Uncertain Energy: the Caribbean's Gamble with Venezuela

Atlantic Council ADRIENNE ARSHT LATIN AMERICA CENTER

Uncertain

David L. Goldwyn and Cory R. Gill Atlantic Council The Atlantic Council’s Adrienne Arsht Latin America ADRIENNE ARSHT Center is dedicated to broadening awareness of the transformational political, economic, and social changes LATIN AMERICA CENTER throughout Latin America. It is focused on bringing in new political, corporate, civil society, and academic leaders to change the fundamental nature of discussions on Latin America and to develop new ideas and innovative policy recommendations that highlight the region’s potential as a strategic and economic partner for Europe, the United States, and beyond. The nonpartisan Arsht Center began operations in October 2013.

The Atlantic Council promotes constructive leadership and engagement in international affairs based on the central role of the Atlantic Community in meeting global challenges. For more information, please visit www. AtlanticCouncil.org. © 2014 The Atlantic Council of the United States. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from the Atlantic Council, except in the case of brief quotations in news articles, critical articles, or reviews. Please direct inquiries to: Atlantic Council 1030 15th Street NW, 12th Floor Washington, DC 20005

ISBN: 978-1-61977-059-1 July 2014

Acknowledgements We are grateful to the many people in the Adrienne Arsht Latin America Center and the Atlantic Council’s communications department who were instrumental in producing this policy brief. Among them, Rachel DeLevie-Orey, program assistant, and Thomas Corrigan, research assistant, provided valuable assistance in the editing and production of this policy brief. Our consultant, Donald Partyka, designed this publication. David Goldwyn would like to thank Jorge Piñon, interim director of the University of Texas at Austin’s Center for Global Energy and Environmental Policy, for his help in preparing this report and creating and sharing incredibly useful graphs and charts. He also wishes to thank the US Department of State, Medley Global Advisors, Marianna Parraga from Reuters, and Erica Downs of the Brookings Institution for their invaluable assistance. Uncertain

The Caribbean’s Gamble with Venezuela

David L. Goldwyn and Cory R. Gill

Uncertain Energy: The Caribbean’s Gamble with Venezuela

Foreword

enezuela’s socioeconomic woes and political turbulence have continued - stage. The flow of hydrocarbons has garnered domestic political economy has plum- political capital from neighbors that might other Vto worsen in the first half of 2014. The wise not defend Venezuela’s increasingly shaky, autocratic regime. Venezuela’s continued descent meted into indefinite turbulence. The ripples into economic chaos, however, raises questions are being felt far and wide including the threat about member countries’ energy future without of energy insecurity throughout the Caribbean Petrocaribe’s largesse. reservesand Central hangs America. over a As region oil production heavily dependent slows, on The Atlantic Council’s Adrienne Arsht Latin the future of the world’s second-largest proven America Center believes that the time is ripe to - nomicexplore and opportunities environmental for an security energy concerns—not paradigm shift Venezuelan energy exports. in Central America and the Caribbean. Both eco maintainAmid the his uncertainty, predecessor’s President clout among Nicolás his Maduro’s most influence on the region is being questioned. Can he least of which is Venezuela’s tightening of the terms create upheaval in the region’s energy landscape? of Petrocaribe membership—make a reexamination immediate neighbors? And can events in Venezuela of energy source possibilities a pressing matter. - The United States and international financial Clearly, the political benefits of Venezuela’s energy institutions can play a major role. Shale gas produc flows make the current arrangement worthwhile for tion in the United States and increasing climate the government in Caracas. But Caribbean countries imperatives provide an opening for those who share must face the fact thatchavista dependence on Venezuela a shore on the Caribbean and beyond to retool their could soon extract a high cost. energy imports. One of the central hallmarks of regional This report dissects Petrocaribe and its historic influence for nearly a decade has been Petrocaribe. and future influence on the Caribbean region. - Formed in 2005, the energy alliance offers Venezuelan Our nonresident senior energy fellow and former oil and petroleum products at favorable financing Department of State special envoy and coordina terms to seventeen member states in the Caribbean tor for international energy affairs, David Goldwyn, and Central America. Preferential terms and medium- argues that the moment is now to plan for the reality to long-term credit aim to foster development among- of reduced Petrocaribe influence. With experience triesnations into with Venezuela’s few to no corner energy on resources. the international as an industry expert, Goldwyn, with his associate Petrocaribe has served to bring member coun Cory Gill, recommends new directions for the United States and international financial institutions. Peter Schechter Jason Marczak Director Deputy Director

Adrienne Arsht Latin America Center Adrienne Arsht Latin America Center

ATLANTIC COUNCIL 1 Uncertain Energy: The Caribbean’s Gamble with Venezuela

Table of Contents

3 Executive Summary

5 Petrocaribe Overview Terms Benefits to Venezuela

8 The Oil Alliance’s Impacts Product-Dependent Recipient States Are Turning to the United States The Dominican Republic, Jamaica, and Nicaragua: Few Incentives to Change

12 Moving Beyond Petrocaribe? A Path Forward? Domestic Challenges Remain Caribbean Energy Future Challenges to Renewable Power Natural Gas as a Bridge

18 Policy Recommendations The New Reality for Petrocaribe

20 Endnotes

22 About the Authors

2 ATLANTIC COUNCIL Uncertain Energy: The Caribbean’s Gamble with Venezuela

Executive Summary

t has been nearly ten years since the launch

countries, and an additional 76,000 bpd of refined generousof Petrocaribe, credit a subsidies program designedto help import to win the products. Venezuela also exports 85,000 bpd of Ipolitical loyalty of the Caribbean states through crude and 6,000 bpd of refined products to Cuba. These flows comprise a crucial supply source for Venezuelan crude oil and products. Recipient states many cash-strapped Caribbean nations that rely have grown dependent on high-cost, high-carbon onVenezuela’s Petrocaribe’s political generous turbulence credit financing and economic terms fuels for power generation and Venezuelan credit to to finance their budgets. balance their budgets. A clear understanding of the program is useful deterioration, however, make the program’s forstates discerning to more not only its future prospects, but the future at least uncertain,Dependence and the recipient on cheap optionssustainable available energy to mixes help transition Petrocaribe states’ continued dependence certainly unwise. and energy security Venezuela’s credit for oil has sustained with economic, climate, political Caribbean dependence on fuel oil for power turbulence benefits. investment-deterringgeneration, burdening basedWhile Venezuelan Petrocaribe and economic theelectricity region withcosts steep, and a countries pay market- deterioration Venezuela’s ability to benchmark prices for make high carbon fuel source. crude oil or products, Petrocaribe’s petroleum product exports Venezuela only requires future uncertain. sustain, much less expand, paymentbalance can of a be fraction used by of the receivingcost up front. government The (which include gasoline, fuel oil, and diesel, as states on these terms mayopposed be increasingly to unrefined for investment or, circumscribed by growingcrude domestic oil) to Petrocaribedemand and moreon Venezuelan often, spending. crude oil It isand this products easy credit to meet that makes member-state governments dependent increased debt service obligations to China. thestates energy might demands have moved of both toward their lower electricity carbon and The Inter-American Development Bank’s recent transportation sectors. Absent this credit, member analysis, “Pre-Feasibility Study of the Potential Market for Natural Gas as a Fuel for Power fuels or more efficient and (for the consumer) less Generation in the Caribbean” (IDB Pre-Feasibility expensive feedstock for electricity. Study), shows that a combination of natural The result is that Venezuela today exports 45,000 gas, energy efficiency, and renewable energy barrels per day (bpd) of crude to Petrocaribe technologies can reduce the cost of electricity for

