VZCZCXRO3029
PP RUEHGR
DE RUEHKG #0342/01 0711939
ZNR UUUUU ZZH
P 121939Z MAR 07 ZDK
FM AMEMBASSY KINGSTON
TO RUEHC/SECSTATE WASHDC PRIORITY 4459
INFO RUCNCOM/EC CARICOM COLLECTIVE
RUEHSJ/AMEMBASSY SAN JOSE 1889
RUEHCV/AMEMBASSY CARACAS 0469
RUEHBR/AMEMBASSY BRASILIA 0092
RHMFIUU/DEPT OF ENERGY WASHINGTON DC

UNCLAS SECTION 01 OF 03 KINGSTON 000342 
 
SIPDIS 
 
STATE FOR WHA/CAR (RBUDDEN), WHA/EPSC (JSLATTERY) 
 
SANTO DOMINGO FOR FCS AND FAS 
 
TREASURY FOR A FAIBISHENKO 
 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: ECON EFIN ENRG EPET PREL CARICOM JM TT XL
SUBJECT:  JAMAICA: LIQUID NATURAL GAS PROJECT IN DOUBT; SIGNIFICANT 
ECONOMIC AND POLITICAL IMPLICATIONS FOR THE REGION 
 
REF: A. 06 KINGSTON 1592 
 
 ¶B. 03 KINGSTON 467 
 ¶C. 03 PORT OF SPAIN 2184 
 ¶D. 04 PORT OF SPAIN 2042 
 ¶E. 06 PORT OF SPAIN 529 
 ¶F. 06 KINGSTON 1687 
 
¶1. (SBU) Summary: Ostensibly because of production constraints, 
Trinidad and Tobago (T&T) reportedly will renege on its promise to 
supply Liquid Natural Gas (LNG) to Jamaica, thus jeopardizing a USD 
1.6 billion expansion of Alcoa's alumina operations in Port 
Esquivel.  Jamaica's lead role in the negotiation of the PetroCaribe 
agreement with Venezuela, which robbed T&T of a captive market, may 
well have been a factor in the GoTT's decision.  This has 
significant political and economic implications, as Venezuela may 
now replace T&T as the largest supplier of energy in CARICOM.  This 
latest development also underscores some of the difficulties faced 
by the regional integration movement.  End summary. 
 
---------- 
Background 
---------- 
 
¶2. (U) Jamaica has the dubious distinction of being one of the 
highest per-capita consumers of oil among non-oil producing 
countries (ref. A).  During 2002 the country consumed 25 million 
barrels of oil worth USD 600 million.  By 2006 the figure was 27 
million, costing about USD 1.74 billion and translating into 10.53 
boe (barrels of oil equivalent) per citizen.  Relatively cheap 
prices (due to a flat versus variable tax on gas) combined with 
soaring demand from inefficient electricity and bauxite companies 
are the underlying reasons for the high per-capita consumption. 
This high and growing dependence on imported petroleum prompted the 
P.J. Patterson-led administration to embark on an energy 
diversification drive in 2002.  Anthony Hylton, a former government 
minister at the time and now Foreign Affairs and Foreign Trade 
Minister was appointed an Ambassador/Special Envoy to drive a 
project to introduce Liquid Natural Gas (LNG) into the energy supply 
mix by March 2007 (ref. B).  Hylton commissioned a number of 
studies, which concluded, inter alia, that the introduction of LNG 
would slash the country's fuel bill by as much as 30 percent. 
 
 
¶3. (U) To develop a supply agreement, Jamaica initiated dialogue 
with Trinidad and Tobago (T&T) in 2002.  In mid- 2003 discussions 
stalled (ref. C), as Jamaica argued that T&T was obligated to sell 
LNG on the same terms as it did to domestic firms (national 
treatment) - a "Caribbean" price.  With the GOTT dissenting, Jamaica 
sought a legal opinion from the CARICOM Secretariat.  Hylton, a 
lawyer himself, argued that while the opinion might not be decisive, 
it would be persuasive in Jamaica's favor.  The response from the 
Secretariat, in late 2003, largely agreed with Jamaica, and by the 
 
SIPDIS 
end of 2004 the two countries had signed a memorandum of 
understanding for the supply of 160 million cubic feet of LNG a day 
(ref. D).  "This agreement is expected to lead to a competitive, 
predictable and assured long-term supply arrangement for LNG on an 
agreed base pricing and escalation basis," Patterson said at the 
time.  "This is to be seen as just one of the great benefits that 
will flow from the integration of regional economies when the 
CARICOM Single Market and Economy (CSME) comes into being," he 
continued. 
 
