1. Jamaica’s Energy Sector: Present Status and Future Perspective Raymond M. Wright Petroleum Corporation of Jamaica June 28, 2005

2. CHINA CONSUMES In 2004 China had 20% of the world’s population. In 2004 China’s oil demand increased by 16.9%. Product imports increased by 33%. 19982004 (estimated) 16.2%Steel27.0% 10.4%Copper19.7% 11.9%Aluminum18.8% 27.2%Coal31.8% 5.5%Petroleum8.0% Electricity10.3% 22.2%Cotton32.9% 22.1%Fish32.3% 14.1%Ice Cream19.3% 7.5%Cell Phone Users20.8%

3. Oil Price Volatility, 2001-2005 West Texas Intermediate, US$ per barrel

4. Predicting Oil Prices In 1999 many predicted that oil prices would remain around $10/barrel for the foreseeable future. However, demand and supply are catching up with an oil-hungry world. OPEC has little margin to spare, perhaps only another 1.5 million bpd above its present quota of 27.5 million bpd. IEA forecasts demand growing by 1.8 million bpd in 2005; hence there is a demand and supply problem.

5. Global Oil Demand 1995-2005 (expected)

6. Oil Demand – The Real Story Demand is strong because prosperous countries, led by the USA and Europe, are enjoying solid economic growth in spite of high oil prices. Almost all developing global economies led by China, India & Brazil, are growing. Demand in 2006 is likely to continue to grow.

7. Oil Supply – The Real Story Last year’s myth was that higher oil prices will create an increase in supply. Many key oil producers are at or past their peak oil output. As with surging demand, the flattening oil supply situation is not unique. A high percentage of the world’s oil still comes from discoveries that were made more than a decade ago. Lack of spare capacity exists at every step of the supply chain – from drilling and producing, to transportation and processing. Any spare wellhead capacity is for heavy and sour crude.

8. Countries Past Peak Oil Output Australia Oman Colombia Syria Egypt UK Indonesia USA Iran Yemen Kuwait Norway

9. Countries with Ability to Expand Oil & Gas Capacity Algeria Malaysia Angola Qatar Brazil Russia Chad Saudi Arabia Ecuador Sudan Equatorial Guinea UAE Libya Venezuela

10. Selected Global Gasoline Prices Typical price per gallon (US$) Norway$6.66 Netherlands$6.55 U.K.$6.17 Germany$5.98 Italy$5.94 France$5.68 Singapore$ 3.50 Brazil$ 3.35 Mexico$ 3.20 Jamaica$ 2.79 USA$ 2.26 Russia$ 2.05 China$ 1.78 Venezuela$ 0.49 Iran$0.47 Sources: Reuters, EIA & Others

11. Caribbean Economies and Energy: Global economy’s effects on electricity demand Bahamas

12. Generalized Daily Demand Curves – Japan & Jamaica 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 NOON JAPAN JAMAICA

13. We have to make decisions as to which “ball to play” and what action to take.

14. THE RIGHT MOVES

15. Diversification Diversification of energy supplies will reduce demand for petroleum. Natural gas and coal will remain important for the remainder of this century. Hydrogen fuel cells and other ways of storing and distributing energy are a foreseeable reality and will replace the Oil Age. Renewables will grow to make a supporting contribution to the energy mix.

16. Natural Gas A combustible gaseous mixture of simple hydrocarbon compounds, mainly methane (CH 4 ). Found by itself or with crude oil and hydrocarbon condensates. The cleanest burning fossil fuel. Available for transport by pipeline or as LNG and CNG.

17. The present move to natural gas will see an increase in its share of global energy from 22% today to about 33% by 2030. Effective in combined cycle and cogeneration technologies, natural gas may also become a favourable fuel for the transport sector. As LNG, it is the natural fuel for diversifying the energy mix of many Caribbean countries. The Dominican Republic established an LNG import terminal in 2003 and Jamaica plans one for 2008/9. Natural Gas

18. LNG Growth LNG demand is expected to grow by over 8% annually from 2005 through 2015. This compares with the projected 2.5% annual growth rate for overall global gas demand. Thus the LNG market will double within the next decade. Presently 14 countries are importing LNG. By 2015 an additional 16 countries will import LNG. Demand driven by economic growth and power consumption. Environmental factors play a key role in driving the market.