ATLANTIC COUNCIL 3 Uncertain Energy: The Caribbean’s Gamble with Venezuela

every surveyed Caribbean1 nation and substantially scalable for base load power and, as this report lower carbon emissions. details, faces serious cost and policy obstacles in The challenges to this lower carbon, more many countries. For the short and medium term, competitive pathway are serious. They require the a strategy focused on natural gas can deploy creation of a policy environment that welcomes faster and at lower cost. Plans should also be put change and the United States and international in place to help Caribbean countries finance fuel financial institutions (IFIs) to demonstrate strong purchases on a transitional basis if Venezuela were leadership. The Obama administration clearly to suddenly cut off financing. understands the negative implications and risks An expanded US strategy built on natural gas of the Caribbean’s dependence on Petrocaribe. as a bridge to the outcome CESI envisions—the Both its continued leadership role in the Energy adoption of renewables as a significantly increased and Climate Partnership of the Americas (ECPA) share of the region’s energy mix—can enable the and the June 19, 2014, unveiling2 of the Caribbean United States to leverage the shale oil and gas Energy Security Initiative (CESI) demonstrate boom to help supply much of the region’s needed the president’s priorities. Indeed, Vice President energy. Joe Biden’s visit to Trinidad and Tobago in May With some bold vision, the United States can 2014, which included discussions between the vice supply much of the needed energy, and, together president and Caribbean Community (Caricom) with IFIs, meet the region’s capital needs, members and the Dominican Republic on facilitating long-deferred Caribbean energy policy securing affordable energy supplies, is a tangible reform. demonstration of the administration’s commitment This report looks at the Petrocaribe program, to addressing this issue. its impact on member economies, its evolution The administration’s plans, however, are and future outlook, and policy choices available effectively a long-term strategy for the region. to Caribbean and Central American member CESI focuses on renewable energy, which is not yet countries, the United States, and the IFIs.

4 ATLANTIC COUNCIL Uncertain Energy: The Caribbean’s Gamble with Venezuela

Petrocaribe Overview

4 n June 29, 2005, Venezuela built on its José Accord. history of providing credit financing Countries can buy crude or product at official Ofor purchases of its energy exports to Venezuelan prices under preferential financing launch the Petrocaribe program with terms. The required up-front payment (typically thirteen Caribbean countries. Today, although due within thirty to ninety days after purchase) seventeen countries are technically Petrocaribe ranges from 5 percent to 70 percent of the officialsee members, only thirteen nations—Antigua and Venezuelanfigure 1, p6 market price and is determined on a Barbuda, Belize, Dominica, Dominican Republic, sliding scale relative to the total market price [ El Salvador, Grenada, Guyana, Haiti, Jamaica, - ]. The terms are structured to ensure- Nicaragua, St. Kitts and Nevis, St. Vincent and that the higher the Venezuelan benchmark price, the Grenadines,3 and Suriname—are active mem the smaller the percentage share of the total pay bers. Although Cuba is an official Petrocaribe menthave historically must be provided included up-front. a one- to two-year grace member,primary legalthe Convenio instrument Integral governing de Cooperación Venezuela’s Although the terms of Venezuela’s loans vary, they Cuba-Venezuela (CIC), signed in 2000, serves as- the period, and then extend over a period5 of twenty-five energy ties with Cuba. Because of this arrange years with a 1–2 percent interest rate. Recipient mentlargely and concentrates the uniqueness on Venezuela’s and expansiveness other energy of states’ repayments move into national Petrocaribe Venezuela-Cuba energy cooperation, this paper “funds,” which are intended for infrastructure or other national investment projects. In practice, Termsagreements. some countries have spent these monies for budget support, while others have saved the funds. program that Petrocaribe member states enjoy flexible terms Aprovidest its core, highlyPetrocaribe is a Venezuela-backed to satisfy up-front payments and finance their - loans,domestic which budgetary vary in Petrocaribe has generosity to reflect generousto purchase credit Venezuelan financ proven to be a ingcrude for oil recipient and petroleum states diplomatic success oilconstraints. exports are Almost report one- for Venezuela, third of Venezuela’s earning it the products.to participating The credit countries edly not paid in cash. termsare more offered generous by Caracas than political loyalty Barter arrangements are of many member common, and member Venezuelan programs exportingstates are knowngenerally to those offered under past countries. satisfy payments by , including the 1980 San cheap and plentiful

ATLANTIC COUNCIL 5 Uncertain Energy: The Caribbean’s Gamble with Venezuela

FIGURE 1. Petrocaribe Payment Options

> PAYMENT TERMS WHEN VENEZUELA BENCHMARK OIL PRICE IS GREATER THAN DOLLAR FIGURE INDICATED PETROCARIBE MEMBER DOWN PAYMENT I (IN PERCENT) VENEZUELA FINANCED PORTION (IN PERCENT)

17-YEAR LOAN TERM WITH 2 PERCENT INTEREST RATE, 25-YEAR LOAN TERM WITH 2 PERCENT INTEREST RATE, 2-YEAR GRACE PERIOD 2-YEAR GRACE PERIOD

5% 10% 15% 60% 50% 40% 50% 95% 90% 85%

>$15 >$20 >$22 >$50 >$80

20% 25% 30% 30% 40% 60% 70%

80% 75% 70%

>$24 >$30 >$40 >$100 >$150 Source: Fifth Summit of the Heads of State of Petrocaribe, Resolution 04.03-05, July 13, 2008, www. hacienda.gov.do/petrocaribe/petrocaribe/documentos/resoluciones-04-03-05.pdf.

goods. The Dominican Republic, for example, has Organization of American States (OAS). This loy paidto the for Venezuelan Venezuelan6 economy crude by and exporting ultimately beans deprive to nations’alty was growinginitially basedindebtedness on the favorable to Venezuela terms and Venezuela. Such arrangements are a net negative Petrocaribe offered, but over time it reflected these transparency surrounding how barter goods are Venezuela of export revenues, given the scant their increasing dependence on Petrocaribe supplies. Examples of this influence are not difficult to- priced.to meet But consumer they offer import a source demand of basic exclusively goods for find. When Panama made dissident Venezuelan Venezuela, which lacks requisite foreign currency Congresswoman María Corina Machado a tem porary member of its OAS delegation in March throughBenefits conventional to Venezuela arrangements. 2014, member states carried out a rare vote, which etrocaribe has proven to be a diplomatic passed, to ban the public from7 viewing the session - in which she participated. P Many observers attributed near-total Caribbean success for Venezuela, earning it the politi support of the vote to the region’s dependence cal loyalty of many member countries in on Petrocaribe and other Venezuelan assistance international and regional forums, including the programs. Some noted Maduro’s assertion earlier

6 ATLANTIC COUNCIL Uncertain Energy: The Caribbean’s Gamble with Venezuela

The royalty that month that those who intervened in deductions made 9 by PDVSA indicate and $2.4 billion in 2011). that Venezuela’s Whilein comparison this figure to isthe not Venezuelan affairs immaterial, it pales 25-YEAR LOAN TERM WITH 2 PERCENT INTEREST RATE, energy cooperation 2-YEAR GRACE PERIOD waswould viewed “go dry” as a and - not-so-subtlepay a high price. hint This to agreements cost the ticestimated Venezuelan $28 billionenergy in government in excess annual costs for domes of $3 billion per year. 10 Petrocaribe8 member subsidies. states. As well, in domesticPetrocaribe politics would as Marchsupported 2014, declaration the OAS Venezuelansappear unwise continue for passedexpressing a Caracas- support -

suffering from short for the Maduro government’s efforts to end the ages of basic consumer goods including flour, 11 politicalVenezuela crisis has in purchasedVenezuela. this Only political the United support States, at cooking oil, butter, milk, toilet paper, and diapers. Canada, and Panama opposed the resolution. But although the opposition has expressed strong reservations about continuing Petrocaribe, they a lesser economic cost than is sometimes assumed. have, thus far, not made 12the program a prominent The royalty deductions made by PDVSA, Venezuela’s target of their criticism. These developments -owe state-owned oil and natural gas company, indicate in part to Petrocaribe’s small relative cost, but they that all Venezuelan energy cooperation agreements, also reflect decades of energy cooperation pro including Petrocaribe and arrangements under the- grams with Western Hemisphere neighbors. The- Convenio Integral de Cooperación Cuba-Venezuela inherent value of such programs remains apparent, cost the Venezuelan government in excess of $3 bil at least to some extent, to major political stake lion per year ($3.2 billion in 2013, $2.7 billion in 2012, holders nationwide.

