Washington's Antilles energy diversification initiative moves forward

Given the success of Venezuela's oil diplomacy in the Caribbean countries (the islands account for 13 of the 35 votes in the OAS), the United States launched its own initiative in 2014 so that these small states have greater energy diversity and do not depend on Venezuelan crude. The Maduro regime's financial difficulties have reduced Chavista influence in the Caribbean, but Trump is also cutting back on U.S. aid. Diversification of energy sources, however, is moving forward because it is a real need for the islands.

▲ The tourism boom increases electricity consumption in the Caribbean islands, where there are hardly any energy sources of their own.

article / María F. Zambrano

In the Caribbean islands, energy security is at the center of national strategic concern, due to their high dependence on fossil fuels, mostly imported. Energy security is the focus where the geopolitical, diplomatic and economic interests of these small states converge, and not only of them: the great vulnerability due to the lack of their own energy sources was taken into account by Venezuela to promote in 2005 the Petrocaribe cooperation agreement , which gave it great influence in the Antilles; since 2014, the United States has been trying to counteract that program with the Caribbean Energy Security Initiative (CESI), launched by the Obama Administration.

The rivalry between the two energy diplomacy initiatives will not really be settled by a political pulse between Caracas and Washington, but by the real need of the Caribbean islands to diversify their energy sources. This will reduce Venezuela's influence in the region and open the way for the U.S. offer, focused precisely on promoting alternative sources.

The main risk to national security in the Antilles lies in the high costs of Caribbean electricity. On the one hand, the islands have replaced historically agricultural economies with others driven by tourism, which forces them not only to meet the needs of their citizens but also to rely on the fixed cost of an industry with high levels of electricity consumption. On the other hand, production does not have diversified generation Structures . With the exception of Trinidad and Tobago, Suriname and Belize, the islands are supplied by oil as the only installed production capacity; in addition, 87% of primary energy (basically crude oil) is imported. We are facing a problem of high consumption and another of oil dependence.

In view of this status, and given the demands posed by energy security, understood as the physical protection of infrastructure and also the effort to guarantee the continuity of supply, Petrocaribe became a clear option for Antillean interests. Generous financing credits -from 5% to 70% for a 25-year period- contributed to the extension of the program. During the first 10 years of Petrocaribe's existence, from agreement with data of the Latin American and Caribbean Economic System (SELA), Venezuela covered on average 32% of the energy demand of the participating States; the Dominican Republic, Jamaica, Nicaragua and Haiti received 87% of the supplies. The agreement also led to investments in the islands' refineries, which increased their processing capacity to 135,000 barrels of crude oil per day between Cuba's Camilo Cienfuegos refinery (65,000), the refinery near Jamaica's capital (36,000) and the Dominican Petroleum refinery (34,000).

The alliance alleviated for these countries the rise in the price of crude oil, but the region was left in the hands of the volatility of market prices and those of the main supplier. A November 2017 IMFreport estimates that real crude oil price movements affect GDP growth in the Caribbean by 7%, with wide variations from country to country: 15% in Dominica, 9% in Jamaica and less than 1% in Guyana. In turn, the continued drop in Venezuela's production, which began to allocate fewer barrels to Petrocaribe, left the area predisposed to new approaches that would reduce its exhibition to market shocks.

Caribbean Energy Security Initiative

This expectation was addressed in a new energy security framework that sought to increase independence and reduce vulnerability through diversification. Taking advantage of the steep drop in crude oil prices in 2014, which relaxed energy costs for the islands and gave them more room to maneuver, Washington launched the Caribbean Energy Security Initiative (CESI). The program has focused on supporting countries in diversifying electricity generation, addressing their significant renewable energy potential. Thus, through CESI, US$2 million in technical support has been allocated to C-SERMS (Caribbean Sustainable Energy Roadmap and Strategy), a roadmap developed by CARICOM's energy policy division. This roadmap had already harmonized the goals of the 15 member states at subject in terms of energy efficiency and the implementation of renewable energies: two strategies that sought to solve the problems previously mentioned.

The Inter-American Bank of development (IDB) estimated that for the implementation of the C-SERMS roadmap the Caribbean energy sector would require an investment of 7% of the regional GDP between 2018 and 2023. Countries with stronger financial sectors would have the capacity to finance the projects without altering debt sustainability, with these projects being self-financed over a 20-year period.

In the framework of the U.S. initiative, energy efficiency was materialized in the CHEER program (Caribbean Hotel Energy Efficiency and Renewables program) that has provided attendance technical assistance to the hotel industry, the main consumption source . However, in this field, the IMF urges the implementation of broader public policies to further reduce oil imports and increase GDP in the long term deadline.

In the implementation of renewable energy, the U.S. Overseas Private Investment Corporation (OPIC) has promoted infrastructure with public-private financing. Among other projects, it financed the construction of a 36 MW wind power plant and a 20 MW solar power plant, both inaugurated in 2016 in Jamaica. These projects also have macroeconomic influences on reducing dependence on crude oil; in the case of Jamaica, however, dependence has been decreased mainly by the expansion of natural gas receiving capacity, which has allowed that country a reduction from 97% to 80% dependence on imported oil (in fact, it no longer imports Venezuelan crude oil). Since 2016, the business New Fortress Energy has been working on the submission of liquefied natural gas to Jamaica's Bogue plant.

Since its launch, OPIC has financed up to $120 million in energy agreements. Added to that are those promoted by the CEFF-CCA fund, also from the U.S. Government, which provided $20 million non-refundable for projects in initial phases; in 2015 began the project "Clean Energy in the Caribbean", with a duration of five years and with special incidence in Jamaica.

Venezuela... and Trump's clippings

The U.S. initiative for energy diversification in the Caribbean had its response from Venezuela. In 2015, Petrocaribe held a special summit where it quadrupled the ALBA Caribe fund, raising it from $50 million to $200 million, destined to finance mainly social projects, along the lines of what Javier Corrales and Michael Penfold have called "social power diplomacy". However, Venezuela's severe economic crisis and the reduced finances of its national oil company, PDVSA, have forced the government of Nicolás Maduro to cut back on Venezuelan oil diplomacy.

For its part, the arrival of the Trump Administration has led to a significant decrease in the investment earmarked for CESI. In the framework of a generalized cut to financial aid programs abroad, Washington reduced to $4.3 million the amount earmarked for boosting new energy sources in the Caribbean.

The United States, in any case, is not the only one trying to occupy the energy space previously filled by Venezuela. In 2015, the Renewable Energy and Efficient Energy Center was inaugurated in Barbados, promoted by UNID (United Nations Industrial Development Organization) with the support of Austrian and German funds. In addition, last year Russia made fuel shipments to Cuba, replacing supplies that Venezuela had not been able to cover.