JAMAICA consumes some 26 million barrels of imported petroleum products annually, a marginal eight per cent increase since the turn of the decade when it took 24 million barrels to power homes and industries. But it’s the cost of crude and its history of price volatility that really worry energy experts who point out that with each passing year Jamaica has to fork out increasingly bigger chunks of its foreign exchange earnings to cover its oil bill.

Five years ago, it took just over half the earnings from export of goods to cover oil imports. “We are now spending approximately 70 cents of every dollar, or 70 per cent of our foreign exchange earnings on exports, to buy oil,” says Dr Raymond Wright, senior consultant and former boss of the Petroleum Corporation of Jamaica (PCJ), the state regulator of the petroleum trade.

“This is a very serious problem.”

Jamaica has been hunting its own crude since 1955, and its economic hopes are now pinned on finding oil and natural gas in a new round of explorations, which began last month.

“We need. to use as much domestic energy sources as we can,” says Wright, “and, ultimately, if we can find a domestic source of oil or gas – both of which will continue to be primary fuels in our time – it would really mean big savings for Jamaica.”

Six years ago, Jamaica paid US$668 million for its oil, which translated then to 51 per cent of merchandise exports. World oil prices in that year ran between US$21 and US$38 per barrel for light crude.

In 2004, the bill edged closer to the billion-dollar psychological barrier, reaching US$943 million, which amounted to some 67 per cent of export earnings. Oil prices by then had swept to US$55.

The figures for 2005 are yet to be published, but expectations are that the oil bill will be just under US$1.2 billion, on the back of prices that climbed above US$60 and hit highs of US$70.

Wright is extremely cautious about the prospects of striking ‘black gold’.

Jamaica is unlikely, he says, to produce any big oil fields given its geological position, but is likely to hit on commercially viable deposits.

“On average, given the prospectivity of Jamaica, that’s what’s to be expected,” said the energy expert.

“We will never find the oil finds that they have, say, in Venezuela or Trinidad, because of our geological location. Those countries are situated at the mouth of a major delta, the Orinoco, a prime place to find oil, which is usually found in the detritus that is brought down over geological time by rivers and emptied into large deltas.”

Oil prospecting is a highly speculative practice, costing millions, and often ranging over many years. It is not for the risk averse.

PCJ has slotted Jamaica and its territorial waters into 20 blocks for exploration.

“In Jamaica, we have a pretty good ‘feeling’ that something is there, because in addition to years of research, at three sites we’ve seen gas

seeps – breaks in the earth – from which natural gas is emitted,” says Dr Gavin Gunter, a geologist with the PCJ.

But the presence of natural gas at those sites, in Annotto Bay, St Mary; Windsor, St Ann and Retrieve, St James is just the beginning. The bigger task is seeking out commercially exploitable reserves, which requires the digging of wells.

A single offshore well can cost anywhere between US$7 million and $15 million. It helps, therefore, to have a good idea, of where the really big deposits of fossil fuels might be.

Scientists make those kind of educated guesses using survey data like that now being collected by Fugro.

“Just because you think something’s there doesn’t mean it’s worth pursuing,” said Scott McPherson an independent consultant and representative of Fugro aboard the contracted Russian survey ship Akademik Shatskiy.

“But it definitely is worth checking out, because when you think about it, although you spend millions exploring, that’s totally dwarfed by the billions you could reap if it turns out you do have commercially viable quantities.”

The current explorations are Jamaica’s third attempt in 51 years at searching out commercial quantities of fossil fuel. Over the period, 11 exploratory wells were drilled: nine onshore, and two offshore.

Privately funded searches between 1955 and 1973 yielded nothing much, as did a later exploration by the PCJ between 1978 and 1982, paid for by the government.

The current explorations are again by private companies, under licence.

Finder Exploration Pty of Australia has begun exercising its options over offshore blocks 7, 10, 11 and 12, and has contracted a Dutch company, Fugro, for the seismic surveys already underway off Jamaica’s south coast.