ATLANTIC COUNCIL 7 Uncertain Energy: The Caribbean’s Gamble with Venezuela

The Oil Alliance’s Impact

- FIGURE 2. Petrocaribe Crude/ 2008—2012 enezuela has proven capable of sus Products Deliveries taining Petrocaribe through significant (IN THOUSANDS OF BARRELS OF OIL PER DAY—BPD) PRODUCTS CRUDE OIL Vpetroleum productspolitical, suppliedeconomic, by and Venezuela oil sector to 121 headwinds. The quantity of crude and 110 45 57 99 95 86 Petrocaribe recipient states increased from 86,000 54 52 see figure 2 51 (barrels of oil per day) bpd in 2008 to 121,000 bpd 76 in 2012 [ ]. Additionally, although Venezuelan refined product 53 45 43 exports to Cuba declined following reactivation of 35 the Cienfuegos refinery in 2008, overallsee figure combined 3 crude and product exports have remained quite 2008 2009 2010 2011 2012 steady, totaling 91,000 bpd in 2012 [ ]. Source: Jorge Piñon, Petrocaribe: A Supply-Demand Analysis, University of Texas — Austin Jackson School of Geosciences Latin America and Caribbean While reliable Petrocaribe export data disaggregated- Program, Presented by Jorge Piñon in Doral, Florida, June 16, 2014, slide 6. by product is difficult to attain, product exports FIGURE 3. Cuba Petroleum largely include fuel oil and diesel for electricity gen Deliveries 2006—2012 eration, diesel and gasoline for transportation, and (IN THOUSANDS OF BARRELS OF OIL PER DAY—BPD) liquified petroleum gas for cooking fuel. The benefits of Petrocaribe for recipient states PRODUCTS CRUDE OIL are somewhat mixed. The program has historically 98 96 93 92 93 93 91 provided recipients with short-term credit relief 84 91 followed by high indebtedness. While years of easy 41 45 76 84 85 credit allowed budget space for recipient state economies, debt to Venezuela now comprises large shares of their growing total debt burden. - The costs of Petrocaribe and other energy 52 cooperation agreements are significant. While com 47 prehensive publicly available data is scarce, the debt- that these states owe Venezuela as a percentage of GDP is thought to range from 10 percent to 20 per cent for several countries. Many other states hover 17 14 just under 10 percent. Among the largest Petrocaribe 9 5 6 2006 2007 2008 2009 2010 2011 2012 recipients, the Dominican Republic’s debt was $3.8- Source: Jorge Piñon, Petrocaribe: A Supply-Demand Analysis, University of Texas — Austin Jackson School of Geosciences Latin America and Caribbean billion in March 2014, up from $3.6 billion at the end Program, Presented by Jorge Piñon in Doral, Florida, June 16, 2014, slide 10. of 2013. Jamaica’s debt was approximately $2.7 bil lion at the end of 2013.

8 ATLANTIC COUNCIL Uncertain Energy: The Caribbean’s Gamble with Venezuela

Product-Dependent Recipient States Are Turning to the United States This continued dependence on Petrocaribe has delayed recipient state migration away from high- carbon and high-cost fuel oil and diesel. Natural gas, Recipient states that lack refineries and renewables, or other forms of distributed generation depend in part on Petrocaribe product cannot compete with credit-supported purchases of exports (referring to all Petrocaribe member crudeenergy and costs product. in real Dependenceterms hamper also both has domestic impeded states with the exception of the Dominican the region’s long-term competitiveness, as high Republic, Jamaica, and Nicaragua) are nonetheless meeting shares of domestic demand by increasing and foreign investment. The IDB Pre-Feasibility their purchases of market-priced US petroleumsee figure 5, Study showed the average retail tariff for ten major products.p10 Purchases nearly doubled from 2008 to Caribbean utilities in 2012 at $0.33 per kilowatt-hour,13 2012, 14from 58,000 bpd to 104,000 bpd [ an increase from $0.31 in 2011 and $0.27 in 2010. ]. Petrocaribe financing is a critical part of Venezuela’s Petrocaribe product export levels Caribbean national income. According to the IMF’s are thought to be sufficiently small to survive - April 2014 Western Hemisphere economic outlook, tureadditional pressures. Challenges could range from Venezuelan financing accounts for nearlysee 7 figure percent 4 thatdifficulties 15provide faced Venezuela by Venezuela’s with much-needed refinery infrastruc capital of Nicaragua’s GDP, and more than 4 percent of GDP to the growing export obligations to China for Haiti, Belize, Guyana, and Jamaica [ ].

FIGURE 4. External Financing from Venezuela, 2012 (PERCENT OF GDP)

8% Nicaragua 7%

5% Haiti Belize Guyana Guyana 4% Jamaica Antigua and Barbuda 3% Grenada

2% St. Kitts and Nevis Kitts and Nevis St. Dominican Republic Dominican Republic 1% Dominica St. Vincent and the Grenadines Vincent St. St. Lucia St. Bolivia Paraguay Paraguay Uruguay 0% Argentina

Source: National authorities, Petroleos de Venezuela S.A. (PDV SA), and IMF staff calculations.

ATLANTIC COUNCIL 9 Uncertain Energy: The Caribbean’s Gamble with Venezuela

FIGURE 5. Exports to Petrocaribe Countries (2008-2012)

COUNTRIES WITHOUT REFINERIES COUNTRIES WITH REFINERIES

VENEZUELA UNITED STATES Annual exports, in thousands of barrels of oil per day Annual exports, in thousands of barrels of oil per day 120 120 116 104 100 100 82 80.6 77.9 80.3 80 80 69 66.7 67.5 58

60 60 56 53 40 40 46 46 40.7 40 29.3 20 27.1 20 18.8 21.3

0 0 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 Source: EIA Database, http://www.eia.gov/petroleum/data.cfm, and PDVSA Annual Reports. Data organized by Jorge Piñon, University of Texas, Austin Jackson School of Geosciences Latin America and Caribbean Program. Transmitted to Goldwyn Global Strategies on May 20, 2014.

