Barbados And The Global Energy Crisis

What is a fair price for a barrel of crude oil?…How high can the price of a barrel of oil go before damage to the world economy and to fragile political systems outweigh any possible gains to the producer countries? – Charles Doran, Myth Oil and Politics 1977 Doran’s 1977 question was provoked by a […]

By Liz Thompson

August 8, 2009

Barbados and the Global Energy Crisis

What is a fair price for a barrel of crude oil?…How high can the price of a barrel of oil go before damage to the world economy and to fragile political systems outweigh any possible gains to the producer countries? – Charles Doran, Myth Oil and Politics 1977

Doran’s 1977 question was provoked by a spike which pushed the international market price to the then historical high of US $14 per barrel. On Thursday July 3rd, 2008 in what is being regarded internationally as a “superspike”, the trading price of oil on the New York Mercantile Exchange (NYMEX) reached US $145.85 per barrel the highest historically recorded price; thereby making Doran’s question more pertinent today than it was 31 years ago.

Price volatility is causing serious consideration of industry predictions that the international market price for oil would peak at approximately US $200/250 per barrel, with the lower ceiling remaining above US $100, double the price of two years ago. The word stagflation is being used in respect of the impact which spiralling prices are having on economies. This raises the frightening question of “At what price does destabilisation of society and economy become probable?” This is a highly complex issue which cannot be answered in such a short article. Instead, the article will seek to demonstrate where we are now and consider some possible options to take us safely forward.

The Barbados National Energy Policy was developed in 2006 to address the evolving energy crisis. After town meetings and discussions with stakeholders it was finalised, approved by Cabinet and laid in Parliament in 2007. Its principal objective is the provision of national energy security through conservation and energy efficiency, and a transition to a low carbon economy. Specific strategies include the pursuit of an offshore oil drilling programme, a national energy conservation plan, promoting the use of alternative fuels by government and public service vehicles, strengthening the support for solar water heater manufacturers, converting the fuel mix used for electricity generation from almost 100% heavy fuel oil to predominantly natural gas and renewables, the setting of a renewable energy portfolio standard of 20% by 2026, permitting individuals and businesses to generate electricity from renewable energy sources and feed into the national grid, an incentive regime aimed at promoting the use of renewable energy and the establishment of a Waste to Energy Facility.

Two other important policies were introduced, a public sector energy conservation plan and the implementation of a Green Economy policy. This initiative is intended to move Barbados toward “green” (sustainable) production and procurement, integrate the productive sectors of the economy so as to create greater synergies, effect economies of scale and improve efficiency and productivity while reducing our carbon emissions and ecological footprint, promote Warrens and other areas as Green Centres and grant concessions and rebates for the construction of “green” buildings which conformed to the standards established by the Ministry of Energy and the grant of rebates for energy audits and retrofitting of homes, businesses and the hotel sector. Negotiations were also undertaken for Barbados to be one of the lead countries in a United Nations/Global Environmental Facility Solar Water Heater Project.

These initiatives were reaffirmed and reiterated in the Budget of 2008. In addition, new initiatives were introduced. They include Government using its properties for the generation of energy from renewable sources, the extension of natural gas by the National Petroleum and the charging of fully commercial rates for the service, setting of the price of petroleum products by the Ministry of Trade with a mechanism for monthly price adjustment, the consideration of alternative energy projects for the Barbados Water Authority and the Queen Elizabeth Hospital and a change from applications having to be made to the automatic exemption  from import duty (of 20%) and the environmental levy of imports under Part ii item 87 of the Customs Tariff including wind turbines, photovoltaic components and systems, biofuel systems, hydropower systems, solar thermal systems, wave or tidal power systems, fuel cell systems, and geothermal heat pump systems.

An understanding of oil consumption patterns in Barbados is useful. Barbados currently produces an average of 8/900 barrels (bbl) of oil per day, down from about 1100. National oil consumption has moved from approximately 8000 bbl per day to just under 11,000 barrels per day. The national fuel import bill (gasoline, diesel and fuel oil, jet fuel excepted) leaped from BB$175 million (US $88m) in 2002 to Bds$450m (US $225m) by the end of 2007, as consumption increased and oil moved from US $30 per barrel to $55 to $100 per barrel. When oil prices skyrocketed to $140 per barrel in the first quarter of this year, Barbados’ fuel import bill for that period leaped to $158.9m, just $16m less than for the whole of 2002.

