Egyptian crisis and consequences for Jamaica

Dwight Bellanfante, Contributor

AS THE political crisis in Egypt escalates, so has the price of oil, once again underlining the vulnerability of countries like Jamaica which are highly dependent on imported oil as a fuel source. World oil prices were trading at their highest level in three years this week, amid the popular revolt in Egypt.

Oil traded at over $100 a barrel for the first time since 2008 based on the benchmark Brent contract, which is widely used in Europe and Asia. In the United States, the benchmark price stayed lower, about $92 per barrel on the New York Mercantile Exchange, and was falling off slightly from last week, according to energy analysts. Already Jamaican motorists are feeling the pinch, as gas prices at the pumps moved up last week.

Despite not being a major producer of the commodity, Egypt's geographical position is sensitive, serving for decades as a major petroleum transit route. However, energy analysts believe the real risk is not a closure of the desert conduits - the Suez Canal and the Sumed Pipeline - but that the unrest gripping its capital Cairo will spread to regional neighbours. It is increasing anxiety levels about the Middle East, which is the most important oil-producing region in the world.

There really can be no viable economic future for Jamaica so long as the country continues to be so highly dependent on this expensive and volatile fossil fuel.

The crisis in the Middle East brings into even sharper relief the ongoing debate regarding Jam-aica's energy future. Can Jamaica not afford to shift its dependency on oil is, in fact, the question, as the forecaster predict a future of rising prices. What is the true opportunity cost as global production configurations make Jamaican products increasingly uncompetitive? It is imperative that we increase our competitiveness and our energy costs are a critical factor in that equation.

Only one option can satisfy the exigencies of lower cost in terms of capital outlay, and one source alone can be mobilised in time to avert economic slide, and that source is natural gas.

Further, if Jamaica is to meet the Office of Utility Regulation (OUR) study prescription for new base load, or a main source for electricity generation by 2014, then that source will have to be tapped.

LNG VS Coal

Once and for all, the argument about the relative superiority of coal and other sources will have to be debunked. Coal is an inexpensive fuel in home countries but, for countries where it is an imported fuel source, the reverse is true.

Several studies detail that capital costs for establishing coal generation units is on average two and a half times higher than that of Liquefied Natural Gas (LNG) and takes two to three times as long to set up. Coal may be cheaper as a fuel input initially, but the final cost to bring it to a state of conversion is far more costly.

Additionally, the OUR data indicate that the capital cost for a 120MW coal-power plant is estimated at some US$360 million, compared with US$156 million for an LNG plant of a similar capacity.

Further, in the past few years, coal has been subject to price volatility, with hikes and supply disruptions, disproving the often-spouted argument that is often