Energy Issues for The Bahamas

by Larry Smith

Perhaps coincidentally, the government panel looking into fuel supplies will be reporting soon – just as rising prices are about to bite Bahamian consumers in the butt.

Oil prices surged past $75 a barrel last week, and analysts are forecasting $100-plus prices before the end of the year – up from just $20-30 per barrel a couple of years ago.

Experts say high oil prices are here to stay, due to soaring demand from fast-growing economies like China and India in the face of production limits. Our political leaders haven’t said so yet, but the clear message is that we will all have to find ways to adjust. The only question is whether the adjustment will be short and painful, or longer and easier.

It’s hard to say whether the Fuel Usage Committee’s report will be of any real help in this process. Odds are that it will simply repeat the tired old refrain of more government controls and an expanded public sector – after all, that’s what makes politicians happy. And even if some useful suggestions are made, we will still have to wait for our savvy politicians to act – which is a lot like getting your phone repaired by BTC.

The problem is that any unusual event – such as a terrorist attack, natural disaster or political upheaval in a key oil producing state – will have a serious shock impact throughout the global economy, affecting not only our cost of living but the tourism that earns our living. In fact, some analysts compare today’s geopolitical situation with that of the 1940s, when Japan’s drive to gain control over energy and raw materials in Asia led to war.

That’s because there’s a direct link between economic growth and energy use. And India and China – the world’s two biggest countries - are growing at phenomenal rates, turning hundreds of millions of people into middle class consumers of cars and electricity. This makes it “strategically imperative” for them to secure access to oil and gas supplies.

Meanwhile, the United States – which consumes 25 per cent of world energy supplies – faces declining reserves at home and must increasingly look to unreliable foreign producers in politically unstable parts of the world. And military action in Iraq has already diminished that country’s contribution to the global oil supply.

Experts insist that a day of reckoning is coming. According to the respected Bulletin of the Atomic Scientists: “The point at which production can no longer keep up with demand will mean a radical and painful readjustment globally to everyday life. In spite of that indisputable fact, people behave as if the global petroleum supply is unending.”

So the entire planet faces a serious energy crunch, creating tensions that could make the current international system unsustainable if we are not very careful. Energy security is clearly at he top of the world agenda. And although the Bahamas represents only a tiny fraction of global demand, we too are at the mercy of nature and international producers.

That’s why the Fuel Usage Committee (led by Vincent Coleby and Pierre Dupuch) wants us to sign on to Venezuela’s PetroCaribe deal, which lets Caribbean governments finance their oil supplies through a regional cartel. They completely disregard the likelihood that any short-term cash savings from this deal would soon be washed down political drain holes like Bahamasair and ZNS, putting us even further into debt.

Nice as it sounds to some politicos, PetroCaribe is not without teeth. As well as the disadvantage of being locked into a single government-controlled supply chain building up debt to pay for a day-to-day expense, Venezuelan President Hugo Chavez poses a major political risk. He is financing the Castro regime, buying arms from Russia, and wants to acquire nuclear technology from Iran.

PetroCaribe is a politically-motivated cartel that Chavez is using to control the region’s energy supply chain as part of his confrontation with the US, our chief ally and partner. Earlier this year, during a diplomatic dispute, he threatened to close refineries that the Venezuelan state oil company owns in America: “It would cost me nothing to sell oil to other countries in the world,” he said.

One of those other countries is China, which is using its huge economic growth to leverage political and economic influence around the world. The goal, hawks say, is to replace the US as the world's leading nation within 20 years. Like Japan in the 1940s, China desperately needs access to raw materials and feels it is being shut out by US dominance of the Middle East. It has invested over a billion dollars in petroleum projects in Venezuela and is heavily involved with Iran.

These geopolitical currents are more dangerous over the medium-term than many of us imagine. There is already talk of Western governments formalising energy policy into national security policy, with a NATO-style alliance not far behind. According to James Pinkerton writing in the Financial Times, “OPEC has already cartelized the producing nations; we are now likely to see a counter-cartel of consuming nations.”

In fact, Republican Senator Richard Lugar recently introduced a bill in the US Congress that calls for expanded international cooperation on energy security and movement toward a sustainable energy future. Formal coordination agreements will be offered to China and India to reduce the potential for conflict. And the bill creates a Western Hemisphere Energy Forum to provide a mechanism for regional energy cooperation and consultation.

“Geology and politics have created petro-superpowers that nearly monopolize the world’s oil supply,” Senator Lugar said. “Foreign governments control up to 77 per cent of the world’s oil reserves (and) set prices through their investment and production decisions. They have wide latitude to shut off the taps for political reasons. Strategic energy partnerships with other major consuming countries are crucial for our national security.”

Of course, the average Bahamian consumer faced with the need to fork up $5 for a gallon of gas to waste time on our congested roads, or pay through the nose for intermittent power from the state electricity corporation, could care less about these grand geopolitical strategies. They are, understandably, more concerned about the basic cost of living.

And that’s where our new technocratic energy czar, Dr Marcus Bethel, comes in. He knows that dependence on imported oil remains a big obstacle to sustainable development in the Caribbean (except for Trinidad and Tobago). And he is also aware that other CARICOM nations are ahead of us on this issue.

Solar energy is widely used in Barbados and some Eastern Caribbean islands, while Jamaica has invested in wind farms and is seeking to generate 15 per cent of its power from ethanol and other renewable sources by 2015.

As Philip Paulwell, Jamaica’s minister of commerce, science and technology acknowledged recently: “(We) have everything to gain and nothing to lose as the cost of fossil fuels will continue to climb, whereas the wind, the sun, and the water are by definition free."

Paulwell admits that renewable energy still lags behind its potential because of inappropriate policies and regulations, as well as a lack of bankable projects and financing. The situation is much worse in the Bahamas, but there is no reason why our government and civil society cannot come up with a strategy to promote wider use of alternative fuels.

According to Matthew McManus, a US State Department energy expert, 93 per cent of the electricity generated in Central America and the Caribbean derives from oil supplies. The consequence of this, he said recently, is that the region has a serious energy problem, and thus a "real need" to use energy resources more efficiently.

Many Caribbean countries have already adopted energy strategies that at least talk about conservation, efficiency and alternative energy. The Bahamas has done nothing except implement a token tariff exemption on solar panels that does not even cover the necessary equipment to install the panels.

As Senator Lugar says, the first step is to admit how grave the problem is. The lack of a comprehensive energy policy in the US “has translated into policies promoting diversification in supplies of oil and natural gas, with little emphasis on energy alternatives...Expanded programmes to enhance energy efficiency in appliances, building construction, and industry are all necessary to keep our energy intensity declining.”

It’s the same here, senator. As we have reported before, there are no significant alternative energy initiatives in the country and no policies to promote them. One hopes that the appointment of Dr Bethel as energy minister will bring some rationality and focus to the government’s approach.

What we need is an inclusive public-private sector conference on the whole issue, with as little politicking involved as possible. After sifting through as much information as we can, a draft energy plan should be produced and circulated for comment. Just think of the publicity benefits alone!

But unfortunately it probably won’t happen that way. It will happen the way most things happen here – a handful of disinterested civil servants will get together and copy stuff that doesn't make a lick of sense – and then the politicos will ram it down our throats on the pretext that they are saving the country.