Raymond M. WrightPetroleum Corporation of JamaicaJune 28, 2005Jamaicas Energy Sector: Present Status and Future Perspective

CHINA CONSUMES

In 2004 China had 20% of the worlds population. In 2004 Chinas oil demand increased by 16.9%. Product imports increased by 33%.

Oil Price Volatility, 2001-2005West Texas Intermediate, US$ per barrel

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2003

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2005

Years

Prices

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YearsMonthPrices

20010.5261

1282

1.5303

3.525.54

4.528.55

5.5286

6.5267

8.527.58

9.522.59

11.51710

121911

12.520.5122001

200213.520.21

14.521.82

15.5273

16.526.84

17.5255

18.5276

19.526.87

21.5318

22.2279

23.827.210

24.531.211

2531.5122002

200325.232.21

26.537.52

28.5263

29.5314

30.529.85

31306

31.5307

3230.18

3330.29

3430.310

3530.411

3730.5122003

200437.131.51

37.2322

38343

40424

41415

40.539.96

41.539.58

41.8389

4249

42.547

4353

43.550

4344

43.554

4458

455410

&C&"Verdana,Regular"&14Oil Price Volatility2001 - 2003

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Predicting Oil PricesIn 1999 many predicted that oil prices would remain around $10/barrel for the foreseeable future.However, demand and supply are catching up with an oil-hungry world.OPEC has little margin to spare, perhaps only another 1.5 million bpd above its present quota of 27.5 million bpd.IEA forecasts demand growing by 1.8 million bpd in 2005; hence there is a demand and supply problem.

Global Oil Demand 1995-2005(expected)

Oil Demand The Real StoryDemand is strong because prosperous countries, led by the USA and Europe, are enjoying solid economic growth in spite of high oil prices.Almost all developing global economies led by China, India & Brazil, are growing.Demand in 2006 is likely to continue to grow.

Oil Supply The Real StoryLast years myth was that higher oil prices will create an increase in supply.Many key oil producers are at or past their peak oil output.As with surging demand, the flattening oil supply situation is not unique. A high percentage of the worlds oil still comes from discoveries that were made more than a decade ago.Lack of spare capacity exists at every step of the supply chain from drilling and producing, to transportation and processing.Any spare wellhead capacity is for heavy and sour crude.

Countries Past Peak Oil Output

Countries with Ability to Expand Oil & Gas Capacity

Selected Global Gasoline PricesSources: Reuters, EIA & Others

Caribbean Economies and Energy:Global economys effects on electricity demand Bahamas

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0.05340.0201111111

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0.03980.021

Electricity Demand Average Annual Growth Rate 1995-2000

GDP Average Annual Growth Rate 1995-2003

GDP Growth vs. Electricity Demand Growth

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KWh Consumption***GDP

Average AnnualAnnualAverage AnnualAverage Annual

Growth RateGrowth RateGrowth RateGrowth RateProjected Annual Growth Rate 2004-2009Annual Growth Rate 2001

1995-200020012004-20091995-2003**Curacao3.50%0.67%

Barbados5.34%5.41%2.01%Grand Bahama3.50%1.30%

Bermuda3.18%8.18%2.28%Jamaica4.50%0.55%

CUC - Grand Cayman*4.85%7.58%3.60%Trinidad & Tobago3.00%2.71%

Curacao*2.45%0.67%3.50%0.52%

EDF Services*3.38%0.44%

Grand Bahama*4.24%1.30%3.50%2.33%

Guyana15.74%1.31%2.47%

Jamaica5.75%0.55%4.50%0.10%

Puerto Rico3.34%1.96%2.53%

St. Lucia1.54%4.55%0.61%

St. Vincent6.17%6.29%3.00%

Trinidad*5.19%2.71%3.00%4.08%

WAPA- USVI*1.62%4.79%4.33%

WEB - Aruba3.98%6.38%2.10%

*= These values pertain to the Cayman Islands, Netherland Antilles, Guadeloupe, Bahamas, Trinidad and Tobago, and the US Virgin Islands, respectively.

