

The above list of failed promises outlines an array of efforts to get natural gas for the country with none coming in some 11 years after the effort started. The hope now is that the Letter of Intent, signed by Jamaica's Energy Minister Phillip Paulwell and U.S. Energy Secretary Ernest Moniz on April 9, 2015, will result in gas finally coming to our shores. The start-up date for that is set to coincide with the 2017 commissioning of the gas-fired 190MW power plant the light and power company, Jamaica Public Service Company (JPS), is to build.

Given that the United States has the cheapest LNG in the world, with current prices at US$2.60 to US$4.80 per million Btu (British thermal unit), getting this gas is important if the country is to realise the dream of electricity being sold for at least US$0.18 per kilowatt hour. With the 50 per cent reduction in oil prices in the last few months, the price of electricity has gone down to roughly US$0.29 per kilowatt hour, from US$0.42 cents per kilowatt hour in 2013. 

Getting gas from the United States will take some shifts in that country's long stated policy of severely restricting the export of its hydrocarbons, including natural gas. But the political appetite to ease the limits on LNG exports from the United States has been building in the past few years and has picked up steam in recent months.

Thanks to horizontal drilling and hydraulic fracturing (or fracking), the US is currently faced with a significant excess of gas supply. The most recent figures provided by the US Energy Information Agency indicate that natural gas supply in North America could exceed demand by 2016. Jamaica seeks to be one of the outlets for that excess gas, though the 190MW plant is very small. Given that it takes about 1000 cubic feet of natural gas to produce 1 kilowatt hour of electricity, it would take some 190 million cubic feet or about 5.38mn cubic metres of gas for that plant to produce at its maximum. The hope is that this deal with the U.S. doesn't fall through.

As Barack Obama said in his townhall meeting at the UWI Mona, when asked about debt forgiveness, "the best way for Jamaica to deal with its debt burden is to grow the economy, which does not only increase the economic pie, but also provide more revenues so that the growth in the debt can be reduced because the need to borrow is less when the government has more money and when its making more money, it can repay existing debt faster."

If Jamaica's burdensome debt has been one of the main issues behind the country's 40 years of anaemic growth, which averages 0.8% per annum, then reforms under the International Monetary Fund (IMF) must be aided by this fillip of cheap energy to grow the economy. Even the IMF is pushing the growth agenda, saying it is the ultimate aim of the reforms.

Cheap energy alone won't create the growth needed, but it will go a far way in complementing the structural adjustment taking place to put Jamaica on a firm path to growth.

Dashan Hendricks is RJR's Group Business Editor