The Dominican Republic, already meeting incremental demand16 by purchas- Jamaica, and Nicaragua: and market-rate export revenues. Countries are Few Incentives to Change - ing product on commercial terms. But they would dent on Venezuelan product exports are face significant fiscal pressure if forced to move Smaller Petrocaribe recipient states depen fully to commercial purchases. - It is also unclear how free member countries purchasing larger quantities of US product would be to switch suppliers. PDVSA has progres to meet incremental demand. The Dominican issively that acquiredthe company shares has in the regional ability logistics, to limit regional fuel Republic, Jamaica, and Nicaragua, however, all distribution, and refining infrastructure. The result possessenergy cooperation refineries primarily with Venezuela capable indicates of processing less Venezuelan crude, and the unique nature of their imports of non-Venezuelan crude oil and17 products theeven high if PDVSA electricity itself costs loses associated market share. with expensive potential to change fuel supply or suppliers. - Additionally, US product exports alleviate neither Although the Dominican Republic, Jamaica, and Nicaragua comprise only three of Petrocaribe’s thir fuel oil and diesel, nor the negative climate impacts teen active member states, in 2012 they accounted theirstemming energy from needs these in acountries’ more comprehensive dependence onway for just over 80,000 bpd18 of the 121,000 bpd that crude and refined product. These states could meet Petrocaribe exported. After Esso decided to give- uplished its stakejoint venturesin Jamaica’s with refinery indigenous and Shell companies did the by transitioning from fuel oil and diesel to natural same in the Dominican Republic, PDVSA estab gas. Such an initiative would require US leadership, local buy-in, and international support. in both countries to operate the facilities. The indigenous companies have a 51 percent share in

10 ATLANTIC COUNCIL Uncertain Energy: The Caribbean’s Gamble with Venezuela

Dominican and Jamaican - state-owned companies both refineries, while Partnerships PDVSA has 19a 49 per with PDVSA have cent share. shielded Dominican from half of the potential Although PDVSA and Jamaican operating losses, allowing does not have a stake the refineries to continue state-owned in Nicaragua’s refinery, Venezuelanfunctioning. cooperation theclose operator, ties with Puma both companies from withLooking all three ahead, countries Energy, maintains half of the potential will persist as long as

Venezuela and Cuba. operating losses. Thediesel refinery to meet produces electric- PDVSA continues to itymostly and fueltransportation oil and Venezuelasupport loss-making proved unable investments. However, if - demand. In Jamaica, fuel oil is also used to power tosmaller sustain countries refinery solely support, reliant the onconsequences Venezuelan production of aluminum, the country’s largest com would be far more complex than those facing modity export. These arrangements also provide tangible product. PDVSA’s inability to shoulder half of the - benefits to recipient countries, especially the operating costs at the Dominican Republic and Dominican Republic and Jamaica. The refineries Jamaica refineries would likely lead to the shutter serve as important sources of employment on both ing of both, resulting in significant job losses. islands, where jobs and economic opportunity are While replacing refineries with terminals to often scarce. import refined products would ultimately lower despiteBoth countries’internationally partnerships uncompetitive with PDVSA operating energy costs, terminals would not employ as many- enable their refineries to continue operations workerstions other as thethan refineries. Venezuela As would with thenot smalleralleviate islands, imports of refined products from loca costs,same economicwhich stem challenges largely from led Valerotheir use to closeof fuel oil rather than natural gas as a source fuel. These the negative economic and climate effects of their dependence on fuel oil. The governments of all its Aruba refinery in 2011 and Hess and PDVSA to three countries would also lose access to cash from take the same action at their refinery in St. Croix. Petrocaribe’s generous credit financing terms, with Partnerships with PDVSA, however, have shielded negative fiscal implications.

ATLANTIC COUNCIL 11 Uncertain Energy: The Caribbean’s Gamble with Venezuela

Moving Beyond Petrocaribe?

region’s international competitiveness and energy - he United States has already become the dominant supplier of petroleum products future. The region would, as a result, remain vul Tto the Caribbean region, a consequence nerable to a shock that a rapid turn to all purchases of the shale oil boom. US product exports without credit support would inflict. This would to Petrocaribe states totaled 160,000 bpd in 2012,- deprive governments of significant cash flow to well above Venezuela’s 121,000 bpd in combined finance other initiatives. crude and product exports. This marks a signifi Indications already exist that Venezuela is seeking cant change from 2009, when US exports, which to mitigate the costs of the program by tightening totaled approximately 109,000 bpd 20that year, were credit terms. Maturities have reportedly shortened- just below Venezuela’s 110,000 bpd. These exports to fifteen and seventeen years from the previous provide Caribbean states with a stable source of twenty-five years, while interest rates have report petroleum products. (US law prohibits exports of - theyedly risenmay persistfrom 1-2 provide percent yet to 3-4another percent. incentive to crude oil at this time.) These emerging trends and the potential that The United States has security, climate, and eco nomic interests in the stability and prosperity of the United States to lead international efforts to the Caribbean. The Obama administration’s climate begin transitioning Petrocaribe member states agenda puts important emphasis on the fate of away from dependence on the program. small island states. Yet, the current Venezuelan regime is likely As previously mentioned- events at the OAS to sustain Petrocaribe and continue reaping its - demonstrate, US influence in the region suffers as a political benefits. The United States must decide resultties with of Venezuela’sthe Dominican alli whetherinterest in it changingfinds a suf ance with Nicaragua, and Indications ficient foreign policy - that are closer than they already exist ing its economic and wouldRepublic be andwithout Jamaica the that Venezuela thissecurity dynamic, interests consider in helping expand the - is seeking to uesprogram. to rely on Venezuelan mitigate the costs crude If the and Caribbean product continto of Petrocaribe by prosperity of the region. The United States tightening credit - electricity and transpor- alsoent Venezuelan must plan for regime the meet demand for the terms. possibility that a differ- stantially reduce the tation sectors, it will have might quickly or sub significant impacts on the

12 ATLANTIC COUNCIL Uncertain Energy: The Caribbean’s Gamble with Venezuela

- The long-term The words, “natural gas,” do not even appear solution for in the new strategy. Without an explicit US com mitment to work with the IFIs to bring about an Petrocaribe eventual regional transition away from fuel oil and economies is to shift diesel to natural gas and, eventually, renewables, from dependence on the private sector will lack a clear signal to help finance the initial, natural-gas-dominant phases of Venezuelan products Athis Path transition. Forward? to lower cost and lower carbon sources. The salient question for the United States, its allies, and the regional and international financial institutions is whether this current state of play can serve as an opportunity to set the Caribbean on a new energy pathway. Such a course- program altogether. The Obama administration’s would also reduce dependence on artificially low announcement of CESI on June 19, 2014, suggests Venezuelanaccess to lower credit cost support natural to gas finance and renewables national bud there is strong interest in changing this dynamic. gets. Instead, Petrocaribe members would enjoy- The initiative’s stated intent is to help effect a more diverse Caribbean energy mix, primarily by using from diverse sources of supply including, even Overseas Private Investment Corporation (OPIC) tually, ample domestically produced renewable loans, guarantees, and other credit enhancements energy. Such efforts would put these nations on to attract private capital for new renewable energy a lower cost, lower carbon, and more politically projects and offering to help any nation willing to autonomous energy path than they face today. consider serious policy reforms. Each Petrocaribe member has a different energy- But renewable energy is not a viable short- or calculus and domestic situation. Yet they share a medium-term strategy for addressing the region’s- dependence on fuel oil or diesel for power genera basethermal load energy energy in needs. two countries Moreover, signals the checkered serious tion, a need for fairly priced transportation fuel, history of attempts to draw investment to geo and a stark choice of whether to move toward renewables should comprise a considerable share cheap coal, more high-carbon fuel oil, or lower challenges for its long-term prospects. While carbon choices of natural gas mixed with increased shares of renewables. of the Caribbean’s future energy mix, until the code The success of any program will rely largely on is cracked on storage of renewable energy it will whether the United States and the IFIs can craft only hold a niche share of total supply. a financing package that proves enticing to the The challenge is how to replace fuel oil and Dominican Republic and Jamaica, both of which diesel as sources of fuel for power generation and reap short-term fiscal and employment benefits how to wean the region’s nations from Venezuela’s from their continued cooperation with Venezuela. unsustainable supply of cheap credit. As other The credit terms Venezuela offers are currently countries and the IDB are demonstrating, natural morehas demonstrated generous than the those political they will could to receiveconsider from gas is a more scalable and affordable short- and the IFIs, so the threshold is high. The United States medium-term strategy.