The PCJ is now negotiating with a second company for rights to explore three more offshore blocks, and is considering opening up the remaining blocks to speculative surveys after a third company failed to follow up on its bid.

In the western hemisphere, oil deposits are more likely to have collected in the Gulf of Mexico, where the Mississippi empties; offshore Venezuela and Trinidad; and offshore Brazil where the Amazon enters the Atlantic Ocean.

Belize – a sister member of the 15-nation Caricom bloc, whose hunt for oil has similarly extended over a half century and had odds of a strike similar to Jamaica’s – struck commercial quantities in July 2005 in Spanish Lookout, which sits northwest of the capital, Belmopan.

Belize’s crude is similar in geo-chemistry to oil from a ‘smackover’ formation found in Texas and Oklahoma in the United States, and here in Windsor, St Ann.

A smackover is loosely defined as a sub-surface repository of oil or gas.

Belize hopes to produce at least 500 barrels daily, but later news reports quoting Belize Natural Energy Limited (BNE), which has partnered with Aspect Energy Limited of Canada and CHx LLC out of Denver on the exploration, suggest that different wells gush as high as 800 and 1,000 barrels per day.

Belmopan’s deal with the oil explorers is for 7.5 per cent of the take.

If Jamaica strikes oil, PCJ would enter into a production-sharing agreement with the exploration company, and would be entitled, under the Petroleum Act of 1979, to a fixed 12.5 per cent royalty, payable in cash or product, on the oil or natural gas extracted.

The royalty is fixed in the statute, which Wright now says might have been a bad idea.

When the law was being crafted in 1976, says Wright, one of the original contributors to its authorship, the industry standard was for companies to pay the licensing country between 10 and 15 per cent of its ‘profit oil’ after recovery of exploration expenses.

“In hindsight, I would have preferred if the royalty were not fixed in the act, so that it would give us flexibility in negotiations,” said Wright.

“That’s the ideal situation I would have liked us to be in.”

Jamaica doesn’t know yet how it would handle a windfall of petrodollars, but PCJ is satisfied that there will be plenty of time to have those discussions as a part of a national debate.

“We don’t have an official plan for that yet because we don’t even know if we’re going to discover oil, and when,” said Wright.

“Remember, this is not something that’s just around the corner. the finding of oil in Jamaica is not something that’s likely to happen in 2006. We might not even drill a well until 2009. And even then we might not find oil.”

For now, he says, the concentration is on legislation to govern exploration and oil production.

PCJ’s last attempt at striking oil wracked up a hefty seismic survey and exploratory drilling tab in the 1980s, which put the country US$18 million to US$20 million in debt to the World Bank.

No oil was found then and although the loan was completely repaid by 1997, the government’s policy now puts the onus on private business to shoulder the bulk of the risk.

“This time, our oil exploration activities will cost the taxpayers of Jamaica nothing. Well, essentially nothing. When I say nothing, I mean very small expenses like the salaries of our few people, but no major expenses. We have no intention of spending money in that regard,” Wright insists.

Finder is investing US$3 million in its surveys, which began in February, and data analysis to be completed within a six to seven-month span.

The payoffs are big, but so are the financial risks.

“There is an advantage for private companies to do this, because if they do not find oil, they can write it off against income tax,” said the energy expert.

“Government – PCJ – we can still write it off against tax, but we don’t make enough money to need a tax write-off, so we can’t take that risk.”

For now, the search continues, but Wright is keeping his anticipation in check.

“I think we will either determine successfully or unsuccessfully whether oil or gas exists in Jamaica in commercial quantities. That is the mission.”

campbello@jamaicaobserver.com

A crew member of the Akademik Shatskiy monitors the deployment of streamer cables and air source array guns, both seismic survey equipment, from the hold of the ship.

(Photo: Courtesy of PCJ)