It is noteworthy that Barbados’ expenditure on fuel is being driven as much by market prices as by substantially increased national consumption. An examination of the statistics makes this apparent. The number of vehicles on Barbados’ roads grew from 40,000 in 1994, to 71,756 by 2001, 106,178

in 2004, to 118,200 at the close of 2007. During this period the number of households increased from 82,201 in 1990 to 91,406 in 2000. It is significant therefore that as part of the legislative framework passed in Parliament in 2007 to anchor the Barbados Offshore Oil Initiative, it is a requirement that prior to export, national consumption be met by any offshore production. Many oil-producing developing countries have failed to make similar provisions in their policy.

In the United States 765 people out of every 1000 own a car. Across the developing world, China included, vehicle ownership is approximately 40 cars per thousand people. In Mozambique, Somalia and Ethiopia, one person in every 1000 owns a car. The average in Europe is 350 per 1000 persons. In 2004 in the United States, every 1000 people consumed 71 barrels of oil per day. In China, the population of which is four times that of the United States, the consumption of oil for every 1000 people in 2004 was 5 barrels per day. The average consumption rate in the Eastern Caribbean was then 15 barrels per day per 1000 people. In Barbados it was 40 barrels per 1000 people at that time.

While many parallels have been drawn between this energy crisis and that of the late 1970s and early 80s, a number of factors which did not exist at that time are placing urgency on the current situation. Recent geopolitical considerations are markedly different. Global oil production has diminished giving credibility to the – peak oil theory - that the world has already used up its largest and most accessible oil reserves. David Strahan in “The Last Oil Shock” argues that for every barrel of oil drilled we are already consuming three. Unprecedented global demand, fuelled by the rapid development of “Chindia” is propelling international commodity prices upward.

The single major difference between the situation of the 1970s and today is current knowledge about the extreme danger which climate change poses to social and economic development and the preservation of our physical landscape worldwide but particularly in Small Island Developing States. Michael Dworkin, Dean of the Vermont Law School Energy Institute, frames the issue most eloquently when he says “energy policy is our world’s most important environmental issue and environmental constraints may be the energy sector’s most important challenge.”

The lifestyle of what Daniel Yergin deemed “petroleum man” is unsustainable. Modern considerations compel us toward renewable energy sources. High oil prices and the consequences of climate change have resulted in renewed interest in renewable energy technologies (RETs). A similar thrust was witnessed in the 1970s but enthusiasm waned after energy prices came back down. Nonetheless, a few countries committed to research and development of renewable energy technologies. In consequence, China, Brazil, Germany, Australia, Holland and Israel are leaders in the area of RETs.

Brazil’s experiment with fuel cane has given that country first mover and competitive advantage in the area of ethanol production with 46% of their economy powered by a renewable energy source, when Europe is now aiming for 20% renewables in their energy mix between 2010 and 2020. With this single initiative, Brazil has found a major foreign exchange earner, reduced costs, carbon/greenhouse gas emissions and their ecological footprint. This should be a lesson for all.

Barbados has had some success with its solar water heater industry which was also “born” in the 1970s, through the entrepreneurial spirit of some business pioneers and a regime of concessions provided by the Government. These measures combined to give Barbados a 60% national penetration with solar water heaters, one of the highest per capita ratios in the world and position us as the leading market supplier in the Caribbean. Catalysts for the development of a new generation of indigenous enterprises in renewable energy must be put in place with alacrity.

A perfect storm is defined as the convergence of independently harmful factors. We ought not to be surprised therefore that the current convergence of economic and ecological factors, specifically the superspike in energy prices and its consequences, the rise in international food prices and its consequences and the spectre of climate change and its consequences, including global warming, are now being labelled the perfect storm. There is no doubt that the Caribbean like the rest of the world is under storm warning. We can see the early rains and floods in the escalating price of food, feel the strength of the gale force winds in the unprecedented demand for and price of fuel, view the spectacle of the lightning in the dangers of climate change and hear the thunder in carbon emission levels that threaten the viability of Small Island Developing States.

How Barbados addresses the potential ravages of this storm will redefine our landscape, society and economy. Every storm is a call to action, a test of resilience and ultimately a testimony to survival. Development through renewable energy must be our new national paradigm, irrespective of whether oil prices are high or low and regardless of what the rest of the world is doing. Let us therefore boldly pursue the path of renewable energy, bearing in mind the words of Robert Frost:

Two roads diverged in a wood, and I
I took the one less travelled by
And that has made all the difference.

Liz Thompson

Liz Thompson is a former Minister of Energy and Environment of Barbados. She is an attorney at law and consultant and a 2008 winner of the prestigious UN "Champion of The Earth" Award. Senator Thompson also holds an MBA and a Postgraduate Certificate in Oil and Gas Law with a minor in Renewable Energy. An elected Parliamentarian from 1994 to 2008, she has previously served as Minister of Health, Housing and Lands and Physical Development.