**= Year 2003 based on EIU estimates.

***= Figures based on DOE consumption growth findings, except for USVI which comes from the USVI Bureau of Economic Research sales growth findings.

Electricity Demand Average Annual Growth Rate 1995-2000GDP Average Annual Growth Rate 1995-2003

Barbados5.34%2.01%

Bermuda3.18%2.28%

CUC - Grand Cayman4.85%3.60%

Curacao2.45%0.52%

Grand Bahama4.24%2.33%

Jamaica5.75%0.10%

Puerto Rico3.34%2.53%

St. Lucia2.94%0.61%

St. Vincent6.17%3.00%

Trinidad5.19%4.08%

WAPA- USVI1.62%4.33%

WEB - Aruba3.98%2.10%

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Electricity Demand Average Annual Growth Rate 1995-2000

GDP Average Annual Growth Rate 1995-2003

GDP Growth vs. Electricity Demand Growth

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Projected Annual Growth Rate 2004-2009

Annual Growth Rate 2001

Electricity Demand Growth Rates

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Generalized Daily Demand Curves Japan & Jamaica 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 NOONJAPAN JAMAICA

We have to make decisions as to which ball to play and what action to take.

THE RIGHT MOVES

DiversificationDiversification of energy supplies will reduce demand for petroleum.Natural gas and coal will remain important for the remainder of this century.Hydrogen fuel cells and other ways of storing and distributing energy are a foreseeable reality and will replace the Oil Age.Renewables will grow to make a supporting contribution to the energy mix.

Natural GasA combustible gaseous mixture of simple hydrocarbon compounds, mainly methane (CH4).Found by itself or with crude oil and hydrocarbon condensates.The cleanest burning fossil fuel.Available for transport by pipeline or as LNG and CNG.

The present move to natural gas will see an increase in its share of global energy from 22% today to about 33% by 2030. Effective in combined cycle and cogeneration technologies, natural gas may also become a favourable fuel for the transport sector. As LNG, it is the natural fuel for diversifying the energy mix of many Caribbean countries. The Dominican Republic established an LNG import terminal in 2003 and Jamaica plans one for 2008/9.

Natural Gas

LNG GrowthLNG demand is expected to grow by over 8% annually from 2005 through 2015. This compares with the projected 2.5% annual growth rate for overall global gas demand.Thus the LNG market will double within the next decade.Presently 14 countries are importing LNG. By 2015 an additional 16 countries will import LNG.Demand driven by economic growth and power consumption. Environmental factors play a key role in driving the market.

Existing LNG Importers (2005)

Expected LNG Importers

CNG in VehiclesCNG generally used in vehicles at 3000-3600 p.s.i.Equivalent energy content1 gallon gasoline = 125 scf CNG1 gallon diesel = 130 scf CNG

Natural Gas Engine ManufacturersCummins-Westport, Inc.CaterpillarDetroit Diesel, Corp.John Deere Powers SystemsMack Trucks, Inc.

Natural Gas Engine ManufacturersNorth AmericaMore than 50 manufacturers produce 150 vehicle models.Blue Bird Corp.Elgin Sweeper CompanyFord Motor CompanyFreightliner TrucksMack TrucksNeoplanNew Flyer of AmericaPeterbiltThomas Built BusesVolvo Trucks NorthAmerica

Advantages of Natural GasAir Quality Most studies indicate a reduction inNOX of approximately 50% and PM of more than75%Potential Fuel Cost Savings Viking Freight Study showed average fuel costs per mile of $0.11 for CNG and $0.16 for diesel when natural gas and Diesel fueling were on site (31% fuel cost savings)Political Benefits Most fleets switch to natural gas because of political benefits- Meet government requirements- Promote energy security- Enhance public image

Paving the Way for Fuel Cell VehiclesNatural gas and hydrogen are both gaseous fuelsLessons learned from developing natural gas technologies may aid transition to hydrogenShared issues include: Fuel storage Fueling Station siting Training Facilities Public acceptability

Nuclear EnergyOnce deemed as expensive and dangerous, nuclear is making an unlikely comeback against fears about the consequence of fossil fuel use.The potential for nuclear to take on a more central role in the energy mix is apparent mainly because nuclear reactors do not produce greenhouse gases.Nuclear power accounts for 16% of globally produced energy. This saves around 0.6bn tonnes of CO2 emission per year, nearly twice the amount that the Kyoto Protocol is designed to save.The IAEA clams that the nuclear power chain emits some 2-6 grams of CO2 per kilowatt hour; about the same as wind and solar power.