19. Existing LNG Importers (2005) Atlantic Basin Pacific Basin Belgium Japan Dominican Republic South Korea France Taiwan Greece India Italy Portugal Puerto Rico Turkey USA

20. Expected LNG Importers Atlantic Basin Pacific Basin Bahamas Chile Brazil Java Canada New Zealand Cyprus Thailand Honduras Singapore Jamaica Lebanon Mexico United Kingdom

21. CNG in Vehicles CNG generally used in vehicles at 3000-3600 p.s.i. Equivalent energy content –1 gallon gasoline = 125 scf CNG –1 gallon diesel = 130 scf CNG

22. Natural Gas Engine Manufacturers Cummins-Westport, Inc. Caterpillar Detroit Diesel, Corp. John Deere Powers Systems Mack Trucks, Inc.

23. Natural Gas Engine Manufacturers North America More than 50 manufacturers produce 150 vehicle models. Blue Bird Corp. Elgin Sweeper Company Ford Motor Company Freightliner Trucks Mack Trucks Neoplan New Flyer of America Peterbilt Thomas Built Buses Volvo Trucks North America

24. Advantages of Natural Gas Air Quality – Most studies indicate a reduction in NOX of approximately 50% and PM of more than 75% Potential Fuel Cost Savings – Viking Freight Study showed average fuel costs per mile of $0.11 for CNG and $0.16 for diesel when natural gas and Diesel fueling were on site (31% fuel cost savings) Political Benefits – Most fleets switch to natural gas because of political benefits - Meet government requirements - Promote energy security - Enhance public image

25. Paving the Way for Fuel Cell Vehicles Natural gas and hydrogen are both gaseous fuels Lessons learned from developing natural gas technologies may aid transition to hydrogen Shared issues include: – Fuel storage – Fueling – Station siting – Training – Facilities – Public acceptability

26. Nuclear Energy Once deemed as expensive and dangerous, nuclear is making an unlikely comeback against fears about the consequence of fossil fuel use. The potential for nuclear to take on a more central role in the energy mix is apparent – mainly because nuclear reactors do not produce greenhouse gases. Nuclear power accounts for 16% of globally produced energy. This saves around 0.6bn tonnes of CO 2 emission per year, nearly twice the amount that the Kyoto Protocol is designed to save. The IAEA clams that the nuclear power chain emits some 2-6 grams of CO 2 per kilowatt hour; about the same as wind and solar power.

27. Source: International Energy Agency

28. Nuclear Power PROS Nuclear Power is well suited to supply baseload electricity. CONS Difficult economics, because of high capital investment costs.

29. “It isn’t pollution that is harming the environment; it is the impurities in our air and water that is doing it” Dan Quayle, former US Vice President The Environment

30. A national inventory of greenhouse gases in Jamaica shows that energy use caused more than 75% of emissions. This is in keeping with a global average of 70%.The strategy, therefore, is to reduce the adverse environmental impact of energy use by using cleaner technologies and improving energy efficiency. Climate Change

31. Sea Level Rise 1 metre2 metres 4 metres 8 metres

32. CHANGE IN HOLE IN OZONE LAYER

33. RENEWABLE ENERGY Solar Energy Wind Energy Tidal/Wave/Ocean Thermal Energy Biomass Energy Hydroelectric Energy Geothermal Energy (A fuel source that is not used up when power is generated.)

34. How to Foster Growth of Renewables Fiscal Measures –Tax relief; low interest credit. Investment Support –Local, national and regional support; energy supplies; eco- bonus for sustainable building; local banking and private sector to participate project financing. Regulations –Energy and building standards; obligations. Other –Information and awareness campaigns.

35. The Value of Renewables Caribbean energy policy supports the continuing diversification of our energy systems – both by energy type and by source. In this scenario renewable energy should play an increasing role. The value of renewables lies in their ability to respond simultaneously to the three main challenges confronting the energy sector: energy security, economic growth, and sustainable development.

36. Value of Renewables (Cont’d) Development of renewables is not too risky because it reduces the overall variability of national expenditure and, therefore, reduces risk. It has the characteristics of insurance. Renewables are an insurance “hedge” against volatility and risk. Perhaps this concept of insurance is a reasonable basis for encouraging support for renewables.

37. A number of market-oriented points apply to renewables. Market opportunities lead to increased production Increased production reduces costs Lower costs stimulate sales Increased sales expand production

38. Some Renewable Energy Production Goals China12% of the country’s electricity from renewables by 2020. Brazil3,000 MW of renewable energy capacity. GermanySolar panels on 100,000 rooftops. Jamaica15% of the country’s electricity from renewables by 2020.

39. Some Factors Boosting Renewables Worldwide effects of Kyoto Protocol, especially on multinational corporations. EU Emissions Trading Scheme. High oil prices. USA production tax credit.