ATLANTIC COUNCIL 13 Uncertain Energy: The Caribbean’s Gamble with Venezuela

FIGURE 6. Long-Run Marginal Cost of Natural Gas Fired Power Generation (IN CENTS PER KILOWATT-HOUR)*

FUEL COST (NATURAL GAS) NON-FUEL COSTS

15.7 14.0

11.9 11.9 11.2 11.2 11.7 11.4 4.4 10.5 10.9 10.9 10.5 10.9 4.4 10.1 4.5 4.4 4.5 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4

6.7 6.1 6.4 9.5 5.6 7.5 6.5 6.7 6.0 7.3 6.9 7.5 6.5 11.3 Cents per Kilowatt-Hour per Kilowatt-Hour Cents Oil) Haiti Nevis Guyana Jamaica Grenada Barbuda St. Lucia St. Republic Bahamas Suriname Dominica Barbados Dominican (Heavy Fuel (Heavy St. Kitts and St. Antigua and Speed Diesel Regional Low Low Regional the Grenadines St. Vincent and Vincent St. Source: Jed Bailey, Nils Janson, and Ramon Espinasa, Pre-Feasibility Study of the Potential Market for Natural Gas as a Fuel for Power Generation in the Caribbean, Inter-American Development Bank, December 2013. *Due to rounding total percentages cannot be calculated by adding values

such an effort through its work to initiate and providing assistance in conceiving, financing, and sustain the Energy and Climate Partnership of even supplying new energy infrastructure, the the Americas (ECPA), which President Obama United States and IFIs can lay the groundwork for a announced at the Summit of the Americas in more integrated Caribbean and Central America.- April 2009, and its more recent Caribbean Energy The largely Caribbean nations reliant on Security Initiative commitments. But the key steps Petrocaribe all face difficult economic circum for engaging the core Petrocaribe countries as well- stances. Their economies tend to be small, isolated, as securing near-term and financial transitions and dependent on tourism revenues, while they remain unclear. The United States has an opportu- face heavy debt burdens and high energy and labor nity to use the August 2014 ECPA planning session costs. Their inherent economic fragility indicates in Montevideo, Uruguay, to focus regional atten they could all suffer a serious shock from more tion on this issue in the lead up to the 2015 ECPA rapid declines in Petrocaribe fiscal support and Ministerial in Mexico. higher real commodity prices. If the United States stands by and lets these The long-term solution for these economies is nations risk and potentially endure the fiscal to shift from dependence on Venezuelan high-cost, shock, it will simply validate the perception that- US medium grades of crude oil and refined products to policy is more anti-Venezuelan than pro-Caribbean. lower cost (and lower carbon) sources. Therefore, the region needs a US-led multilat The IDB Pre-Feasibility Study examined the

14eral response to set it on a new energy path. By feasibility of introducing naturalATLANTIC gas into thirteen COUNCIL Uncertain Energy: The Caribbean’s Gamble with Venezuela

Caribbean economies. It determined that replacing There are additional advantages to a move to gas. liquid fuels with natural gas, in combination with These include the potential conversion of vehicles energy efficiency and renewable energy measures, from gasoline to dual fuel/natural gas vehicles as produced net benefits to every country, lowering Figure well as the introduction of more hybrid vehicles to 6the cost of fuel and the price of power, as 21well as theDomestic system once Challenges electricity prices Remain come down. substantially reducing carbon emissions. (see previous page) shows IDB analysis of the long-run marginal cost of natural gas fired power The internal policy reforms required to create- generation relative to low-speed diesel. an enabling environment for natural gas The study determined that liquefied natural gas and renewables are significant. CESI recog (LNG) was the cheapest form of delivery, as it was nizes this predicament, and it calls for the United both more efficient than compressed natural gas States to cooperate with other donors to accelerate (CNG) and more practical than a pipeline system. regional efforts to affect new regulatory models It also found that the lowest cost LNG would be - more conducive to diversificiation. Great variation sourced from the US Gulf Coast, and that small-scale exists among the energy systems of the region. regasification technology could provide every coun long-termSome countries contracts have that monopolies they will be on reluctant generation, to try with appropriate infrastructure at around $30 22 transmission, and distribution. Many utilities have- million for regasification and off-loading facilities. The Dominican Republic is already home to the wind down. A lack of policy support for renew AES Andes LNG import terminal, the first of its ables, and in some cases subsidies for electricity, kind in the Caribbean, and could be a large enough disincentivizes energy efficiency technology. Some consumer to support an expansion of this facility or countries effectively prohibit self-generation, even an additional, larger-scale terminal. Combined impeding the spread of distributed energy systems with Jamaica, the two nations would account for - or the integration of solar energy. Energy subsidies nearly three-quarters of the region’s total annual gas have starved many grids of investment, limiting consumption, which the IDB estimates will be 1 bil their ability to withstand new generation. lion cubic feet per day (bcf/d) by 2020. Yet the framework for change exists. The Caribbean Both the United Community (Caricom) has made great strides in promoting renewable energy through its Caribbean- States and the IFIs Renewable Energy Development Program (CREDP). have recognized the Regional states have also undertaken national initia- importance of tivesdering to important experiment successes with introducing and lessons greater that couldshares be of facilitating the wind and solar power into their energy mixes, ren 23 emergence of a more applied to larger-scale future efforts. the political chal- secure and sustainable lengesWhile are a regionalserious and approach would tobe24 energy time-consuming would to Caribbean energy provide aggregate cost savings,

future. overcome without other assistance.

ATLANTIC COUNCIL 15 Uncertain Energy: The Caribbean’s Gamble with Venezuela

Caribbean Energy Future

interconnectiongeothermal energy26 with is Puertonot yet Ricoeconomically may become viable a Both the United States and the IFIs have viable option. The study indicates, however, that recognized the importance of facilitating the emergence of a more secure and sustainable on a large scale. Caribbean energy future. The US-launched Energy- Popular support for geothermal projects has and Climate Partnership of the Americas includes plunged, tasking governments with boosting public a Caribbean Initiative, which has attracted partici support by demonstrating results. The United pation from both Petrocaribe and non-Petrocaribe Statesassistance has contributedto help it issue to alleviatingcompetitive this project situation re- member states. The Caribbean Initiative aims to by providing St. Kitts and Nevis with technical leverage regional dialogue, technical assistance, implementuniversity partnerships, sustainable energy and market policies assessments and pro- tenders. Moving forward, the United States should to help Caribbean governments promote and continue to help the Caribbean states develop 25 geothermal and other renewable resources. grams. Although it does not mention the need In addition to issues of scale, Caribbean states to utilitize natural gas as a bridge fuel, the more face several challenges to attracting private recently launched CESI further indicates the United investment in renewables as either a source of States’ understanding of the importance of these areadditional either unwillingdomestic orsupply unable or toa means develop to investfacilitate- Challengesissues. to Renewable Power regional interconnection. National governments

- ment frameworks supporting resource diversity Beginning in 2011, the Caribbean Initiative or independent power producer (IPP) market studied the prospects for electrical inter penetration. Countries also must grapple with a connection between St. Kitts and Nevis and- lack of government experience with renewable Puerto Rico. A pre-feasibility study focused on St. technologies, poorly managed grids suffering from Kitts and Nevis’ geothermal capabilities, suggest above-average transmission losses, and the fiscal ing that if geothermal power generation grows to inability to offer incentives27 to offset high capital accommodate economical, larger-scale production, andNatural development Gas as costs. a Bridge Popular support for geothermal projects Aprojectslthough developmentsthat despite growing will vary renewables by region, the International Energy Agency (IEA) has plunged, tasking - governments market penetration, fossil fuels will still com with boosting prise 75 percent of the global energy mix in 2035. public support by Meanwhile, as the global LNG trade accelerates, demand growth for natural28 gas is poised to outpace demonstrating that of both oil and coal. results. Governments should leverage existing market- trends and embrace gas as a near-term bridge fuel to promote energy security and facilitate invest ment in regional interconnection infrastructure.

