While many in St. Lucia have been distracted by senseless debates on the decriminalization of marijuana and prostitution, significant events have occurred which will have a profound effect on all St. Lucians. The irony of the discussions on Prostitution is that is was based on a comment by an Independent Senator. As raw as it sounds, a reading of the constitution would show that Independent Senators are ‘constitutional irrelevances’.
The Constitution created a Senate with very little power but to share ideas or alternative opinions on government policy. In fact the Constitution mandated the Governor General to choose Independent Senators based on set criteria. Section 24(c) states the following on the appointment of Independent Senators:
two shall be appointed by the Governor-General, acting in his own deliberate judgment after he has consulted those religious, economic or social bodies or associations from which he considers that such Senators should be selected.
Whether the religious bodies have shied away from taking up Senatorial positions, or the Governor General in her own deliberate judgement stayed clear, the fact remains that the framers of the constitution were seeking to have a moral compass in the legislative agenda of Parliament. One would hope that the next Parliament is so constituted.
The significant event I am referring to is the closure of the refinery in St. Croix and Hess’s decision to put their Oil Storage Facility in St. Lucia for sale. The transhipment of oil at the Hess Facility is a source of revenue to the Government of St. Lucia and many St. Lucians have enjoyed years of stable employment at the facility.
The loss of income to the Consolidated Fund and the loss of jobs are both national issues that have to be faced. The other resultant effect may be the uncertainty of the supply of fuel to LUCELEC and to the country as a whole. These are the issues that should be central in the public debate.
One is forced to ask the question as to why in a scenario of high oil prices, that a decision of closure of refineries is taken. I also asked myself that question and began researching this melodrama.
The primary reason for the sale of the Hess Terminal and the closure of the St. Croix facility is the windfall of oil companies in the shale gas sector.
Hess has been investing heavily in the shale gas sector over the last 5 years. In North Dakota they have been drilling the Brakken Shale with outstanding profits. They are expecting to ramp up production to 60,000 Barrels of Oil Equivalent (BOE) per day by 2012, and up to 120,000 BOE per day by 2015. In 2012 they plan to invest $ 1.9 billion USD and operate 16 rigs with five dedicated hydraulic fracturing crews.
Hess is also acquiring oil shale land in China. PetroChina Company and Hess are engaged in a joint venture exploration of shale oil at the Daqing oilfield in China. Hess is bringing its technology and experience developed in North Dakota to China.
Chairman John Hess sees shale as a game changer for companies based in the USA, in his words “It is a game changer. It is lower risk with higher returns. It is great to have on your portfolio, especially being based in the United States.’’
Hess is now the largest gas producer and third largest oil producer in North Dakota. So it is an investment decision by Hess to shut down its Caribbean operations, the refinery in St. Croix has lost $ 1.9 billion over the last five years and Hess needs the cash to inject into exploration.
In fact the entire Caribbean is now an unprofitable environment for the oil sector. Valero Energy Corp has also decided to shut down their oil refinery facility in Aruba at the end of March, again causing dislocation.
Why is the Caribbean so unattractive to the oil sector at this stage? The refining industry has been grappling with major shifts in fuel demand and energy production. These changes have turned the former refining hubs of the US East Coast and the Caribbean into unpopular locations.
Oil Refineries need considerable energy to run, and the lack of cheap natural gas, which is the feedstock in fuel production, has made refining in these locations extremely expensive. It must be noted that these refineries were set up to service the USA market, and thus any competition within the USA affects the profitability of these operations.
The island refineries also are missing out on a bonanza being experienced by refineries in the interior of the USA, who enjoy low prices due to a glut of West Texas Intermediate Crude that trades below global crude prices.
This is an interesting situation. There is a glut of oil in the interior of the United States due to increased production and a lack of pipelines to transport out from these regions. Huge quantities are being stockpiled, pushing down the price of oil in these regions. Oil refineries in these areas are at a distinct advantage over refineries in the Caribbean and the US East Coast who will be purchasing crude at global prices.
How should St. Lucia respond to this regional crisis? Firstly I would suggest to the Government to purchase the lands at Cul de Sac which were sold by the last Government to Hess. There was never a decision by Hess to establish a refinery in St. Lucia and the possibility of that being established by another investor is very remote.
Secondly, the issue of energy security is important. The Storage Facility at Hess is the only storage facility on the island. All diesel, gasoline, aviation fuel, LPG are stored at Hess. I would suggest that the Government engage in some discussions with Hess to decouple this component from their crude oil storage for third parties, and to lead the discussions on participation in a company set up to purchase this component. The Government of St. Lucia, LUCELEC, NIS, Bank of St Lucia, the local credit unions and any other regional investor should be involved.
Thirdly, I would suggest that SLASPA purchased the port facility at Cul De Sac, as this should be in the control of the State. The Oil Storage component would be attractive to some of the third parties that Hess presently provide services, but I would strongly advise that the components which can affect the economic development of St. Lucia should and must be in the control of St. Lucia.
In conclusion I would summarize my recommendations:
- Develop a new company with shareholding shared among the following ;
- LUCELEC
- GOSL
- NIC
- Bank of St. Lucia
- Local Credit Unions
- Regional companies in the Oil sector
This newly formed company will purchase the storage of fuels and LPG component from HESS.
- St Lucia Air and Seaports Authority ( SLASPA) purchases the port facility at Cul de Sac
- The GOSL buys back the land sold at Cul de Sac to Hess which was to be used by Hess for a refinery.
My advice to our new Government is to be bold and decisive in this global environment and to go where no government has gone before.