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Is An Energy Crisis Brewing In The Caribbean?

Caribbean sunset

The Venezuelan economy is melting down, leading to a growing humanitarian crisis. Electricity shortages and a general shortfall in investment are also putting a dent in the country’s oil and refining production. Oil output has declined slowly but steadily for more than a decade.

The evaporation of the country’s financial resources has led to a rapid disappearance of influence in the region. Principle to that influence was Venezuela’s Petrocaribe program, which offered allies in Central America and the Caribbean preferential oil deals. In essence, a country like Nicaragua or Guatemala could purchase oil from Venezuela, but only pay for part of that oil upfront, with the rest paid back over an extended period of time – as long as 17 to 25 years. Furthermore, they would only pay a nominal interest rate on this loan, as low as 1 percent. The nearly 20-member program mostly includes small countries in the Caribbean and Central America.

But Venezuela can no longer afford to offer such generous terms, given its own financial, economic, security and increasingly food and public health crises. That raises the important question of what comes next for more than a dozen Caribbean nations to meet their energy needs. Related: International Markets Prove Hard To Conquer For U.S. LNG

U.S. Vice President Joe Biden chaired a Caribbean energy summit in Washington in early May, a gathering of Caribbean and Central American heads of government and energy ministers, multilateral development banks, and the private sector. The State Department released a report detailing various ways it can work with partners to improve energy security for the region.

The U.S. government has various interests involved, according to a separate report from The Atlantic Council. One, it wants to avoid a short-term calamity in the region if Venezuela abruptly cuts off support, which could lead to migration problems. Many Petrocaribe participants saw debt rise under the program and became increasingly dependent on Venezuela. Without ongoing preferential deals for oil, substantial short-term problems could arise from the absence of Petrocaribe.

Two, finding alternatives to oil from Venezuela – such as natural gas and renewables – could improve Caribbean economies while also reducing carbon emissions. Oil is an especially dirty form of generating electricity, and many nations, such as Cuba, have ample opportunities for wind and solar. Gas also offers a cheaper and cleaner alternative to oil. Related: Despite Low Oil Prices, Kuwait Plans To Invest $42 Billion By 2022

There is another side-benefit of working to provide energy options to Caribbean nations: The U.S. government is trying to capitalize diplomatically off of the deteriorating economy of Venezuela, bringing nations in the region out of Venezuela’s orbit. As The Atlantic Council puts it, the “era of ideological competition seems to be sunsetting.” The U.S. government is all too pleased to see the rightward shift across Latin America: a change of government in Argentina, the removal of the President in Brazil, and the damage to the Chavista government in Venezuela. The U.S. is trying to step into the void left behind by some of its ideological foes.

Examples of some U.S. and multilateral support for Caribbean energy security include: a 36-megawatt wind project in Jamaica, which had the financing support from the U.S. Overseas Private Investment Corporation (OPIC); World Bank financing for geothermal development in St. Lucia; and a 20-megawatt OPIC-supported solar project in Jamaica, just to name a few.

A larger component comes from LNG exports, which could help island nations cut back on the use of costly and dirty fuel oil. It is also something that the U.S. has a selfish interest in, with LNG exports set to rise in the years ahead. Jamaica is moving ahead with building an LNG terminal and converting power plants to burn natural gas.

The Atlantic Council notes that there is a security element in Central American nations being hooked on expensive fuel oil for electricity. High energy bills put financial stress on the state, leaving it fewer resources to combat persistent poverty and violence. The DC-based think tank says that Cuba and Haiti are two countries that have the largest potential for sudden migration crises because of weak governments and scarce plans to handle economic and political change.

This will all take place gradually. In the meantime, Petrocaribe nations have started buying crude oil from the U.S. For example, the Refidomsa refinery in the Dominican Republic issued a tender to purchase 300,000 barrels of oil from the United States. Previously, that refinery was supplied by Petrocaribe.

It is still early days for the nations of Central America and the Caribbean as they transition from a dependence on Venezuelan oil to other forms of energy. But with the collapse of the Venezuelan state, the countries of Petrocaribe have no other choice.

By Nick Cunningham of Oilprice.com

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