Panel warns of Caribbean dependence on PetroCaribe
WASHINGTON, USA — With the Venezuelan economy worsening and residents of Caracas unable to buy diapers or even toilet paper due to foreign-exchange shortages, how much longer will Venezuela be able to subsidize cheap oil for its political allies throughout the Caribbean and Central America.
Last week, energy experts meeting in Washington discussed that very question.
“What happens to the 17 countries who are members of this program if Caracas pulls back the generous credit subsidies it gives members to help them import its crude oil products?” asked Jason Marczak, deputy director of the Atlantic Council’s Adrienne Arsht Latin America Center. “This is a not-so-distant possibility given Venezuela’s economic situation and slowing oil production, but it’s one Caracas would certainly like to avoid. This has all the makings of an energy crisis brewing off our shores.”
On July 16, the think tank released a 24-page study “Uncertain Energy: The Caribbean’s Gamble With Venezuela.” To mark the occasion, it hosted a panel discussion featuring three experts: David Goldwyn, the study’s author and a former State Department coordinator of international energy affairs; Jorge Piñón, who heads the Center for International Energy and Environmental Policy at the University of Texas-Austin, and Jed Bailey, managing partner at Boston-based Energy Narrative.
“It’s almost ten years since Venezuela announced the PetroCaribe program,” Goldwyn said. “PetroCaribe sells oil and products at market benchmarks, but also provides financing for governments, giving them long terms and low down payments so the countries can take that oil and use the proceeds of those sales either to invest or save, or more likely, to use for budget support. It’s a credit financing program at its core, and for Venezuela, it’s been an enormous political success.”
However, for PetroCaribe members themselves, the results have been “decidedly more mixed,” Goldwyn told his audience.
“Buying crude oil and products on cheap credit has given these countries an enormous debt burden, in some cases 10 to 20 percent of their GDP,” he said.
Even more ominously, he said, “PetroCaribe has delayed the migration away from fuel oil and diesel for power generation to cleaner fuels. And the problem with using a high-cost fuel oil is that it makes the cost of electricity extremely high. The average throughout the Caribbean is 33 cents per kilowatt-hour, while the US average is a dime. That’s part of the reason why Caribbean economies are not competitive.”
Yet it’s difficult for these countries to kick the habit.
“Whether they want to or not, PetroCaribe countries may not have a choice,” Goldwyn warned. “With oil production declining and Venezuela unable to import diapers, toilet paper and basic staples, it’s hard to justify selling oil literally for beans. The risk of a complete cutoff is actually quite low, but the impact on these economies could be catastrophic.”
Interestingly, although the Dominican Republic, Jamaica and Nicaragua comprise only three of PetroCaribe’s 13 active member states, in 2012 they accounted for just over 80,000 barrels per day (bpd) of the 121,000 bpd that PetroCaribe exported. The DR and Jamaica both operate oil refineries that, without huge injections of capital from state-owned Petróleos de Venezuela (PDVSA), would have closed long ago.
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