16 ATLANTIC COUNCIL Uncertain Energy: The Caribbean’s Gamble with Venezuela

Governments natural gas can contrib- Caribbean states should replacing liquid fuels with pursuing the long-term goal should leverage undertake these efforts while power costs throughout existing market ute to lowering fuel and of accelerating development trends and - challengesof renewables. to a regional embrace gas as a the Caribbean and Central conversionThe greatest to natural economic gas will America.perhaps the Mexico’s most recentpend near-term bridge ing energy reforms offer guaranteeing credit worthy fuel to promote be securing supplies of LNG, energy security. example of a country naturalseeking gasto substitute in power genlarge- off-takers, and financing - quantities of fuel oil for regasificationtial challenges and may offloading include infrastructure. Other poten eration to fulfill both fiscal29 - and climate imperatives. securing assistance to finance the conversion of As Petrocaribe declines, the question for the United- existing diesel-fired facilities to gas-fired genera States and IFIs is whether to address these supply tion (both less costly than new facilities and more and financing issues and take a strategic step for appealing to existing owners) and helping convert ward for regional energy and climate security and automobiles to natural gas utilization. US-Caribbean relations. Yet, as the IDB Pre-Feasibility Study asserts,

ATLANTIC COUNCIL 17 Uncertain Energy: The Caribbean’s Gamble with Venezuela

Policy Recommendations The United States can help Caribbean countries move away from their dependence on Petrocaribe by pursuing six policy approaches.

Treat the Caribbean’s energy counter this doubt by leading 1uncertainties as both a pri- ority and an opportunity. with participation from USAID, region’s energy security vul- Commerce, Treasury, Energy, international efforts, in ECPA and The USTDA,Declare OPIC, exports and the of ExIm LNG Bank. and other relevant forums, to explore - 2crude oil to be in the US hasthe IDBdone Pre-Feasibility an important Study’sservice in nerabilities present US foreign national interest. viability in greater detail. The IDB policymakers with a rare opportunity to proactively prevent a crisis. The United preparing its pre-feasibility study By launching an effort to trans States could provide an alternative wishto find to a consider lower carbon a deeper pathway review for form Caribbean energy, the United- source of energy to Petrocaribe the region. The United States may moteStates closer can forestall diplomatic a potential relations at states by expediting approval of fiscal crisis in the region and pro LNG infrastructure and finding couldto advance also lead this awork dialogue through with the all exports of LNG to Caribbean USTDA. The Department of Energy a relatively low cost. The desire of nations reliant on Petrocaribe - theCaribbean vice president’s nations for commitment US support (other than Cuba) to be in the cientLNG exporters ways to move and transportersnatural gas to to tofor engagement energy transformation in the hemisphere and national interest under the Natural explore the most rapid and effi present a historic opportunity to Gas Act. Both of these measures restore regional ties and redirect would contribute to facilitating the Caribbean.Target the 2015 ECPA the marketing of supply to those 4Summit to kickstart a competitive and lower carbon nations. To further these efforts, Caribbean energy transition. Caribbean economies to a more suppliesthe United by States determining should crudealso bring or issue could enhance the region’s condensatedown the cost exports of existing to these crude states oil - energy future. Leadership on this to be in the national interest and Planning meetings leading up to the 2015 ECPA Ministerial, includ- development and reduce its debt, ing the August 2014 gathering in foster cleaner energy sources, allowing free export of these fuels Montevideo, should turn atten reduce its electricity costs, help to Caribbean nations at West Texas tion toward engaging Caribbean US exports, mitigate the risk of Intermediate (WTI) or Louisiana nations in a collaborative effort an out-of-control migration event LightTake Sweet a serious (LLS) prices. look at a to find ways to bring natural gas and wean the Caribbean from 3natural gas strategy for the to the region. More broadly, the Venezuela’s political influence.- Caribbean. - United States should ensure that eignThe Unitedpolicy priorityStates should by creating show a ECPA has a commercial track that, the Caribbean is a lasting for Obama administrationThe failure vulnerable to men with support from the Department totion criticism natural thatgas init isCESI ideologi leaves- the andof Commerce, renewable matches companies natural with viceCaribbean president Energy and Transformation integrated cally opposed to natural gas as gas, engineering, gas transport, Task Force, headed by the Caribbean nations. by the Departments of State, a low-carbon strategy. It should 18 ATLANTIC COUNCIL Uncertain Energy: The Caribbean’s Gamble with Venezuela

Plan for a potential cutoff of 5Petrocaribe financing. theWorld policy Bank, environment and IDB on in a corethe recipientproduction, states’ and growingdependence need on The set of policies that could enhance for hard currency. Petrocaribe creditUnited support States must and showplan now the for a potential reduction of Petrocaribe Caribbean for the introduction of unstable, below-market credit naturalCoordinate gas and renewables.with the IFIs generationcomprises ais significant a continuing risk drag and on Caribbean a credible, viable 6to promote policy reform. their reliance on fuel oil for power alternative. The Department of Yet the program may linger Treasury should be tasked to- work the region’s economies. with IFIs to devise credit support Political and economic realities supportedfor Caribbean crude nations oil to transi cleaner dictate that the United States alone supporton, driven in bythe Venezuela’s hemisphere need and tothe tioning from fuel oil and credit cannot guide Petrocaribe states maintain some level of political on the road to beneficial energy moresources tools of energy.at its disposal to help policy reform. As CESI rightly lack of a viable energy or economic promote The United investor States interest also has in the acknowledges, the IFIs are also an Venezuelanalternative for administration Petrocaribe might important player in this process. countries. But a different Both the IDB Pre-Feasibility region’s energy infrastructure. demonstrateStudy and a separate their concerns IMF consider it too costly to sustain. The Caribbean Energy Security analysis discussing Petrocaribe This moment, when the risk is andInitiative other rightly credit callsenhancements for OPIC to to high, but the crisis is not yet upon provide targeted loans, guarantees, leveragingregarding30 the commitments Caribbean’s to energy policy us, is the time for sound and future. The IFIs’ role includes tosober help policy its neighbors planning. transition The United attract private sector capital for toStates an economically can seize this stable opportunity and new projects. This undertaking can reform for credit guarantees for environmentally sustainable be further expanded by including LNG purchases and financing the Export-Import Bank (with its powerenergy-saving plant conversion corporations, or even ability to finance large projects) which could advance the cost of model at a modest cost. The and USTDA (which helps identify byUnited potentially States’ providingenergy bounty low- helps viable projects) in such efforts. automobile fuel conversion and lower the cost of this transition The administration should direct establishpay for themselves or provide over seed time capital with the focus of all three agencies the costs saved. IFIs should also cost natural gas to the region, as to include not only renewables, or energy service companies to recommended by the IDB. but also financing conversion for energy savings companies What is needed, in the United of fuel oil plants to natural gas States and in the Caribbean, is the and construction of small-scale address efficiency improvements leadership to change course now. regasification plants. in government buildings, hotels, statesThe United to overcome States must entrenched expand its The Commerce Department’s Theindustry, New and Reality residential for homes. commitment to help Caribbean importantCommercial role Law by Development devising Petrocaribe Program can also play an rom an economic theirinterests hydrocarbons that may seek and toelectricity derail work to diversify and reform model uniform independent Fappears unsustainable power producer contracts for gas over theperspective, long run as Petrocaribe Venezuela sectors. The United States and and renewables for Caribbean its allies can leverage the Energy countries. In a manner consistent and Climate Partnership’s 2015 with the Caribbean Energy faces declining investment in oil Ministerial in Mexico as a forum Security Initiative’s existing decreasedproduction petroleum and exports, product increased for a new direction forward. commitments, the United States domestic hydrocarbons demand, should coordinate with the IMF, ATLANTIC COUNCIL 19 Uncertain Energy: The Caribbean’s Gamble with Venezuela

