Region can manage high and volatile oil prices, says World Bank
Central America and Caribbean can reduce their oil dependency through energy efficiency programs and regional energy integration, says World Bank report.
BRIDGETOWN, Barbados, Thursday July 26, 2012 – A strategy that combines a more diversified power system, better energy efficiency in electricity production and use, and regional integration can significantly reduce Central America and the Caribbean’s vulnerability to high and volatile oil prices.
This is the message being sent by a new World Bank report that has outlined how Central American and Caribbean countries can reduce their oil dependency and shield themselves from high oil prices through a combination of renewable energy, energy efficiency programs and regional energy integration.
The report, Mitigating Vulnerability to High and Volatile Oil Prices: Power Sector Experience in Latin America and the Caribbean, states tjat the region overall is a net exporter of crude oil and oil products; yet all countries in Central America and the Caribbean are net importers of these products. In both sub-regions, oil provides more than 90 percent of primary energy needs more than one-third higher than the average for the Latin America and Caribbean region and more than twice the global average.
According to the report, if both Central America and the Caribbean achieved a 10 percent increase in renewable potential capacity, this could lead to savings of 14.2 million and 5.6 million barrels of diesel and heavy fuel oil, respectively, representing an average reduction of almost 1 percent of GDP.
“We estimate that the implementation of a strategy that combines a more diversified power system, better energy efficiency in electricity production and use, and regional integration can significantly reduce Central America and the Caribbean’s vulnerability to high and volatile oil prices,” said Ede Ijjasz-Vasquez, World Bank Director for Sustainable Development in the Latin America and Caribbean region.
“Because of their exposure to oil price fluctuations, less oil dependency can have a positive effect on these countries fiscal balance and ultimately benefit the poorest sectors of the population,” he added.
For countries in Central America and the Caribbean, the average improvement in the current account balance would amount to approximately 1.6 percent of gross domestic product (GDP). At the country level, Guyana and Nicaragua could witness reductions in their current account deficits of up to 5 percent of GDP, while Haiti and Honduras could see reductions of about 3 percent of GDP.
The report notes that the past decade has witnessed an unprecedented rise in world oil prices and oil price volatility adversely affecting oil importing and exporting nations alike. Since 2002, the spot price for West Texas Intermediate (WTI), a grade of crude oil used as a benchmark in oil pricing, has increased more than fivefold.
The report argues for structural measures designed to reduce oil consumption, including using renewable energy sources, investing in energy efficiency, both in the demand and supply side, and increasing regional integration with countries endowed with more diversified supply.
Regarding using renewable energy sources, the report points out that the Latin America and Caribbean region has a wide array of renewable resources and technologies available, including wind in Argentina, hydroelectricity and biomass in Brazil, and geothermal in Central America. In 2007, renewable energy represented about 59 percent of the regions total power generation -higher than any other world region.
In relation to improving energy efficiency, the report stated that of the countries in Central America and the Caribbean, Nicaragua and Jamaica would achieve the largest fuel savings by taking advantage of energy-efficiency strategies. For Honduras, supply-and demand-side efficiency gains would lead to savings of up to 1 percent of GDP, and nearly 1.5 percent of GDP for Nicaragua and Jamaica.
The report also pointed out that promoting regional integration was critical given that, due to economies of scale, regional energy integration can help countries to reduce their oil dependency by diversifying generation sources (more renewable energy and natural gas), improving efficiency, lowering generation costs, and reducing GHG emissions.