Seven reasons to be excited about natural gas
I am very excited about natural gas coming to Jamaica in early 2016 as this is truly a game changer for our energy industry. This is a critical step towards Vision 2030 which envisions a modernised energy sector, with substantial improvements in energy security, reliability and lower costs. Here are seven reasons you should also be excited.
1) Fuel diversity - Today, more than 90 per cent of electricity production in Jamaica is fuelled by imported oil. This overdependence on expensive oil does not augur well for the country. It leaves us vulnerable to every spike in oil prices. If you look at any successful economy globally, you will observe that imported oil is not typically a large component of their energy mix, usually fuelling less than 10 per cent of their total electricity production. Diversity equals greater energy security.
2) Integration of renewables - Today, we have an average daily demand of 500 megawatts (MW), with approximately 70 MWs of known renewable energy (RE) generating units on the grid.
There is another 80MWs under construction that will become operational in 2016, while a recent request for proposals (RFP), under the auspices of the Office of Utilities Regulation (OUR), will supply another 37 MWs. Furthermore, we have myriad smaller rooftop RE solutions estimated at 20 MWs and growing. All these renewables need to be properly integrated to ensure the safe and reliable operation of the grid as the Jamaica Public Service Company (JPS) must be capable of giving an instantaneous response to changes in generation demand. The Bogue 120MW generation facility will play a critical role in doing just that, and this process will be more challenging given the intermittent nature of renewables.
3) Cost benefit - Natural gas is cheaper than automotive diesel oil (ADO). If you look at any first world country that has low-cost energy, you will see that the fuel source is key and typically includes a combination of coal, natural gas, nuclear or hydro (and obviously, scale is a very important factor).
We estimate the savings from gas over the next 10 years will be in the hundreds of millions of US dollars. Unfortunately, I can't disclose the exact savings at this time, as we are currently in the middle of an RFP to bring gas to the south coast of Jamaica for our new 190 MW power plant expected to be online by 2018. I can say, however, that these two projects together on gas will result in fuel savings of at least 30 per cent. That number may be even higher and we will have better certainty when the RFP process is concluded by October of this year under the guidance of the Electricity Sector Enterprise Team (ESET).
4) Environmental benefit - As a small-island territory heavily dependent on tourism, we need to be focused on caring for our environment. Natural gas is a much cleaner fuel than the oil we burn and will be a step in helping to reduce air pollution in Jamaica.
5) Industrial development - The introduction of natural gas to Jamaica will be an impetus for the development of new industry, new commercial applications and the retooling of large industries. Here's one possible commercial application: just imagine all of the state-owned buses running on natural gas - a cheaper and cleaner fuel - resulting in lower maintenance costs for the buses and possibly a reduction in the theft of fuel. Additionally, natural gas will have a significant role to play in the bauxite and alumina industries, as they look to retool their own production facilities.
6) Energy hub - Not to be confused with the logistics hub, the energy hub will bring new opportunities for natural gas in Jamaica. Jamaica will become only the third country in the Caribbean to start importing natural gas, after Puerto Rico and the Dominican Republic.
This is not a surprise, given the large economies of scale traditionally required to make the importation of natural gas feasible. Interestingly, from our review of the market and discussions with major gas players, we can see that small-scale delivery for several other Caribbean territories is seriously being contemplated, and Jamaica will have a substantial role to play in helping to make the economics of those projects feasible.
7) Increased investor confidence - We have seen substantially increased interest in Jamaica from the major gas suppliers, despite the fall in oil prices over the last year. I attribute this to the growing confidence in Jamaica, and our ability to close this complex transaction that allows for the importation of natural gas into the country will help boost investor confidence further.
This augurs well for the continued development of the country as we work together with the Government towards realising our 2030 Vision for the energy sector.
- Dan Theoc is the chief financial officer for the JPS.