DURING the last two days, Caricom governments participated in the United Nations-sponsored conference on Achieving Energy for All Small-Island Developing States in Barbados, as preparation for the June 20-22 UN conference in Rio de Janiero. This comes in face of the spectre of the possible phasing out of PetroCaribe.
As is now well known, PetroCaribe allows beneficiary countries, including Jamaica and 12 other Caricom member states, to purchase Venezuelan oil on concessional terms, ie to defer part of the payment through a 25-year financing agreement at one per cent interest. Without this concession, the region will be exposed to volatile oil prices which could escalate exponentially.
There are two diametrically opposed views concerning the future price of oil which derive from different perspectives on the prospects for world oil production.
The geological view expects that physical constraints will dominate the future evolution of oil production. This view points to the fact that world oil production has been the same since 2005, despite historically high prices. The technological view of oil output is predicated on the assumption that high oil prices will eventually prompt an increase in oil output because high prices will induce innovations in technology. This outlook points to upward revisions in production forecasts based on existing geological information.
Future oil prices have been virtually impossible to predict because politics influences production, distribution and price. Forecasts based on extrapolating monthly prices, econometric models, or other commonly employed forecasting techniques are no more accurate than the "guessimates" of pundits. Quantitative analyses are based on historical data, which do not differentiate between long-term trends and the possibility of temporary supply disruptions due to political events.
Oil prices are likely to remain high or escalate given the rapidly increasing demand from China and India and supply rigidity. The logic is irrefutable since oil reserves are ultimately finite. The easily accessible oil is being exploited, therefore oil must become harder to find and more expensive to produce. Many scientists are convinced that physical limits are already affecting the scarcity of oil.
Additionally, environmentalists are making it difficult, in some cases, to get permission to exploit marginal deposits.
One of the priorities of Jamaica's energy policy is to reduce dependence on oil; but in the short run this will be impossible. The price of oil in the immediate future is therefore a major concern.
In this regard, the continuation of the concessions under the PetroCaribe is critical. The problem is that nobody can predict what will happen to PetroCaribe if or when Mr Hugo Chavez is no longer president of Venezuela.
We, of course, wish him a full recovery.
In the interim, the Government of Jamaica should begin scenario planning to calculate what the impact would be if the PetroCaribe was terminated abruptly or phased out; identify alternative sources of oil; accelerate the development of alternative energy supplies such as gas, solar, wind and hydro; and launch a diplomatic demarche to encourage Venezuela to retain the existing terms of the PetroCaribe for as long as possible.