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It’s time for a change


May 13, 2005
Copyright © 2005 CARIBBEAN BUSINESS. All Rights Reserved.

If you’re expecting the price of gasoline to drop to the level it was even just last year, think again. The forces that have sent fuel prices skyrocketing are still pretty much in existence and won’t be going away anytime soon.

Worldwide demand for oil continues to grow at historic rates, with China and India, two of the countries with the largest populations in the world, consuming as much fuel as they possibly can to keep their economies growing; refineries are running close to capacity; and there appears to be no end in sight to the political turmoil in the Middle East where two-thirds of the world’s oil supplies are located.

What does this mean for Puerto Rico? It means consumers probably can count on even higher gas prices for the rest of 2005; electricity rates on the island will continue to climb, impacting even further the cost of operating in Puerto Rico; and the cost of living will continue to escalate.

For every $10 a barrel increase in the price of crude oil, Puerto Rico’s economy is drained an estimated $750 million that leaves the island. The high cost of fuel also is contributing to a weaker economic recovery for the island and limiting its growth as consumers’ buying power is affected by higher prices for goods and services.

It also means Puerto Rico will have to find alternatives to reduce its dependence on petroleum for energy. Nearly 70% of the fuel used to generate electricity in Puerto Rico is derived from oil. The rest is derived from natural gas and coal plants built during the Rosselló administration.

The Puerto Rico Electric Power Authority (Prepa) plans to continue to diversify its fuel sources until they are equally divided among oil, carbon, and natural gas. Prepa plans to build two dual-fired gas-oil plants at a cost of nearly $900 million to continue to diversify the island’s energy demands.

While the idea of adding new power plants with diversified fuel is good, it would be even better if Prepa had continued to allow the private sector to build these power-generating plants, particularly in light of the outstanding job AES and EcoEléctrica have done in reducing Puerto Rico’s reliance on oil from 98% to 70% over the past several years, and at a much cheaper cost.

These efforts are just the beginning. Long-term changes must be implemented to help reduce the island’s dependence on oil. Among these are learning to conserve energy and providing tax incentives or rebates for consumers who trade their gas-guzzling vehicles or more energy-efficient hybrid cars that consume less fuel. The sale of hybrid cars already has been taking off on the U.S. mainland as consumers turn to more cost-efficient alternatives to battle the high price of gasoline. Reliable public transportation service also will provide local residents with cost-efficient alternatives and help reduce their dependence on cars. This is an area in which the government of Puerto Rico needs to invest and organize further.

In the past, oil crises have led to calls for energy conservation and increased use of alternative energy sources, but these often have faded away once oil prices stabilized and dependence on this nonrenewable fuel source increases again. The cost per barrel of crude oil has more than doubled over the past two years from $28 to $57. While crude-oil prices have begun dropping, analysts predict the days of oil at less than $40 a barrel are long gone. This is something Puerto Rico’s public- and private-sector leaders must prepare to endure.

This Caribbean Business article appears courtesy of Casiano Communications.
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