Venezuela Turmoil May Alter Region’s Energy Landscape
With Venezuela on the brink of economic collapse and oil prices low, Caribbean and Central American countries have an opportunity to cut their reliance on Caracas for oil and switch to low-carbon alternatives.
The turmoil in Venezuela is only worsening, with President Nicolás Maduro having just reduced his country’s workweek to two days in the midst of an energy crisis.
It comes as officials from Caribbean and Central American nations prepare to attend an energy summit in Washington where expanding international cooperation and improving energy security in the region will top the agenda. Vice President Joe Biden will preside over the May 3-4 meeting.
“We must focus greater attention to the energy stability of countries just off our shores, or just south of our border,” Peter Schechter and Jason Marczak, leaders of a Latin America program at the Atlantic Council, say in the foreword to a new report. “Uncertain energy security would slow down growth and investment and increase poverty across the region’s economies.”
The report, written by David Goldwyn, a former special envoy for international energy affairs at the U.S. State Department during the Obama administration, and Cory Gill, his associate at Goldwyn Global Strategies, recounts the decline of Venezuela and its influence on other nations.
With its vast oil resources and heavy dependence on them for revenue, Venezuela has been devastated by the steep plunge in oil prices over the past two years. That combined with a drought that has cut hydropower supplies and triggered unrelenting blackouts, not to mention Venezuela’s mismanagement and political turmoil, has left the nation in a free fall.
The catastrophe has the potential to undermine Petrocaribe, an 11-year-old oil alliance of many Caribbean and Central American countries with Venezuela to buy oil on preferential financing terms.
The agreement worked well when oil sold for more than $100 a barrel, as it did just two years ago. But it makes less sense for those countries now with oil prices less than half that level, Goldwyn and Gill write in the report, which will be officially released Tuesday at an Atlantic Council event.
USA TODAY received an advance copy of the report, “The Waning of Petrocaribe?Central America and Caribbean Energy in Transition.”
“Petrocaribe is, for now, increasingly irrelevant,” they said. “Oil prices are sufficiently low for nations to pay for their own supplies, without taking on the additional debt.”
Based on their research, Goldwyn and Gill said Petrocaribe exports appear to have fallen by nearly 12% from 2013 to 2014 – from 111,800 barrels per day to 98,800 barrels per day – with the most significant declines occurring in Jamaica and theDominican Republic, two of the most populous nations in the Caribbean.
“Deliveries to the other active Petrocaribe member states are thought to have remained fairly stable through 2014, but some indications suggest that volumes fell, in some cases to zero, in 2015,” they said.
At the same time, the U.S. shale oil and gas boom has created a surplus of refined products, making the U.S. a low-cost exporter of gasoline and propane.
This combination of developments makes now the right time for the U.S. and other nations to step up their efforts to promote energy security and low-carbon energy in the Caribbean and Central America, Goldwyn and Gill maintain.
They cite some promising developments already as Jamaica and smaller-island countries replace Petrocaribe fuel oil with cleaner liquefied natural gas and natural-gas liquids, developments that were assisted by record U.S. gas production and U.S. government encouragement.
But more could be done by the U.S. and other countries, as well as world lending organizations, to help Caribbean and Central American countries expand their access to gas and renewable energy, especially for electricity generation.
Among the nations with the most critical energy needs is Cuba, according to the report.
“Cuba’s importance to a regional energy solution has increased, following ongoing U.S. efforts to normalize relations with the island,” the authors said. “Cuba is much more likely to proceed with large-scale political and economic change if Venezuela’s influence, which persists in part through continued Cuban dependence on Venezuelan crude oil and petroleum products, wanes over time.”
Goldwyn and Gill urge the Obama administration to expand its efforts to open trade with Cuba by allowing exports of U.S. technology for gas infrastructure as well as solar and wind power, despite a U.S. embargo that still restricts many transactions with the island nation.
In short, there’s a golden opportunity now to prime the Caribbean and Central America to break with their energy past, they said.
“The region needs to sustain this momentum and complete the energy transition before this price cycle ends and dependency returns.”
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