------------------ 
The Rhetoric Fades 
------------------ 
 
¶4. (U) Despite this MoU, a final deal remained elusive, prompting 
new Prime Minister Portia Simpson-Miller to journey to T&T in May 
2006 to get a firm commitment from Prime Minister Patrick Manning 
(ref. E).  The visit was particularly timely, as the American-owned 
alumina producer Alcoa, which had announced a USD 1.6 billion 
expansion project based on the availability of LNG, reiterated its 
intention to postpone the investment until a deal was sealed.  By 
the second day of Simpson-Miller's visit, Manning again reiterated 
his commitment to sell Jamaica 158 million cubic feet of LNG per day 
by 2009.  The pricing provisions were expected to recognize Jamaica 
as a CARICOM partner, extending the principle of national treatment. 
 However, by the end of 2006, the head of T&T's state-owned national 
gas company, Frank Look Kim, revealed that the country would not 
have enough natural gas to sell to Jamaica in the near future, thus 
further jeopardizing the Alcoa investment, while forcing the GOJ on 
the defensive. 
 
KINGSTON 00000342  002 OF 003 
 
 
 
¶5. (SBU) The GoJ, clearly pessimistic about the LNG project, and 
desperate to realize the Alcoa investment, changed their focus. 
Jamaican Cabinet Secretary Carlton Davis revealed, in December 2006, 
that the GoJ was placing coal firmly on its agenda as an alternative 
source of energy for the Alcoa project.  He added that coal was 
always going to be an important part of the electricity company's 
future.  Initial plans for land-based LNG storage facilities were 
changed due to cost and time factors, and the revised project cost 
was scaled back to a quarter of the original USD 400 million.  At 
the same time, the GoJ began to look closely at ethanol as an 
alternative.  Basil Waite, a recent member of the administration and 
now Executive Chairman of Global Energy Ventures, told emboffs that 
a proposed ethanol plant will be built on the 20 acre site in Port 
Esquivel which had been slated for the land-based LNG facility. 
 
 
-------- 
Game On? 
-------- 
 
¶6. (U) The saga took a new twist in February, 2007 when Manning 
contradicted reports that T&T would renege on the MoU.  Manning, who 
was attending the CARICOM Prime Ministerial sub-committee on 
external negotiations, noted that supply side constraints had indeed 
emerged, but stated that he would shortly inform Jamaica on how T&T 
could best satisfy Jamaica's LNG needs.  He said that his government 
had completed arrangements with three gas companies to arrange 
supply, complete with time frames.  "The GoTT is determined to 
satisfy its contractual obligations to the GOJ.  An agreement was 
signed in good faith, and it is our determination, notwithstanding 
statements to the contrary coming from dubious sources," he told a 
press conference following the ministerial in Montego Bay, Jamaica. 
 
 
-------- 
Game Off 
-------- 
 
¶7. (U) However, the supply side argument re-emerged a week later, 
with T&T again suggesting that due to increased demands for LNG 
locally and internationally, its LNG deal with Jamaica was now 
contingent on a formal cross-border agreement with Venezuela (Note: 
T&T and Venezuela have a protracted dispute regarding LNG fields and 
maritime boundaries.  Endnote).  The death knell was to be delivered 
shortly after that, when Manning admitted that T&T might not be able 
to honor its commitment due to supply problems.  There is 
speculation that T&T lost interest in supplying Jamaica with LNG 
after the issues of national treatment and Petrocaribe arose.  The 
development helped induce the GoJ to turn to the Venezuelan 
government.  But whilst courting Chavez, the GoJ continues to 
suggest that it expects T&T to act in good faith and honor their 
commitment under the MoU. 
 
