The Falling Crude

The price of oil is back on the agenda and this time the news is good for non-oil producing nations. Eighteen months ago, the price of a barrel of oil was well over $100, today the price is under $30.  Who would have think this was possible eighteen months ago?  The Government of Jamaica after consultation with the private sector hedged oil at $66 per barrel early in 2015 after the imposition of a $7 per litre surcharge on consumers.  Was this the right thing to do? Electricity bills for consumers in Jamaica are at their lowest level, since the oil shock of 1974.  The prices at the pump while not falling as rapidly as consumers would have expected, is heading south and for consumers in markets where these prices are deregulated, it means excess cash in the pocket.

Two years ago, in the midst of rising oil prices and ballooning energy cost I examined the energy crisis Jamaica was facing, the fuel choices, and proffered some solutions.  Today, the Jamaican situation is much different, despite the hiccups in the procurement processes for the replacement of new generating units.  The LNG supply issue is settled after much stops and starts, energy diversification is well on its way with the expansion of Wigton Wind Farm, and the construction of a new solar energy plant. The Government has reduced its energy consumption and so has the private sector. However, demand side management is still an issue as I recently discovered during a brief airport conversation with Kelly Tomlin, the JPSCo President.  Does this means that countries like Jamaica should relax and take it easy against the background of falling crude prices?

Crude Oil
Photo Credit: http://www.oneiraqidinar.com

The simple answer is no.  Crude prices will continue to fall for the foreseeable future with analysts now looking at the prospect of $20 per barrel oil.  The world is awash with surplus oil, and the fact that Iranian oil is now available to the market adds to the supply gut crisis.  Alternative energy solutions may not seem as attractive now as it was two years ago as the levelized cost of electricity (LEC) gap between conventional and alternative systems widen.  The efforts to construct and commission more efficient energy plants should continue on, or even increase in order to take full advantages of the low crude prices.  The savings from the low crude prices should be used to provide subsidy for alternative energy systems in order to make these investments attractive.  Demand side management should be brought back on the table as this is one sure way of containing energy consumption.

crude-oil-14331
Photo Credit: http://www.bloombergview.com/

 

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