It’s only natural that high-volume markets like Asia and Western Europe are the focus of most discussions about exporting US liquefied natural gas (LNG) and natural gas liquids (NGLs) like ethane and propane. But the Caribbean, a market much closer to home, is attracting more attention lately, as infrastructure is developed to share America’s hydrocarbon bounty with the outside world. For decades, the Caribbean has been heavily dependent on oil-fired power generation and, as a result, its electric rates are among the highest anywhere. Now, the region is looking at alternative fuels for power generation, including LNG, compressed natural gas (CNG) and believe it or not, ethane. Today we consider the potential for fuel switching in the Caribbean, and the challenges involved.
As the weather turns colder in the US, we thought it would be a good time to think of warm, sunny places like the Caribbean, where the umbrella garnished drinks are cold and the power plants are (with few exceptions) fired by oil. The region’s dependence on oil-fired generation has become an economic ball-and-chain—with the price of oil (while lower than it was a few months ago; see Crude Falls to Pieces) still considerably higher on a heating value basis than natural gas and NGLs—especially ethane, which has been selling at or near historic lows. That, combined with the desire to switch to cleaner fuels, has led many governments, utilities and large industrials in the Caribbean to explore the pros and cons of switching power plants to gas or even ethane. [Ethane has a higher heat value than natural gas, burns with fewer emissions than heavy oil or coal and, as we have discussed recently, ethane supplies are plentiful these days (see You Ain’t Seen Nethane Yet).]
Making the switch would not be an easy task. Almost all of the region’s power plants and industrial boilers are set up to burn oil; the infrastructure is in place to transport oil to where it’s needed; and (with only a few exceptions) the facilities needed to move LNG, CNG and ethane from the US to power plants in the Caribbean do not exist—and would be costly to build. Still, the potential fuel-cost savings are significant, and there are signs that a shift from oil may finally be on the horizon. Table #1 (from an Inter-American Development Bank study) shows how oil-dependent the Caribbean is – with diesel-fired generation accounting for more than 75 percent of capacity in 11 out of 14 countries. The only significant exception is Trinidad & Tobago (less than 1 percent), which sits atop vast natural gas reserves and which last year was the world’s sixth-largest LNG exporter (more on that in a bit).