FOR some time now the Minister of Energy and Mining James Robertson has been advocating Liquified Natural Gas (LNG) as Jamaica’s preferred energy source, maintaining that its cost would put less stress on the Balance of Payments than oil does. Last Tuesday he announced the selection of Belgium’s Exmar, and its consortium, as preferred bidder to develop a LNG project to supply Jamaica with cheaper energy.

Robertson proclaims switching to LNG could save Finance Minister Shaw US$350 million on the country’s annual oil bill and that manufacturers and householders are set to realise up to 30 per cent cheaper rates.

The Exmar consortium is expected to complete the LNG project by the first quarter of 2013.

At this point in time market conditions are favourable to LNG but like other commodities prices are subject to fluctuation and volitility. At this point in time there is little difference between the prices of oil and natural gas. It may be wise for the Government to consider a more diversified energy strategy that considers solar, wind, hydro and nuclear energy rather than opting primarily for LNG. Nevertheless the Government of Jamaica has actively been exploring the possibilities of LNG since 2001.

In real terms, therefore, Tuesday’s development is the culmination of efforts across two administrations and four Energy Ministers namely, James Robertson, Anthony Hylton, Phillip Paulwell, and Clive Mullings.

So why has the LNG option gained traction now?

Mainly because of two technological advances in the production of natural gas. Hydraulic Fracturing and Horizontal Completions have so dramatically changed the supply and pricing dynamics of the natural gas market, that it has become a buyers’ market for Jamaica and other importers.

For years, gas has been produced from shale with natural fractures. However, modern hydraulic fracturing has allowed producers to create extensive artificial fractures within the shale. Horizontal drilling has also revolutionised the industry by allowing the creation of extensive borehole surface areas in shale that is up to 10,000 feet deep. The resulting technological advances have birthed what is now commonly referred to as ‘Shale Gas’.

Shale gas production has literally shook up the entire global energy market, with proven reserves practically doubling in the United States in the last two years – to the extent that that country is an excess producer.

Even more significant, it is now possible to tap vast reserves identified in places as diverse as Qatar, Brazil, Algeria and Venezuela. Indeed, world supply of natural gas has so expanded that the buyers’ market now prevailing is expected to last for – at minimum – another 2 years. This is relevant because Jamaica’s consortium will be required to tie-down a long-term supply contract well within the next two years. In the LNG market, contracts typically run for twenty years and longer. The question that must be factored in here though is at what price? That must be the major determinant. Jamaica cannot afford to neglect its very own natural resources as it seeks to drastically reduce its fuel bill.

LNG’s potential was seriously considered by former Energy Minister Anthony Hylton. For to the point where he issued a Request For Proposal (RFP) for a facility to be established near Port Esquivel. The initial objective, he explained, was to supply the bauxite and mining industries in that area, as well as JPSCo. That effort was eventually dealt a body-blow, with Trinidad and Tobago coming up short on its agreement to supply the gas, as set out in a 2001 Memorandum of Understanding.

During the last Administration’s tenure Hylton said: “I became acutely aware of the extent to which the ‘energy component’ played a role in the cost structure of Jamaican products, and perhaps even contributed to the ‘de-industrialising’ of Jamaica”.

In addition to identifying a cheaper and more stable alternative to oil, Hylton aimed to a achieve “a certain coherence” in the then administration’s energy policy. “At the time, we were also looking at doing a major refurbishment of Petrojam, and it certainly didn’t make sense to look in the direction of a ‘dirty energy’ option such as coal – given the importance of Jamaica’s tourism industry, and given the fact that ‘carbon emissions’ was becoming a big issue”.

Hylton had a point. For despite the vast differences in manufacturing output, Jamaica has a larger carbon footprint per person than China.

Hylton’s forward-thinking replacement, Phillip Paulwell favours a more diversified mix which does not rely solely on LNG: He is reported to have commented, “I believe in natural gas as one of the fuel sources in a policy mix to diversify Jamaica’s energy sources”.

Paulwell, who assumed office in 2002, immediately embarked on an all-out mission to break Jamaica’s over-reliance on petroleum. It is widely acknowledged that under his stewardship, Jamaica witnessed the greatest push – up until that juncture – towards identifying a truly diverse energy mix.

Says Paulwell about his role in pursuing the LNG option, “I was the one who engaged Venezuela, and it resulted in the signing of an MOU. In fact, we were well on the way towards convincing the Venezuelans to exploit their natural gas reserves”. Having regard to the nature of the market, however, Paulwell was convinced that without a clear upfront gas supplier, he would not have taken the risk of advancing the project.

The country, however, changed leadership in 2007, with Clive Mullings serving as Minister of Energy. Under Mullings’ tenure, market supply conditions for LNG were not as favourable. He however continued the push to diversify the country’s energy mix.

Mullings was succeeded by James Robertson a politician renown for his “industriousness” He moved quickly to put together an RFP, initiated the bidding process, and selected a preferred bidder with whom to commence and complete negotiations by year-end. It does come as some surprise that only two bidders have stepped forward.

Says former Energy Minister and envoy Anthony Hylton about this week’s announcement of a preferred bidder: “I support the current administration’s push to ‘Catch the Curve’, because the country is in dire need of a more competitive form of energy. It is in the national interest that we do so”.