By Dennise Williams, Staff ReporterOIL PRICES smashed the US$44 per barrel mark yesterday with international brokers of the mindset that prices could go as high as US$50 per barrel. Here in Jamaica, while experts were distressed at rising prices, two factors make the situation bearable, at least on a national level.
One, the San Jose accord means that the Government can defer a percentage of the payments due to oil suppliers in Venezuela and Mexico. Secondly, alternative sources of energy such as natural gas and solar power are being implemented in order to reduce Jamaica's dependence on fossil fuel.
According to Reuters News Service, "U.S. oil prices hit record highs above US$44 a barrel after the head of the OPEC producers' cartel said there was no extra oil around the corner to dampen red hot markets. U.S. light crude struck US$44.24 a barrel, the highest since crude futures were launched on the New York Mercantile Exchange in 1983. Edward Meir, an analyst at Man Energy informed Reuters that prices were, 'just up, up and away. There's no stopping it'. He added that brokers believe US oil at US$50 a barrel was no longer inconceivable."
Zia Mian, energy adviser in the office of the Prime Minister believes the price increase is not because of anything more than greed. He said, "The speculators are keeping the prices high because they believe that there might be shortages. But there are untapped oil resources in Russia. But even if the price is high, Jamaica has to pay the speculation premium. The only relief we have is the San Jose Accord."
Negotiated in 1980, between Jamaica, Mexico and Venezuela, there was provision for a percentage of the cost of the crude oil to be made available as a low interest loan for development projects when the price of oil exceeds US$15 per barrel.
SAN JOSE ACCORD
Conroy Watson, senior director of energy division at the Ministry of Commerce, Industry and Technology agrees. "Most of our oil comes from Mexico and Venezuela and Ecuador to a lesser extent. But the world sets the trend based on what happens in the Middle East. And this is where the San Jose Accord comes in. How it works, is we have a special arrangement where we don't have to pay all the cash up front; some of the purchase price is in the form of a loan. So at the national level we don't have to find all the foreign exchange up front. However, at the end of the day, it still must be paid, but the immediate pressure is reduced."
As to the effect on the national finances, Derick Latibeaudiere, the Governor of the Bank of Jamaica answered that question during his quarterly press briefing held some months ago in February of this year. "We are also faced with the uncertainty in the international crude oil market, which continues to be a threat to lower domestic prices. The possible impact of a second round of higher oil prices is also of concern."
FINANCIAL TRAUMA
In order to mitigate the financial trauma of unpredictable oil prices, the Government has set up several projects to tap into alternative forms of energy. Mr. Watson states, "The Government opened a wind farm on July 29, that feeds directly into the Jamaica Public Service (JPS) system. We also have developed eight hydro (water) sites, which supply 23 Megawatts into the JPS system. Additionally, the districts of Middle Bonnet in St. Catherine and Ballymony in St. Ann are not on the JPS power grid as they have 24-hour electricity from solar panels. Efforts such as these reduce the need for oil to produce electricity." Additionally there are plans to build a natural gas plant in Jamaica by 2007. States Mr. Mian, "Natural gas is negotiated on a 20-year contract. The supply and price stable and it is much cheaper than oil. In the long term it will benefit the industrial and transport sector."
However, for the short term, Mr. Mian states, "The current oil prices will have a major impact on our global competitiveness as it will cost more to do business here and our consumers will have less disposable income to spend."