¶8. (U) Manning's disclosure is not surprising given world LNG prices 
at record levels.  Any extension of concessionary rates would have 
significant revenue implications for his country.  In addition, T&T 
firms enjoy significant competitive advantages in the region due to 
their low electricity costs.  Favorable terms for Jamaica would 
erode these benefits and eventually allow Jamaican firms to replace 
some of the goods now being imported from T&T, thereby narrowing 
T&T's USD 500 million trade surplus. 
 
¶9. (SBU) It is further understandable given the political 
underpinnings of the Petrocaribe agreement.  It is widely believed 
in Jamaica that T&T was irked by the GoJ's decision to turn to 
Venezuela to supply most of Jamaica's energy needs.  The fact that 
this oil is bought on concessionary terms is of little comfort to 
T&T, since it lost a captive market.  Commentators here believe that 
Jamaica's position as lead negotiator was considered a slap in the 
face to a CARICOM partner just when the integration process was 
gaining traction. 
 
------- 
Comment 
------- 
 
¶10. (SBU) Jamaica's LNG initiative was contingent on the extension 
of concessionary prices from T&T, invoking the principle of national 
treatment.  But given soaring international demand, supply 
bottlenecks, and the attendant record prices, this was always going 
to be challenging.  Additionally, any extension of national 
 
KINGSTON 00000342  003 OF 003 
 
 
treatment to Jamaica would have had important economic repercussions 
in T&T, which now enjoys significant competitive advantages because 
of its low domestic energy prices.  Similar benefits to regional 
firms would undercut T&T's favorable trade balance with Jamaica.  At 
the same time, Jamaica's role in negotiating the Petrocaribe 
agreement, which robbed Port of Spain of a captive market, seemed an 
undermining of the integration movement by one of its chief 
protagonists.  Nevertheless, the GoTT could not protest such a 
lucrative deal, given its own reluctance to extend similar benefits 
to overburdened regional partners (ref. F). 
 
¶11. (SBU) Comment cont'd: From the Jamaican perspective, T&T always 
has appeared to want to opt out of the MoU, and finally to have 
found a strong and acceptable justification.  The supply bottleneck 
provided the perfect foil, and it therefore came as no surprise that 
Manning eventually reported that T&T had to delay the deal for this 
reason, while crudely suggesting that Jamaica seek refuge in 
Caracas.  This has significant political and economic implications, 
as Venezuela may now replace T&T as the largest supplier of energy 
in CARICOM.  Further energy concessions extend Venezuela's political 
reach in the region.  Additionally, T&T might not escape unscathed, 
as Trinidadian firms which export to Jamaica could face some 
backlash (Note: According to a recent article in the Jamaica 
Gleaner, Jamaica imports some 60 percent of Trinidadian manufactured 
exports.  End note).  Additionally, there is the possible impact on 
the CSME, as this latest episode serves as grist for the mill for 
those opposed to the integration movement.  (Note: Septel will 
report on the implications of the recent agreement between the 
governments of Jamaica and Brazil aimed at assisting the 
modernization of the local sugar industry, and the development of 
ethanol.  End note). 
 
-------------- 
Media Dogfight 
-------------- 
 
¶12. (SBU) The fallout between the GoJ and GoTT has been reflected in 
a series of vituperative editorials appearing in the Jamaica Gleaner 
and the Trinidadian press.  The Gleaner has accused the GoTT of 
"myopic economic nationalism," and Trinidad's Guardian newspaper of 
"jingoism."  Likewise, both the Jamaican Chamber of Commerce and the 
Private Sector Organization of Jamaica have made public expressions 
of disappointment over the GoTT's actions.  In an editorial in the 
Jamaica Gleaner on March 11, former Jamaican Prime Minister Edward 
Seaga also weighed in, comparing the LNG debacle to the disagreement 
between the two countries over the establishment of the Esso oil 
refinery in Kingston in 1958.  At that time, Jamaica was accused 
"ignoring the spirit of the Treaty of Chaguaramas," and of "putting 
Jamaica first."  Seaga argues against the "small-time thinking 
prevalent in the region," and suggests that the way forward is to 
position Jamaica as an independent supplier of LNG by building a 
storage facility to facilitate transshipment of LNG from Nigeria, 
Qatar, or elsewhere to the United States.  End comment. 
 
JOHNSON