Jamaica's energy sector came under immense pressure over the past year, influenced mainly by the volatility of the international oil market as the price of crude spiralled to new highs.

But the year was also marked by ownership changes in Jamaica's two most powerful energy companies, the privately-owned Jamaica Public Service Company Limited which was bought by Japanese firm Marubeni Corp and the state-owned Petrojam Refinery in which Venezuela's PDVSA has taken a 49 per cent equity stake.

Still, it was oil and its performance on the world markets that dominated public attention.

Jamaica's energy consumption is about 90 per cent petroleum based, wit capturing a small slice.

Expanded oil bill

As a result, the 2.7 million populace, whose energy requirements is said to be growing at a pace of 4.0 per cent annually, will face an expanded oil bill that will likely consume about 75 per cent of foreign exchange earnings from goods exports.

"This year we don't know what the number will be but a reasonable prediction, because of the high prices recently, will be of the order of US$2.2 billion and this is a significant amount of our GDP," said consultant to the Petroleum Corporation of Jamaica (PCJ), Dr. Raymond Wright.

"Importantly, we must realise that somewhere in the region of 70-75 per cent - last year it was about 70 per cent - of the earnings that we make from the export of merchandise is spent importing oil."

Last Friday oil prices jumped 2.4 per cent to settle at US$93.31 per barrel on reports that consumer spending was up in the world's largest oil consuming nation, the United States.

But oil has risen as high as US$98 and above in trading this year.

Locally, the hardest-hit petroleum product has been diesel fuel, whose ex-refinery price has risen 46 per cent within the calendar year, from $42.02 to $61.27 per litre as at December 27.

Economically challenged

Other fuel prices have been equally volatile but regular or 87 octane and premium or 90 octane were the most contained - increasing 24 per cent to $58.34 for regular and 23 per cent to $59.77 for premium gas.

Kerosene, which is commonly used in rural households for lamps and fires, became the most expensive fuel this year, having overtaken all other fuels, except diesel, to close the year at $60.75 per litre - up 47 per cent from $40.75 at the top of the year.

Meantime, world oil price continues to flirt with the US$100/barrel mark.

"Oil prices went up significantly this year and we are now challenged economically with coping with the high oil prices; and they are likely to be with us for a long time," said Wright.

"The high-price regime is stimulated and encouraged by investment funds putting into the commodities market, which is the same matter that is affecting the price of copper, manganese and iron."

This, he said was compounded by the devaluation of the U.S. dollar, "plus the geopolitical factor of the Middle-East uncertainty particularly in Iran, problems in Nigeria and hurricane threats in the Gulf of Mexico."

Additionally, Wright - who is the former managing director of the PCJ, which is the agency of government responsible for developing the island's energy resources - said the rapid growth of China's economy has weighed heavily on oil prices.

"China has been the fastest growing user of oil and we now have a situation where they have now surpassed Japan, so we have the United States first, followed by China, Japan and India."

But noting that the Chinese economy was beginning to cool down, Wright said it could result in a settling down of demand, and serve to rein in oil prices.

In the meantime, Jamaica continues to prowl the offshore seabed of the island for hydrocarbons after exploration activities were re-ignited in 2005.

The search appeared to have gained momentum in the latter part of the year with Cabinet approving the award of a third licence in November to the Hong Kong-based company, Proteam - which is joining Australia's Gippsland/Finder and Canada's Rainville Energy - to explore Jamaica's south coast.

Drilling

The explorers are expected to intensify their activities in the new year as the two earlier companies - Gippsland/Finder and Rainville have completed seismic studies and will be moving to commence drilling.

"What we need to do is to first of all find some oil ... and then we will continue further to find out where the best reservoirs are or where the best drilling structures are," Wright said earlier in the year.

"It is quite possible and we hope that the oil and gas that has been found in the Jamaican offshore area has not dissipated and we can find a way to find it."

The state-owned refinery, Petro-jam at the latter part of 2007 was finalising the engineering designs to press ahead with its US$514 million expansion plan to boost the refinery's capacity from 35,000 barrels per day to 50,000 barrels.

The refinery also concluded a partnership with JPS to develop a 120-megawatt petcoke-fuelled power plant adjacent the refinery on Marcus Garvey Drive in Kingston.

Both Petrojam and the JPS have said the use of petcoke would reduce production costs.

Under the co-generation agreement, some least 20 per cent of the power produced by this new plant will power the newly expanded refinery on completion of the expansion programme.

The new power plant also forms part of JPS' short term plans to expand capacity to meet the country's growing energy needs.

Like petrol prices, the sharp rise of oil prices have also affected electricity rates.

But with the end of the spikes in oil prices nowhere in sight, efforts to identif energy sources have picked up pace. Government officials and industry players alike have joined the chorus of those advocating for plans to develop biofuels to ease the pressure especially on developing countries.

Cutting energy bill

Prime Minister Bruce Golding has committed to halving the country's energy bill by 2017. His administration has also set a timetable of June 2008 to wrap up the divestment of the Sugar Company of Jamaica which controls the majority of Jamaica's sugar cane estates.

Eight companies were pre-selected to bid for the assets of the SCJ and the Government is in the process of selecting the successful bidder.

The divestment comes as the country seeks to establish a sugar cane-based industry that would involve the production of ethanol for use as fuel.

Meantime, poultry producer, the Jamaica Broilers Group completed construction of its $1.1 billion ethanol dehydration plant at Port Esquivel, St. Catherine, in July.

The new biofuel plant, produces fuel grade ethanol for export to the U.S. from imported 'wet' ethanol from Brazil. However, the plan is to eventually use local sugar cane stock to produce the biofuel which by then would be used as a substitute to petroleum to run motor vehicles in Jamaica.

Ethanol prices, which have been hovering around US$1.70 per gallon, rose as high as US$2.31 closer to year end.

The JB Ethanol plant is expected to produce about 70 million gallons of anhydrous ethanol in its first year of operation.

Still, for Jamaica to drastically cut the use of oil, Wright said, the country would need to diversify from crude for electricity generation. He argued that fossil fuel had become too expensive to be burned for power generation, and that using natural gas or coal would be a better and cheapeHe also argued for development of indigenous resources such as hydro, solar and wind power, until oil and gas are found