Editorial | Single market in energy

Although the terms of last week’s memorandum of understanding (MoU) on energy cooperation between Guyana and Jamaica haven’t been disclosed, the development is likely to put back on the agenda the question of how hydrocarbons-endowed CARICOM members should price the energy resource to their regional partners.

That issue was especially hot in the early 2000s when Jamaica, seeking to modernise power generation and lower energy costs, attempted to buy liquefied natural gas (LNG) from Trinidad and Tobago. At the time, Kingston argued that it would be entitled to similar terms, except for shipping costs, to which Port-of-Spain supplied the product on its domestic market.

An advisory opinion by CARICOM’s then general counsel, Winston Anderson, essentially, agreed with Jamaica’s contention. CARICOM’s transformation to a single market and economy, and the specific language of the Revised Treaty of Chaguaramas, Mr Anderson suggested, barred a member from treating other community nationals “less favourably than it does its own”. Mr Anderson is now the president of the Caribbean Court of Justice (CCJ), which, in its original jurisdiction, is the arbiter of the CARICOM treaty.

The pricing issue wasn’t resolved. Jamaica didn’t get Trinidadian LNG but not because of the price dispute. Port-of-Spain said it didn’t have any to sell. Its export capacity was fully committed to extra-regional purchasers. After years of declining output, Port-of-Spain is attempting to rebuild its natural gas production, including via a planned joint development of Venezuela’s offshore Dragon field and the processing of the gas in Trinidad and Tobago.

FASTEST-GROWING OIL PRODUCERS

In the meantime, Guyana has emerged as one of the world’s fastest-growing oil producers, moving from zero six years ago to nearly 930,000 barrels a day.

Georgetown has also moved to exploit gas from its rich offshore oil fields for domestic power and export. With its energy partners, including the ExxonMobil-led oil-production consortium, Guyana is spending US$2 billion on a gas-to-energy project to generate electricity and produce LNG and other gas-related products. Initially, an estimated 50 million cubic feet of natural gas per day will be transported via a 130-mile pipeline from the offshore fields to a facility at Wales, on the West Bank of the Demerara River. The integrated facility is projected to be operational by the end of 2026.

Next door to Guyana, another CARICOM member, Suriname, is on the cusp of its own oil boom. Major offshore production is expected to begin in 2028.

It is against this backdrop that Jamaica and Guyana signed their energy MoU – one of four agreements (the others are on agriculture, security, and financial services) that the countries initialled during a visit by Prime Minister Andrew Holness. Before Guyana, Dr Holness also stopped in Suriname. “We are committed to having a working group examine this closely to come up with recommendations and options as to how we can collaborate in the energy sector,” the Guyanese president, Irfaan Ali, said of the MoU. “There are some exciting ideas that we are already talking about.” On the Suriname leg of his trip, Prime Minister Holness said: “The CARICOM regional energy security is now within reach, providing, of course, that regional governments cooperate in strategic ways.”

REGIONAL ENERGY POLICY

A critical issue, however, will be the one to which Dr Holness alluded: how CARICOM treats oil and gas as regional resources in the context of a seamless economic space. A dozen years ago, the community launched a regional energy policy that committed members to efficiency, expansion of renewables in the region’s energy mix, and “intra-community trade in hydrocarbon energy sources”. More recently, CARICOM’s leaders have talked about upgrading the policy. But the region has been unable to work out what is ‘fair’ pricing for hydrocarbons in a single market. When Trinidad and Tobago had a near monopoly on the community’s oil and gas production, regional manufacturers complained that it subsidised energy to domestic producers, giving them an unfair competitive advantage. Some regional governments claimed that Port-of-Spain’s policy effectively deindustrialised its CARICOM partners, allowing it to run big trade surpluses with the community. Businesses also complained that CARICOM’s common external tariff (CET) made importing petroleum products from third countries more expensive, handing an advantage to Port-of-Spain.

Trinidad and Tobago’s response to the arguments on the requirement for pricing parity in the sale of LNG to domestic consumers and elsewhere in the community was that its obligation not to discriminate was when other community nationals were within its borders. Conceivably, the complaints against Trinidad and Tobago of two decades ago could now be faced by Guyana if it were to offer Jamaica preferential arrangements for oil and gas but leave out other CARICOM members.

The other community members might then be minded to do what a commission headed by former prime minister Bruce Golding recommended to the Holness administration in a 2017 review of Jamaica’s relations with CARICOM.

The report said: “We share the view expressed to us by Sir Shridath Ramphal and others that differential pricing, especially for a vital commodity such as energy, is inconsistent with the principle of a single market and economy.

“It is our considered view that the Government of Jamaica should take steps to have this matter adjudicated by the CCJ for a final determination.

“Such a determination becomes even more necessary because of the large oil reserves recently discovered in Guyana’s offshore.”