Endnotes Pre-Feasibility Study of the Potential Market for Natural Gas as a Fuel for Power Generation in the Caribbean 1 Jed Bailey, Nils Janson, and Ramon Espinasa, , Inter-American Development Bank, December 2013, http://publications.iadb. - org/handle/11319/6015?scope=123456789/1&thumbnail=true&rpp=5&page=30&group_by=none&etal=0. 2 More information about the Caribbean Energy Security Initiative is available at http://www.white house.gov/the-press-office/2014/06/19/fact-sheet-promoting-energy-security-caribbean. 3 Petrocaribe’s initial thirteen signatories included Antigua and Barbuda, the Bahamas, Belize, Cuba, Dominica, Granada, Guyana, Jamaica, the Dominican Republic, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, and Surinam. Current members - are Antigua & Barbuda, Belize, Dominica, Dominican Republic, El Salvador, Grenada, Guyana, Haiti, Jamaica, Nicaragua, St. Kitts and Nevis, St. Vincent and Grenadines, and Suriname. Some estimates show more members. The PDVSA website documents eigh teen Petrocaribe member states, including Venezuela (http://www.petrocaribe.org/index.php?tpl=interface.en/design/union/ readmenuprinc_acerca.tpl.html&newsid_temas=4). However, this figure includes countries that signed on to Petrocaribe but either never received contracted Petrocaribe exports or have not received them for several years. These include Honduras, Bahamas, Cuba, and St. Lucia. Outside observers estimate that there are currently as few as thirteen active Petrocaribe member states. - 4 Among previous agreements are the San Jose Accord, which came into force in 1980 and comprised joint Mexican/Venezuelan efforts to provide oil to Caribbean states, and the Caracas Energy Agreement, a Venezuelan initiative for the same pur pose that was initially proposed in October 2000. Under the Caracas Energy Agreement, only 10-25 percent of the required payment was rolled over into long-term loans, which generally lasted for fifteen years, with a one-year grace period and a 2 percent interest rate. See http://www.pcj.com/dnn/AlliancesandJointVentures/tabid/75/Default.aspx. 5 “Petrocaribe,” Petróleos de Venezuela S.A., http://www.PDVSA.com/index.php?tpl=interface.sp/design/readmenuprinc.tpl. html&newsid_obj_id=174&newsid_temas=48. The original 2005 terms on the payment clause offered fifteen-year loans, with a one-year grace period and a 2 percent interest rate. After the 2008 price shock, at the Maracaibo Summit, Venezuela made the terms more generous, offering twenty-five-year loans, with a two-year grace period and a 1 percent interest rate. Additionally, short term payment terms were extended from thirty to ninety days. For more information see: http://jamaica-gleaner.com/extra/ article.php?id=222 or http://www.pdvsa.com/index.php?tpl-interface.en/design/readmenuprinc.tpl.html&newsid_temas=48. Figure 1 demonstrates that the loan terms have subsequently tightened. Terms on offer are now seventeen- or twenty five- Christian Science Monitor year loans (depending on the Venezuela benchmark price), with a two-year grace period and a 2 percent interest rate. 6 Ezra Fieser, “Petrocaribe: Paying Beans for Venezuelan Oil,” , March 27, 2013, http:// Wall Street Journal www.csmonitor.com/World/Americas/2013/0327/Petrocaribe-Paying-beans-for-Venezuelan-oil. 7 José De Córdoba, “Regional Body for Americas at Center of Venezeula Showdown,” , March - 21, 2014, http://online.wsj.com/news/articles/SB10001424052702304026304579453831436990584. 8 CaracasMiami Diario, Chronicles “Bankrolling Votes in the OAS Pays Off for Venezuelan Regime,” March 21, 2014, http://www.miam idiario.com/opinion/venezuela/nicolas-maduro/oas/protests/321721; Francisco Toro, “The Petrocaribe Trap,” - , March 31, 2014, http://caracaschronicles.com/2014/03/31/the-petrocaribe-trap/. 9 Petróleos de Venezuela, S.A. y su filiales (PDVSA), “Estados Financieros Consolidados al 31 de diciem bre del 2013, con el informe de los Contadores Públicos Independientes.” http://www.pdvsa.com/index. php?tpl=interface.sp/design/biblioteca/readdoc.tpl.html&newsid_obj_id=5319&newsid_temas=111, p45. 10 International Energy Agency, http://www.iea.org/subsidy/index.html. 11 Lourdes Garcia-Navarro, “Venezuela in Turmoil For Lack of Flour, Milk, and Diapers,” National Public Radio, March 16, 2014, http://www.npr.org/blogs/parallels/2014/03/16/290516431/venezuela-in-turmoil-for-lack-of-flour-milk-and-diapers. 12 Marianna Parraga, “Venezuela’s Opposition Wants to Scrap Preferential Oil Deals,” Reuters, August 1, 2012, http:// Pre-Feasibility Study of Potential Market for Natural www.reuters.com/article/2012/08/01/us-venezuela-election-opposition-oil-idUSBRE8701UA20120801. Gas as a Fuel for Power Generation in the Caribbean, 13 Bailey, Janson, and Espinasa, pp 75-76. 14 EIA Database, http://www.eia.gov/petroleum/data.cfm. Data organized by Jorge Piñon, University of Texas, Austin Jackson Christian Science Monitor, School of Geosciences Latin America and Caribbean Program. Transmitted to Goldwyn Global Strategies on May 12, 2014. 15 Andrew Rosati, “Who Was Behind Venezuela’s Deadly Oil Refinery Explosion?” September 16, 2013, http://www.csmonitor.com/World/Americas/2013/0916/What-was-behind-Venezuela-s-deadly-oil-refinery-explosion. 16 Carla Bass, “Figures on Venezuela’s Oil, Product Exports to China Are for the Birds,” Platts, March 21, 2013, http://blogs.platts.com/2013/05/21/venz-numbers/. 17 For example, PDV Caribe has shares in regional logistics and/or fuel distribution infrastructure in Belize, Dominica, El Salvador, Grenada, Nicaragua, St. Kitts and Nevis, and St. Vincent and the Grenadines. For more information see Jorge Piñon, Petrocaribe: A Supply-Demand Analysis, University of Texas — Austin Jackson School of Geosciences Latin America and Caribbean Program, presented by Jorge Piñon in Doral, Florida, June 16, 2014, slide 17. 18 PDVSA Annual Financial Reports, http://www.pdvsa.com/index.php?tpl=interface.sp/design/biblioteca/readdoc.tpl. html&newsid_obj_id=5319&newsid_temas=111. Data organized by Jorge Piñon, University of Texas, Austin Jackson School of Geosciences Latin America and Caribbean Program. Transmitted to Goldwyn Global Strategies on May 12, 2014.

