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Fast-rising Oil Prices Topped Energy News In FY 2004

Analysts predict higher energy prices will keep 2005 GDP under 3%


December 30, 2004
Copyright © 2004 CARIBBEAN BUSINESS. All Rights Reserved.

In a year full of eventful developments in the energy industry, the biggest story was the escalating price of crude, caused by war jitters in oil-producing countries, and the subsequent rapid rise in gasoline and electricity prices.

Oil prices reached a record $55 per barrel in October, sending the price of a gallon of premium gasoline over the $2 mark. The price of electricity also shot up, despite Puerto Rico Electric Power Authority’s (Prepa) attempts to keep it at a stable low with a hedging fund, a system the agency uses to keep prices down for consumers, and by activating both its clients and price insurance funds. The hedging fund expired in June and, by years end, Prepa had not renewed it.

By August 2004, the price of an 800-kilowatt hour of electricity for the industrial sector had risen 4.7%, from $128 in December 2003 to $134. Prices for domestic consumption were markedly more moderate.

Analysts predicted the increase in the price of oil would have an appreciable affect on the economy, enough to keep gross domestic product growth below 3% for FY 2005. They also pointed out that each $10 increase per barrel of oil imported to Puerto Rico would cost the local economy an estimated $750 million, meaning less disposable income for other goods and services.

The increase in energy prices reawakened consumer interest in finding alternative energy sources. Many more local car buyers are warming up to the idea of gas-electric technology in vehicles, at a time when carmakers are preparing to launch new hybrid model sedans, pickup trucks, and even sport utility vehicles (SUVs). This means many more electricity-gasoline hybrid cars will be cruising local roads and highways in the very near future.

Despite the recent dramatic hike in the price of oil, Prepa officials still find alternatives such as hydrogen, solar, and wind power too expensive to consider, even though the U.S. Department of Energy has allocated $1.7 billion for developing hydrogen fuel-cell energy. The federal agency also plans to begin the transition to a hydrogen-based economy as early as 2010.

To date, Prepa’s interest in hydrogen as an alternative fuel has been limited to demonstration programs with the municipality of Caguas. Baltimore-based Sea Solar Power International expressed interest in building and operating a 100-megawatt ocean-thermal conversion power plant in Puerto Rico. The company would invest $250 million to build the plant that would generate electricity using ocean water to boil propylene and produce the steam needed to power turbines.

In recent years, Prepa has diversified its near total dependency on oil, from 98% to 67%, by adding gas-fired EcoElectric in Guayanilla, and coal-fired AES plant in Guayama. The authority’s ultimate goal is to reduce reliance on oil to 33%, while increasing dependency on gas-generated and coal-generated energy, respectively, to 33%.

Prepa is in final negotiations for the construction of a 474-megawatt power plant in the island’s western region that would fill energy needs until 2012. The agency has declined to reveal the identity of the company that would build and operate the power plant, stating officials are bound by a confidentiality agreement.

Another major energy story in 2004 was the islandwide power failure when Tropical Storm Jeanne walloped Puerto Rico on Sept. 15. Prepa officials insisted the system didn’t fail; that it was intentionally shut down as a preventive measure. However, Prepa’s system operations report for that day reveals the island’s largest power plants collapsed between noon and 1 p.m. while operating at average capacity, causing expensive damage to its machinery and equipment.

Not only did the thermoelectric plants collapse, so did the island’s gas and steam turbines and the co-generation plants. The failures meant the system was generating only about 607 megawatts (MW), out of a maximum capacity of 4,747 MW, or less than 13% of its overall capacity to power the entire island. The lack of electricity hurt island manufacturers, especially the pharmaceutical industry.

Tropical Storm Jeanne wasn’t the only major headache for Prepa in 2004. A federal judge rejected Prepa’s request to lift the probation ordered in a settlement of a criminal lawsuit filed against the authority for violations to the Clean Air Act. In a hearing on Nov. 10, federal District Court Judge Salvador Casellas determined Prepa would continue under probation while it proceeds with plans to reduce the levels of contaminants in the air emissions produced by its power plants through the use of higher-quality, low-sulfur fuel.

So far, Prepa has reduced sulfur-dioxide emissions from its plants on the northern part of the island from 1.5% to 0.5%, and is scheduled to do the same at its southern region plants in 2005.

Also in 2004, France-based Total Oil Co., the world’s fourth-largest oil company, acquired 100 GPR- and Citgo-brand gas stations located throughout Puerto Rico, which it plans to rebrand in December, company officials said. The company is scheduled to completely rebrand the service stations by the end of 2005, as stated in a release. As a result of the acquisition, the French company now owns 6% of the service-station market in Puerto Rico, which sells an estimated 200,000 tons of gasoline per year.

This Caribbean Business article appears courtesy of Casiano Communications.
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