40. Opposition to Renewables  Many people do not want to look at renewable energy installations and will use any financial, legal, or political power to block projects.  Several acronyms have emerged: –NIMBY – Not in my backyard –NOTE – Not over there either –CAVE – Citizens against virtually everything –GOOMBY – Get out of my backyard –BANANA – Build absolutely nothing anywhere near anything. All of this NIMBYISM is conducted out of self-interest, but uses methods pioneered by environmental groups.

41. COST DISTRIBUTION OF SOME POWER SOURCES Nuclear (0.06 c/kWh)Natural Gas (0.046 c/kWh) Coal (0.05 c/kWh) Wind (0.059 c/kWh)

42. Wind Energy Competitive with fossil fuels (oil, gas and coal) Is a hedge against volatility in oil prices. The wind resource is free.

43. Two of twenty-three 900 kW wind turbines in a 20.7MW Windfarm at Wigton, Manchester, which was commissioned end April 2004

44. Comparative Costs for Wind Power and Conventional Energy Sources, 2005 Gas Coal Nuclear Energy Production cost range Land-based Offshore Source: Windpower Monthly, January 2005 Price (US cents per Kwh) Wind speed m/s

45. Biomass - Jamaica Intention to pursue cogeneration in the sugar industry from bagasse, supply grid electricity. Use of bioethanol in transport fuels, reaching approximately 10% of gasoline, replacing MTBE as the octane enhancer. Annual demand for ethanol locally is presently 68 million litres and could reach 91 million litres by 2010. A new ethanol plant of 40 million gallons will be commissioned in July, 2005, as a joint venture with Coimex of Brazil.

46. Ethanol Ethanol will become the major product of a renewed Jamaican sugar cane industry. The sugar industry would then produce sugar, molasses, rum, ethanol and electricity from bagasse.

47. Ethanol - Brazil Ethanol use expanding at about 8 % per year. 60 billion litres per year of ethanol needed by 2010. Greatest export market for Brazilian ethanol is India, followed by the USA, Korea and Japan. Gasoline in Brazil has at least 25% ethanol. Nearly 30% of cars in Brazil can use 100% ethanol. Ethanol (US 55 cents per litre) is cheaper than gasoline (US 85 cents per litre)partly because of a 34 % tax on ethanol and a (higher) 45% tax on gasoline.

48. Annual Investment in renewable energy, 1995-2004

49. Usually defined as less than 10MW Renewed interest because of strategic concerns about energy supplies. Advances in electronics which have greatly reduced the cost of controlling the output of small turbo generators. Some 23 MW installed in Jamaica. Potential for another 30 MW or more. SMALL SCALE HYDROPOWER

50. There are four major solar energy processes: (1) Photovoltaics which converts sunlight into electricity through solar cells in a plate or concentrator. (2) Low temperature solar thermal systems used to heat water or air, are an important part of Caribbean energy systems. Solar drying and distillation, as well as solar water heaters, fall into this category. Solar

51. (3) High temperature solar thermal systems that produce heat that is converted into electricity in a conventional cycle, through a concentrator system. There are no systems now producing electricity by this method in the Caribbean. (4) Passive solar systems, that seek by design to reduce space cooling and lighting. This is exemplified in the design of many energy- efficient buildings in the Caribbean. Solar

52. Solar Water Heaters Significant increases in use as demonstrated by Cyprus and Barbados. In Cyprus 0.86m 2 of solar water heaters per capita have been installed, avoiding nearly 4% of total CO 2 emissions. More than 35% of households have SWH’s in Barbados, with approximately 37,000 installed in a population of 260,000.

53. Solar Drying The potential for solar crop drying has not been fully realized in Jamaica although it is a means of preventing spoilage which affects as much as 30% of crop production. Crops such as bananas, papaya, sorrel, sweet potato, yam, ginger, nutmeg, pimento, grasses and leaves can be dried by solar dryers which range from the simple wire basket dryer to approximately two square metres of roof solar collectors.

54. OTEC Ocean Thermal Energy Conversion (OTEC), an energy source using the difference in temperature between surface ocean waters and deep water (at least 20 0 C). Jamaica, and a number of Caribbean islands, have OTEC potential.

