Jamaicans should take note of the stark reality that oil prices have reached record levels in the past fortnight, exceeding US$80 per barrel, even as the USA, by far the largest consumer of oil, has been experiencing a slowdown in its economy.

Dennis Morison

Were the US economy to return to stronger growth, we could well see oil prices reaching to over US$90 per barrel which some analysts had forecasted. We should therefore accelerate efforts to address Jamaica's energy situation.

Brazil represents perhaps the best example among developing countries of the successful response to the oil shocks of the 1970s and early '80s and how that has prepared the country for the current energy crunch. When the first oil shock occurred in 1973, Brazil had one of the highest levels of dependence on imported oil among developing countries. It therefore quickly incurred huge trade deficits and external debts as oil prices quadrupled.

Its economy went through bouts of instability and IMF loans, and conditionalities aggravated the situation. At least two long-term initiatives were undertaken to tackle its high dependence on imported oil. First, comprehensive research on alternative energy sources such as ethanol was given new impetus. The country also embarked on oil exploration, specialising in deep-water drilling technology, which is today an area in which its state energy company, Petrobras, enjoys competitive advantage over Pemex, the Mexican state oil giant.

Today, Brazil excels in the ethanol business, being a major producer of this commodity and the most important supplier to the USA. It is also a world leader in the application of this fuel in its automobile industry. Estimates show that ethanol made from sugar cane now provides about 40 per cent of Brazil's motor vehicle fuel and most vehicles are able to run on a mixture of gasoline and ethanol. Indeed, US firms are racing to catch up with Brazil in this field. The Brazilians, who are leading researchers in agriculture, are also undertaking research on bio-diesel made from various oil seeds as an alternative fuel source.

The result of its efforts to develop alternate energy sources and to find oil is that its production and consumption of oil is now roughly in balance. On the other hand, the level of Jamaica's dependence on imported oil has hardly changed from what it was in 1973, and what is worse is that our intensity of fuel use has increased significantly in the past 20 years. We are therefore more vulnerable to oil price shocks now, and this is reflected in the steep climb in our fuel bill which stood at around US$350 million in 1999, but now exceeds US$1.5 billion, a rate of growth that far exceeds that of our major foreign exchange earning sources.

Brazil can now rely on domestic production of oil to meet its consumption, ethanol to supply a big part of its motor vehicle fuel, and to export. It had, at the end of 2005, proven oil reserves of 11.8 billion barrels, about one-seventh that of Venezuela, which has the largest reserves in the hemisphere.

At the same time, it has natural gas reserves and now produces more than 50 per cent of the gas that it consumes from domestic sources. Best of all is that 80 per cent of the country's electricity is produced by hydro power, although it uses natural gas and diesel fuel to supply back-up power-generating plants during dry weather.

Though there is increased interest in refined data about possible oil and gas reserves in our territory, Jamaica is far less endowed than Brazil. We ought, therefore, to have worked even harder to develop what limited resources we possess in the energy field. Applications of solar and wind power have only been attempted on a stop and start basis by us. Ethanol too has received inconsistent attention, although Jamaican private sector investors have now entered the field. They must, however, be prepared to weather the current slump in prices in the USA while market distortions are sorted out.

Energy is one of the important legs of any modern economy, and efficiency in its use, as well as development of domestic alternative sources are therefore priorities. Consequently, the equation of economic growth for Jamaica must include energy as one of the key variables. There is not a shortage of ideas, but we could well adopt the steadfast application and hard work of the Brazilians if we are serious about getting this variable right.

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