Source: International Energy Agency

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Nuclear power as % of net electricity generation 2001

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Nuclear power as % of net electricity generation 2001

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France79.3

Belgium60

Sweden44

Slovakia44

South Korea37

Hungary36

Switzerland34

Finland30

Japan27

Germany26

Spain25

Britain23

Czech Republic22

United States20

Canada10

Mexico7

Netherlands5

Nuclear PowerPROSNuclear Power is well suited to supply baseload electricity.

CONSDifficult economics, because of high capital investment costs.

It isnt pollution that is harming the environment; it is the impurities in our air and water that is doing it

Dan Quayle, former US Vice President The Environment

A national inventory of greenhouse gases in Jamaica shows that energy use caused more than 75% of emissions. This is in keeping with a global average of 70%.The strategy, therefore, is to reduce the adverse environmental impact of energy use by using cleaner technologies and improving energy efficiency.Climate Change

Sea Level Rise1 metre2 metres4 metres8 metres

CHANGE IN HOLE IN OZONE LAYER

RENEWABLE ENERGYSolar Energy Wind Energy Tidal/Wave/Ocean Thermal Energy Biomass Energy Hydroelectric Energy Geothermal Energy

(A fuel source that is not used up when power is generated.)

How to Foster Growth of RenewablesFiscal MeasuresTax relief; low interest credit.

Investment SupportLocal, national and regional support; energy supplies; eco-bonus for sustainable building; local banking and private sector to participate project financing.

RegulationsEnergy and building standards; obligations.

OtherInformation and awareness campaigns.

The Value of RenewablesCaribbean energy policy supports the continuing diversification of our energy systems both by energy type and by source. In this scenario renewable energy should play an increasing role.The value of renewables lies in their ability to respond simultaneously to the three main challenges confronting the energy sector: energy security, economic growth, and sustainable development.

Value of Renewables (Contd)Development of renewables is not too risky because it reduces the overall variability of national expenditure and, therefore, reduces risk. It has the characteristics of insurance.Renewables are an insurance hedge against volatility and risk. Perhaps this concept of insurance is a reasonable basis for encouraging support for renewables.

A number of market-oriented points apply to renewables.Market opportunities lead to increased productionIncreased production reduces costsLower costs stimulate salesIncreased sales expand production

Some Renewable Energy Production Goals

Some Factors Boosting RenewablesWorldwide effects of Kyoto Protocol, especially on multinational corporations.EU Emissions Trading Scheme.High oil prices.USA production tax credit.

Opposition to RenewablesMany people do not want to look at renewable energy installations and will use any financial, legal, or political power to block projects.Several acronyms have emerged:NIMBY Not in my backyardNOTE Not over there eitherCAVE Citizens against virtually everythingGOOMBY Get out of my backyardBANANA Build absolutely nothing anywhere near anything. All of this NIMBYISM is conducted out of self-interest, but uses methods pioneered by environmental groups.

COST DISTRIBUTION OF SOME POWER SOURCESNuclear (0.06 c/kWh)Natural Gas (0.046 c/kWh)Coal (0.05 c/kWh)Wind (0.059 c/kWh)

Wind EnergyCompetitive with fossil fuels (oil, gas and coal)Is a hedge against volatility in oil prices. The wind resource is free.