55. FUEL CELLS Quiet and have more efficient production of energy from hydrogen and oxygen than an internal combustion engine Only emission is benign water vapour Works like a battery but does not run down Creates electricity for as long as it receives hydrogen

56. 1.A future energy solution for homes, vehicles and electric utility systems, fuel cells are a highly efficient power source that emits only water and heat. Using hydrogen as a fuel they are virtually pollution-free. However, the hydrogen may come from the conversion of hydrocarbon fuel such as natural gas or methanol, and that process creates some emissions. 2.At present hydrogen is not available as a commodity fuel, and even if it were, there is no infrastructure to deliver it. FUEL CELLS

57. 3. Niche opportunities will develop in the next five years, in transport and distributed electricity, giving this technology a base for launching into mass transport and the power industry by 2025. FUEL CELLS

58. Emissions Trading There is now a strong European CO 2 emissions market. In February 2005 2.4 million metric tonnes were traded. Prices are as follows: Delivery DatePrice/Euro/mt Dec 20058.20-8.40 Dec 20068.30-8.40 Dec 20078.35-8.60 Spot trading also takes place.

59. Emissions Trading Projects must be independently validated and baseline measurement methodology and on-going monitoring methodology are approved. Emissions must be verified and certified before CER certificates are issued. ADVICE Any energy project relying on CERs to make it cost effective is probably too marginal to be a good investment.

60. Energy Efficiency Driving Forces Three factors propel energy efficiency: 1. Electricity Costs 2.Environmental pollution, particularly as it affects the tourist sector. 3.Globalisation, and the competition it generates, require overall economic efficiency.

61. $AVING$ As an example, a current programme in Jamaica, should sell some 150,000 CFL’s by August 2005. This will result in savings of 112,500 barrels of imported oil, and a reduction of 375 tonnes of CO 2 emission over a possible 8-year life of each bulb.

62. Among the measures that have been successfully applied are: Codes and standards for buildings; Efficiency labels for appliances and lighting; Improved efficiency of boilers and furnaces, as well as heating, cooling, ventilation and air conditioning. Measures

63. In the transport sector consumers seem willing to trade fuel economy for power, comfort, convenience and safety. Higher taxation on larger engined vehicles that are less fuel- efficient is to be encouraged, as is the improvement of public transport systems and new traffic management schemes. Transport Sector

64. Stimulate use of diesel-engined vehicles. Promote electric/gasoline hybrid vehicles. Consider CNG for mass transport such as urban buses. Tax vehicles based on fuel efficiency and pollution factors (CO 2 ).

65. Some Matters for Active Consideration in Energy Policy 1.Growing demand for energy services. 2.Energy supply and trade patterns. 3.Energy prices and taxation. 4.Energy and poverty alleviation. 5.Public versus private investment in energy. 6.Environmental and health issues. 7.Use of cleaner technologies, including renewables. 8.Efficiency in energy use.

66. The Role of Stakeholders Education and public awareness is cardinal. Jamaicans must begin to think about energy in the same way they would think about national security, education and health care – as an essential enabler of the quality of life.

67. Utility Electricity Generation (June 2005) Installed Capacity780 MW Owned by JPSCo621 MW Owned by IPPs159 MW Required increase by 2010 250 MW Number of customers on the grid517,500 Peak demand in 2005642 MW Reserve margin19%

69. A POSSIBLE (REACHABLE) 2015 ELECTRICITY SCENARIO Utility Company Installed Capacity1250 MW Fuel Sources Heavy fuel oil and diesel 380 MW Natural Gas (& Coal) 700 MW Wind 70 MW Hydropower 35 MW Solid Waste 10 MW Bagasse and fuelwood 35MW Ocean energy 10 MW Solar Photovoltaics 0.2 MW Fuel cells 9.8 MW 1250 MW Renewables would supply 12.8% of electricity

70. Summary 1.There will still be dependence on conventional fuels for at least another four decades. 2.Biomass will continue as a critical component of an appropriate energy mix. 3.Natural gas, for environmental reasons, is the most obvious conventional energy source for many countries. 4.Hydropower has yet untapped potential. 5.Coal will continue to be important, and the ultimate stimulant for clean coal use is carbon sequestration.

71. Summary (cont’d) 6.Nuclear power may be too high in capital cost and large in scale, to have Caribbean relevance; small reactors need to be developed. 7.Competitive renewables, such as wind, will continue to grow rapidly. 8.The optimal energy mix calls for regional and cross-border integration of energy supply systems and markets. 9.There is no simple recipe. The tasks ahead call for collaboration and careful implementation. 10.In the meantime – use energy rationally!

72. Only a fool tests the depth of the water with both feet. -African Proverb

74. We have to look beyond the horizon for cleaner energy technologies THE END Thanks For Listening