|Future proofi ng the Caribbean energy sector |
By Lesley John, ACCA Caribbean Thursday, June 15 2017
The global energy sector is undergoing major changes as we’re in a period of lower oil, gas and coal prices and experiencing growing interest investment in cleaner energy projects.
The Caribbean’s energy sector is topical in this discussion. Presently, electricity costs across the region are particularly high, with most of the countries being almost entirely dependent on oil to supply their electricity needs.
Almost all countries in the Caribbean import all oil products, making their economies particularly vulnerable to the volatiity of oil prices. Whilst Trinidad and Tobago has abundant oil and natural gas reserves, and is an exporter of these two resources, its growth in this sector has slowed as a result of falling oil and gas prices. According to the Pan American Finance, Caribbean Basin: Renewable Energy Invest Index (March 2017), the economic uncertainty created as a result has pushed the government to reassess its energy policy.
There is also growing pressure for Caribbean countries to lower their carbon footprint. But it is how chief financial officers (CFOs) and other finance leaders respond to these challenges, which is crucial to how the sector fares against this turbulence. CFOs in the oil and gas sector in the Caribbean need to ensure their businesses are fi t for the future; predicting the future business landscape through effective forecasting and planning is vital, especially when renewable policies are introduced.
Preparation for the potential risks of the future and most importantly, how to overcome them, need constant review to ensure plans do not become irrelevant, which can all too easily happen in a fast moving and volatile sector such as this.
Finance leaders need to tread a fi ne-line between cutting costs while also protecting essential investment for the future. This is a really tricky balancing act as resource allocation also needs to be prioritised, and ruthlessly so.
Reporting challenges in the oil and gas sector is perhaps the most contentious.
The industry is always under intense pressure, with significant political, public and media scrutiny. Transparency is a key goal for the industry at present, especially with the sustainability agenda so high on environmentalist and policy makers’ interests.
Making energy cleaner has wider benefits for the Caribbean. Investment in renewable energy sources acts as an incentive for further development across the region, as they can contribute to lower energy prices and minimise economic volatility. According to the Renewable Energy Invest Index, renewable energy investment activity in the Caribbean reached a record-high in 2015. Renewable energy (including hydro) accounts over 30% of the total installed energy generation capacity.
Jamaica was the Caribbean’s first country to hold clean energy-only auctions. In 2009, the Ministry of Energy and Mining released the National Energy Policy 2009-2030, a plan that promotes the development of renewables, supports energy efficiency and sets a regulatory framework. To date, they have had two renewable energy auctions.
Many other countries in the region have further to go to replicate such strides. According to the index, only 4% of electricity production in Cuba comes from renewable sources. But companies are interested in investing in the island. UK energy company Hive Energy has already committed to build a 50 MW solar project near Havana. However, Cuba is still far from being fully open for business.
The Caribbean’s use of fossil fuels will still run alongside its renewables agenda for some ti me too, as it is set for expansion opportunities.
Grenada is leading the way with as an oil exploration campaign that was recently announced to soon start. At present, Grenada does not produce any oil.
Deep-water exploration and production expansion is also on the horizon for the region, which is thought to be hiding billions of barrels of oil and cubic metres of gas. The region itself holds an estimated 126 billion barrels of oil and 679 trillion cubic feet of undiscovered natural gas in 31 geologic provinces, according to a 2012 report by the US Geological Survey.
Ultimately, the Caribbean must use the expertise of its finance function as sustainability is imbedded in business strategy.
The biggest challenge for the Caribbean is to transform its energy industry and ensure the industry runs ‘business as usual’ as it works through turbulent times and continues to innovate to needs of this ever changing world.