Two of twenty-three 900 kW wind turbines in a 20.7MW Windfarm at Wigton, Manchester, which was commissioned end April 2004

Comparative Costs for Wind Power and Conventional Energy Sources, 2005 Gas Coal Nuclear Energy Production cost range Land-based OffshoreSource: Windpower Monthly, January 2005Price (US cents per Kwh)Wind speed m/s

Biomass - JamaicaIntention to pursue cogeneration in the sugar industry from bagasse, supply grid electricity.Use of bioethanol in transport fuels, reaching approximately 10% of gasoline, replacing MTBE as the octane enhancer.Annual demand for ethanol locally is presently 68 million litres and could reach 91 million litres by 2010.A new ethanol plant of 40 million gallons will be commissioned in July, 2005, as a joint venture with Coimex of Brazil.

EthanolEthanol will become the major product of a renewed Jamaican sugar cane industry.The sugar industry would then produce sugar, molasses, rum, ethanol and electricity from bagasse.

Ethanol - BrazilEthanol use expanding at about 8 % per year.60 billion litres per year of ethanol needed by 2010.Greatest export market for Brazilian ethanol is India, followed by the USA, Korea and Japan.Gasoline in Brazil has at least 25% ethanol.Nearly 30% of cars in Brazil can use 100% ethanol.Ethanol (US 55 cents per litre) is cheaper than gasoline (US 85 cents per litre)partly because of a 34 % tax on ethanol and a (higher) 45% tax on gasoline.

Annual Investment in renewable energy, 1995-2004

Usually defined as less than 10MWRenewed interest because of strategic concerns about energy supplies.Advances in electronics which have greatly reduced the cost of controlling the output of small turbo generators.Some 23 MW installed in Jamaica. Potential for another 30 MW or more.SMALL SCALE HYDROPOWER

There are four major solar energy processes: (1) Photovoltaics which converts sunlight into electricity through solar cells in a plate or concentrator. (2) Low temperature solar thermal systems used to heat water or air, are an important part of Caribbean energy systems. Solar drying and distillation, as well as solar water heaters, fall into this category.

Solar

(3) High temperature solar thermal systems that produce heat that is converted into electricity in a conventional cycle, through a concentrator system. There are no systems now producing electricity by this method in the Caribbean. (4) Passive solar systems, that seek by design to reduce space cooling and lighting. This is exemplified in the design of many energy-efficient buildings in the Caribbean.

Solar

Solar Water HeatersSignificant increases in use as demonstrated by Cyprus and Barbados.In Cyprus 0.86m2 of solar water heaters per capita have been installed, avoiding nearly 4% of total CO2 emissions.More than 35% of households have SWHs in Barbados, with approximately 37,000 installed in a population of 260,000.

Solar Drying

The potential for solar crop drying has not been fully realized in Jamaica although it is a means of preventing spoilage which affects as much as 30% of crop production. Crops such as bananas, papaya, sorrel, sweet potato, yam, ginger, nutmeg, pimento, grasses and leaves can be dried by solar dryers which range from the simple wire basket dryer to approximately two square metres of roof solar collectors.

OTECOcean Thermal Energy Conversion (OTEC), an energy source using the difference in temperature between surface ocean waters and deep water (at least 200C).Jamaica, and a number of Caribbean islands, have OTEC potential.

FUEL CELLSQuiet and have more efficient production of energy from hydrogen and oxygen than an internal combustion engineOnly emission is benign water vapourWorks like a battery but does not run downCreates electricity for as long as it receives hydrogen

A future energy solution for homes, vehicles and electric utility systems, fuel cells are a highly efficient power source that emits only water and heat. Using hydrogen as a fuel they are virtually pollution-free. However, the hydrogen may come from the conversion of hydrocarbon fuel such as natural gas or methanol, and that process creates some emissions.At present hydrogen is not available as a commodity fuel, and even if it were, there is no infrastructure to deliver it.

FUEL CELLS

3. Niche opportunities will develop in the next five years, in transport and distributed electricity, giving this technology a base for launching into mass transport and the power industry by 2025.