20 ATLANTIC COUNCIL Uncertain Energy: The Caribbean’s Gamble with Venezuela

19 “PDVSA acquires 49% of Petrojam,” BNA Americas, August 13, 2007, http://www.bnamericas.com/news/ oilandgas/PDVSA_acquires_49*_of_Petrojam; James Suggett, “Venezuela’s PDVSA Purchases 49% of Dominican Refinery,” Venezuela Analysis, May 6, 2010, http://venezuelanalysis.com/news/5339. 20 EIA Database, http://www.eia.gov/petroleum/data.cfm, and PDVSA Annual Financial Reports, http://www. pdvsa.com/index.php?tpl=interface.sp/design/biblioteca/readdoc.tpl.html&newsid_obj_id=5319&newsid_ temas=111. Data organized by Jorge Piñon, University of Texas, Austin Jackson School of Geosciences Latin Pre-Feasibility Study of Potential Market for Natural Gas as a Fuel for Power Generation in the Caribbean America and Caribbean Program. Transmitted to Goldwyn Global Strategies on May 20, 2014. Pre-Feasibility Study of Potential Market for Natural Gas as a Fuel for Power Generation in the Caribbean 21 Bailey, Janson, and Espinasa, . Renewable Energy Sector Development in the Caribbean: Current Trends and Lessons from History 22 Bailey, Janson, and Espinasa, , p. 34. 23 Daniel Kammen and Rebekah Shirley, , Goldman School of Public Policy, University of California–Berkeley, November 2011, http://rael.berkeley.edu/sites/default/files/ Kammen-Shirley-JEPO.pdf. 24 The IDB suggests one option to spread costs fairly would be to implement a fixed regional pricing scheme that charges a similar price to all recipient markets regardless of their size or position. IDB notes that while this would penalize countries closer to supply sources and subsidize those further away, it may manage large cost differences between larger and smaller markets. IDB cautions this would require strong political support from all participants to be viable. “Venezuela Facts and Figures,” Organization of Petroleum Exporting Countries (OPEC), http://www.opec.org/opec_web/en/about_us/171.htm. St. Kitts and Nevis — Puerto Rico DC Interconnection 25 “Initiatives,” Energy and Climate Partnership of the Americas (ECPA), http://www.ecpamericas.org/Initiatives/default.aspx?id=25. 26 , Energy and Climate Partnership of the Americas, March 2013, transmitted to Renewable Energy Sector Development in the Caribbean: Current Trends and Lessons from History Goldwyn Global Strategies on May 29, 2014. 27 Kammen and Shirley, . 28 “World Energy Outlook 2013,” International Energy Agency, November, 2014, http://www.iea.org/newsroomandevents/ Mexico Rising: Comprehensive Energy Reform at Last? speeches/131112_WEO2013_Presentation.pdf. 29 David Goldwyn, , Atlantic Council, December 2013, http://www.atlanticcouncil. Regional Economic Outlook: Western Hemisphere org/images/publications/Mexico_Rising.pdf. 30 International Monetary Fund, .

ATLANTIC COUNCIL 21 Uncertain Energy: The Caribbean’s Gamble with Venezuela

About the Authors David L. Goldwyn

is the nonresident senior energy fellow at the Atlantic Council’s Adrienne Arsht Latin America Center and president of Goldwyn Global Strategies, LLC, an international energy advisory consultancy. He served as the US Department of State’s special envoy and coordinator for international energy affairs from 2009 Mexicoto 2011, Rising: reporting Comprehensive directly to then-SecretaryEnergy Reform ofat StateLast? Hillary Clinton. Goldwyn has authored a series of works on energy issues, including his Atlantic Council report, Cory Gill (December 2013).

is an associate at Goldwyn Global Strategies, LLC. Gill served as a legislative assistant to Senator Richard Lugar on the staff of the Senate Foreign Relations Committee (2008-12), where he focused on European energy security issues and the development of Iraq’s postwar oil industry.

22 ATLANTIC COUNCIL Atlantic Council Board of Directors

CHAIRMAN

Gregory R. Dahlberg Mian M. Mansha John C. Whitehead *JonCHAIRMAN, M. Huntsman, Jr. *Paula J. Dobriansky William E. Mayer David A. Wilson INTERNATIONAL Christopher J. Dodd Eric D.K. Melby Maciej Witucki ADVISORY BOARD Conrado Dornier Franklin C. Miller Mary C. Yates Patrick J. Durkin James N. Miller DovHONORARY S. Zakheim DIRECTORS BrentPRESIDENT Scowcroft AND CEO Thomas J. Edelman *Judith A. Miller Thomas J. Egan, Jr. *Alexander V. Mirtchev *Stuart E. Eizenstat Obie L. Moore *FrederickVICE CHAIRS Kempe Julie Finley David C. Acheson Thomas R. Eldridge *George E. Moose Madeleine K. Albright Georgette Mosbacher James A. Baker, III *Robert J. Abernethy Lawrence P. Fisher, II Bruce Mosler Harold Brown *Richard Edelman Alan H. Fleischmann Thomas R. Nides Frank C. Carlucci, III *C. Boyden Gray Michèle Flournoy Franco Nuschese Robert M. Gates *Richard L. Lawson *Ronald M. Freeman Sean O’Keefe Michael G. Mullen *Virginia A. Mulberger *Robert S. Gelbard Hilda Ochoa-Brillembourg Leon E. Panetta *W. DeVier Pierson *Sherri W. Goodman Ahmet Oren William J. Perry *JohnTREASURER Studzinski *Stephen J. Hadley Ana Palacio Colin L. Powell Mikael Hagström Thomas R. Pickering Condoleezza Rice *BrianSECRETARY C. McK. Henderson Ian Hague *Andrew Prozes Edward L. Rowny John D. Harris II Arnold L. Punaro George P. Shultz Frank Haun Kirk A. Radke *WalterDIRECTORS B. Slocombe John W. Warner Rita E. Hauser Joseph W. Ralston William H. Webster Michael V. Hayden Teresa M. Ressel Stephane Abrial Annette Heuser Jeffrey A. Rosen * Executive Committee Members List as of May 21, 2014 Odeh Aburdene Marten H.A. van Heuven Charles O. Rossotti Peter Ackerman Jonas Hjelm Stanley O. Roth Timothy D. Adams Karl Hopkins Robert Rowland John Allen Robert Hormats Harry Sachinis *Michael Ansari *Mary L. Howell William O. Schmieder Richard L. Armitage Robert E. Hunter John P. Schmitz *Adrienne Arsht Wolfgang Ischinger Anne-Marie Slaughter David D. Aufhauser Reuben Jeffery, III Alan J. Spence Elizabeth F. Bagley Robert Jeffrey John M. Spratt, Jr. Sheila Bair *James L. Jones, Jr. James Stavridis *Rafic Bizri George A. Joulwan Richard J.A. Steele *Thomas L. Blair Stephen R. Kappes James B. Steinberg Julia Chang Bloch Maria Pica Karp *Paula Stern Francis Bouchard Francis J. Kelly, Jr. Robert J. Stevens Myron Brilliant Zalmay M. Khalilzad John S. Tanner *R. Nicholas Burns Robert M. Kimmitt Peter J. Tanous *Richard R. Burt Henry A. Kissinger *Ellen O. Tauscher Michael Calvey Peter Kovarcik Karen Tramontano Ashton B. Carter Franklin D. Kramer Clyde C. Tuggle James E. Cartwright Philip Lader Paul Twomey Ahmed Charai Henrik Liljegren Melanne Verveer Wesley K. Clark *Jan M. Lodal Enzo Viscusi John Craddock *George Lund Charles F. Wald David W. Craig Jane Holl Lute Jay Walker Tom Craren *John D. Macomber Michael F. Walsh *Ralph D. Crosby, Jr. Izzat Majeed Mark R. Warner Nelson Cunningham Wendy W. Makins J. Robinson West Ivo H. Daalder The Atlantic Council is a nonpartisan organization that promotes constructive US leadership and engagement in international affairs based on the central role of the Atlantic community in meeting today’s global challenges.

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