The Bank of Jamaica (BOJ) is projecting a fall in electricity prices and inflation during the December quarter arising from Jamaica’s transition to liquefied natural gas (LNG) and the new Old Harbour LNG plant coming on stream this month.

The BOJ projections are based on simulations on the impact of Jamaica’s transition to LNG on electricity rates. These simulations also assess the potential impact on inflation of an anticipated increase in the use of LNG by the Jamaica Public Service Company in the generation of electricity.

This analysis focuses on the mix of fuel used in electricity generation in Jamaica and, consequently, the price of electricity. Heavy fuel oil (HFO) currently accounts for 64 per cent of total electricity- generation capacity while LNG and renewables account for 24 per cent and 12 per cent, respectively.

This ratio will change following the full commissioning by the JPS of the new combined energy 190 megawatt plant in Old Harbour Bay, St Catherine, this month, which will increase the proportion of electricity generated by natural gas to between 45 per cent and 50 per cent.

To assess the impact of increased use of LNG on the price of electricity, the relative contribution of the two energy sources to the cost of energy generation in Jamaica was determined by the BOJ simulation.

A comparison of the external prices of the two fuel types reveal that, since 2006, the West Texas Intermediate (WTI) measure of crude oil price has been, on average, higher and more volatile than LNG. This disparity, the BOJ emphasised is expected to continue into the future.

“Consequently, on the start of the new LNG-based generator in September 2019, JPS’ fuel charge and, by extension, the light bill will fall,” the BOJ says in its Quarterly Monetary Policy Report August 2019.

The BOJ reports that, “simulations and revised projections indicate that the anticipated changes in JPS’s fuel mix will result in inflation being lower, between 0.1 per cent and 0.3 per cent, for the December 2019 quarter, and between 0.1 per cent and 0.6 per cent for calendar year 2020.”

In the meantime, the BOJ is reporting that the daily average of WTI crude oil prices for the June 2019 quarter increased by 8.9 per cent, relative to the same measure for the March 2019 quarter, but declined by 11.9 per cent relative to the June 2018 quarter.

The increase in crude oil prices mainly emanated from the market’s concern about tightening global crude oil supply underpinned by the adherence of Organisation for Petroleum-Exporting Countries member-nations, particularly Saudi Arabia, to production cuts and the US Administration’s decision to cease granting waivers to sanctions on countries currently importing Iranian oil.

Also, investors’ continued reaction to rising geopolitical tensions in the Middle East. Notwithstanding the increase in average prices for the June 2019 quarter, there was a general downward trend for crude oil prices in the second half of the quarter reflecting the market’s heightened concern about the slowing pace of global economic growth and energy demand as well as reports of rising crude production from the US.