FUEL CELLS

Emissions TradingThere is now a strong European CO2 emissions market.In February 2005 2.4 million metric tonnes were traded.Prices are as follows:Delivery DatePrice/Euro/mtDec 20058.20-8.40Dec 20068.30-8.40Dec 20078.35-8.60Spot trading also takes place.

Emissions TradingProjects must be independently validated and baseline measurement methodology and on-going monitoring methodology are approved.Emissions must be verified and certified before CER certificates are issued.

ADVICE Any energy project relying on CERs to make it cost effective is probably too marginal to be a good investment.

Energy Efficiency Driving ForcesThree factors propel energy efficiency: Electricity CostsEnvironmental pollution, particularly as it affects the tourist sector.Globalisation, and the competition it generates, require overall economic efficiency.

$AVING$As an example, a current programme in Jamaica, should sell some 150,000 CFLs by August 2005.This will result in savings of 112,500 barrels of imported oil, and a reduction of 375 tonnes of CO2 emission over a possible 8-year life of each bulb.

Among the measures that have beensuccessfully applied are:Codes and standards for buildings; Efficiency labels for appliances and lighting;Improved efficiency of boilers and furnaces, as well as heating, cooling, ventilation and air conditioning.

Measures

In the transport sector consumers seem willing to trade fuel economy for power, comfort, convenience and safety. Higher taxation on larger engined vehicles that are less fuel-efficient is to be encouraged, as is the improvement of public transport systems and new traffic management schemes .

Transport Sector

Transport SectorStimulate use of diesel-engined vehicles.Promote electric/gasoline hybrid vehicles.Consider CNG for mass transport such as urban buses.Tax vehicles based on fuel efficiency and pollution factors (CO2).

Some Matters for Active Consideration in Energy PolicyGrowing demand for energy services.Energy supply and trade patterns.Energy prices and taxation.Energy and poverty alleviation.Public versus private investment in energy. Environmental and health issues.Use of cleaner technologies, including renewables.Efficiency in energy use.

The Role of StakeholdersEducation and public awareness is cardinal.Jamaicans must begin to think about energy in the same way they would think about national security, education and health care as an essential enabler of the quality of life.

Utility Electricity Generation (June 2005)Installed Capacity780 MWOwned by JPSCo621 MW Owned by IPPs159 MW Required increase by 2010 250 MWNumber of customers on the grid517,500Peak demand in 2005642 MWReserve margin19%

Oil Consumption - Jamaica

A POSSIBLE (REACHABLE) 2015 ELECTRICITY SCENARIOUtility Company Installed Capacity1250 MWFuel SourcesHeavy fuel oil and diesel 380 MWNatural Gas (& Coal) 700 MWWind 70 MWHydropower 35 MWSolid Waste 10 MWBagasse and fuelwood 35MWOcean energy 10 MWSolar Photovoltaics 0.2 MWFuel cells 9.8 MW 1250 MWRenewables would supply 12.8% of electricity

SummaryThere will still be dependence on conventional fuels for at least another four decades.Biomass will continue as a critical component of an appropriate energy mix.Natural gas, for environmental reasons, is the most obvious conventional energy source for many countries.Hydropower has yet untapped potential.Coal will continue to be important, and the ultimate stimulant for clean coal use is carbon sequestration.

Summary (contd)Nuclear power may be too high in capital cost and large in scale, to have Caribbean relevance; small reactors need to be developed.Competitive renewables, such as wind, will continue to grow rapidly.The optimal energy mix calls for regional and cross-border integration of energy supply systems and markets.There is no simple recipe. The tasks ahead call for collaboration and careful implementation. In the meantime use energy rationally!

Only a fool tests the depth of the water with both feet.

-African Proverb

We have to look beyond the horizon for cleaner energy technologiesTHE ENDThanks For Listening

*= These values pertain to the Cayman Islands, Netherland Antilles, Guadeloupe, Bahamas, Trinidad and Tobago, and the US Virgin Islands, respectively.**= Year 2003 based on EIU estimates.***= Figures based on DOE consumption growth findings, except for USVI which comes from the USVI Bureau of Economic Research sales growth findings.GDP Growth 1998-2002