Saturday, March 21, 2015

Why energy investors are looking at the Caribbean

Why energy investors are looking at the Caribbean
Rebecca Ungarino, Special to CNBC
14 Hours Ago

The energy landscape in the United States has transformed radically in
the last few years, and its neighbors' has, too.

Caribbean countries import nearly 99 percent of their energy, largely in
the form of petroleum products. Two countries in the region, Venezuela
and Trinidad and Tobago, have for years played a big role in covering
the energy needs of the rest of the region. But with Venezuela
experiencing an economic implosion, other Caribbean nations are looking
for new sources of energy.

U.S. interests are in a particularly good position to invest in the
Caribbean's energy needs as oil prices have fallen, the United States
has under gone a natural gas boom and relations with Cuba have shifted.
Read MoreIs renewable energy ready to disrupt fossil fuels?
"The Caribbean could offer investors tremendous opportunities," said
Charles K. Ebinger, senior fellow in the Energy Security and Climate
Initiative at the Brookings Institution. Opening relations with Cuba
this year could be "quite dramatic," he said.

Cuba is planning wind projects and hopes to produce 24 percent of its
own electricity in 15 years, and Puerto Rico hopes that 20 percent of
its electricity comes from renewable energy by 2035.
Between 2009 and 2013, foreign direct investment in the Caribbean nearly
doubled to $217 billion, according to data from the World Bank.

That capital is finding its way into a variety of Caribbean industries,
including energy, said Edgar van der Meer, a senior analyst at NRG
Expert, a London- and Toronto-based energy intelligence and market
research publisher.

Recent advances in hydraulic fracturing—so-called fracking—horizontal
drilling and the growing shale gas production they have produced mean
the U.S. is importing less fossil fuel from Caribbean islands like
Trinidad and Tobago, historically a producer for the region.

"Now, we are in a position to sell to them at a cheaper price," said
Andrew Holland, senior fellow for energy and climate at the American
Security Project, a nonpartisan think tank. "And once the government
allows (more exports) and the infrastructure is there, we can export
liquefied natural gas and other natural gas products to them."

Investors interested in the Caribbean region should look to the wind and
solar energy markets, said Ebinger, as well as the tourism market, which
will benefit from cheaper and more efficient energy.

Cuba is an important destination for potential investors, said Holland,
as its economy has picked up after five decades of practically no growth.

Read MoreWill plunging oil force energy dividend cuts?
The Obama administration in December took steps to begin an economic and
diplomatic rapprochement with the communist nation, which for its part
has begun to experiment with free market business on a small scale.

"You can't yet run your island on solar or wind power, but you can do a
lot," Holland said.

"It's one of the only places in the world where you can throw up as much
solar and wind power as possible."
-Andrew Holland, senior fellow for energy and climate, the American
Security Project

The cost of generating electricity in the Caribbean is higher than much
of the rest of the world, which can impede direct investment. In
Jamaica, consumers pay 38 cents per kilowatt hour for electricity. In
Puerto Rico, that figure stands at 25 to 30 cents per kilowatt hour. In
contrast, the average American household pays 10.13 cents per kilowatt
hour, according to the U.S. Energy Information Administration.

"That (makes it) very difficult to make business and investment
decisions; like if you're a rum distiller, you want to make sure you
have assured access to electricity," said Holland.

Some islands are trying to fill the gaps through renewable energy.
Grenada, Aruba and St. Martin, for example, have invested heavily in
solar energy. St. Croix, of the U.S. Virgin Islands, recently switched
all of its electric generation from oil to propane, which typically
burns 30 percent cheaper.

"They become cost-effective without subsidies," said Holland. The
Caribbean, he said, is "one of the only places in the world where you
can throw up as much solar and wind power as possible."

As Venezuela heads toward what seems to be an almost inevitable economic
implosion, island nations like Jamaica are likely to see a sudden hole
in their budget, since they rely so heavily on Venezuela for energy.

"They wouldn't have access to this low-cost oil, so you'd see energy
prices spike," Holland said. "You could see inflation and a spike in

"They put their own [energy] security in the hands of Venezuela," he
said, "and it seems like that may not have been a good idea."

Source: Investing in the Caribbean: Energy trends in Cuba, Venezuela and
Puerto Rico -

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