Industry News

First Energy Security Summit Promotes Independence from Petrocaribe

The U.S. will host the first ever Caribbean Energy Security Summit in Washington, DC. It aims to promote greater energy self-sufficiency and environmentally sustainable diversification away from crude oil in the Caribbean through improved energy governance, better access to international financing, technical help, and donor coordination.

The U.S. has legitimate economic and environmental interests in the Caribbean having cleaner, more efficient, and lower-cost energy. However, the underlying geopolitical aspect of the summit is the U.S. countering Venezuela’s influence in the Caribbean. (The Caribbean nations are heavily dependent on Venezuelan crude oil, which is more polluting than natural gas and subject to increasing concerns about its reliability.) Thirteen states are active members of Venezuela’s Petrocaribe program, started in 2005, in which Caracas provides long-term favorable financing rates for its oil exports. In return, these nations have become economically and politically indebted to Venezuela, although many are taking steps to now reduce this dependence.

Now is fortuitous time to propel this Caribbean transition, as cheap global oil prices squeeze Venezuela’s oil industry and government revenue even further. Even when oil was over $100/barrel, Venezuela could not balance its budget, and in recent months oil has dropped to under $50/barrel. Despite the high oil prices of the past few years, Venezuela was already struggling with declining oil exports due to mismanagement, massive inflation, and an economic and social crisis. It is now in freefall.

Venezuela has already moderately tightened Petrocaribe’s generous terms, according to a July 2014 report by the Atlantic Council, and its client states are very concerned that Caracas will not be able to continue providing cheap rates for its oil exports. But now alternatives exist. In the immediate event of a shock (such as being cut off from Petrocaribe), oil can be purchased for an affordable price elsewhere. The energy summit in Washington will seek to promote natural gas as a short- and medium-term replacement, and renewable energy as a long-term replacement; both would reduce Venezuela’s clout in the region.

Still, major obstacles remain to loosening Venezuela’s grip on the Caribbean. Jamaica, the Dominican Republic, and Nicaragua are just three of thirteen active members of Petrocaribe, but they were the destination for two thirds of all its oil exports in 2012. Venezuelan state oil company PDVSA bought a 49% stake in both Jamaica’s refinery and the Dominican Republic’s refinery, and shields their partnering Jamaican and Dominican state companies from half the potential operating losses, which allows them to keep functioning. The refineries produce fuel-oil and diesel for electricity generation, transportation, and, in Jamaica, for use in producing aluminum, the country’s top export. If PDVSA were to pull out, the refineries would likely close down and cut many much-needed jobs — more than would be gained if they were replaced by terminals to import cleaner energy that would be cheaper in the long-run.

Furthermore, Nicaragua is very ideologically close to its far-left ally Venezuela, and is unlikely to change its foreign policy course. That said, the recent rapprochement of Cuba (which is more oil-dependent on Caracas than any other Caribbean country) and the U.S. shows that major — and unexpected — changes across ideological and economic lines can happen.

Credit:  Michael Lerner, Blouinnews

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