Jamaica and Oil: The Next Dubai or Venezuela?
With recent oil reserve discoveries, Jamaica can become an oil rich nation
A recent report now estimates that Jamaica’s oil reserves at 2.4 billion barrels. This is 10 times higher than previously thought. Right now, the challenge is extracting that oil and how will this sudden discovery of so much oil impact the nation’s economic future? If the oil reserves are actually there it might not be as sweet a deal as it sounds.
Despite Big Oil Reserves, Jamaica Still Has Some Work to Do
With over 2 billion barrels of reserves, Jamaica also has 10 times the reserves of oil producer Trinidad. However, Trinidad is further ahead when it comes to its ability to refine its oil and bring it to the market. That means that major investing in refinery infrastructure will be needed before Jamaica can realize the significant revenue from its oil.
Being Rich in Natural Resources Does Not Equal Wealth
When people think about major oil reserves, they tend to think about oil rich countries such as Saudi Arabia and Dubai. However, major oil reserves do not always equal major wealth. As an example, the nations of Venezuela and Nigeria are among the most oil rich countries on the planet. However, the citizens of these countries have not experienced a major boost in personal wealth. Venezuela, in particular, which has the largest reserves of oil on the planet Earth has experienced a large amount of economic hardship over the past decade.
Global Economic Issues Delays Drilling
Despite rising oil prices, Jamaica has not received much interest from drilling companies. This is due to a number of issues. First, the pandemic has put a stop to many shipping and cruise ship operations. Also, supply and workforce constraints have made it almost impossible for any driller to engage in any major scale operations. Finally, the lack of refinery infrastructure means that drilling for oil may not be practical at this time.
Currently Jamaica Has Only One Refinery Operation
As of 2022, Jamaica’s Petrojam is the only refinery operation in the nation. The operation is 100% owned by the Jamaican government. Pertrojams’ operation is dedicated solely to providing oil for domestic transportation and industrial use. The Petrojam refinery, located in Kingston, uses a hydroskimming process in order to refine oil and bring it to market. The entire refinery includes 11 wells - 9 offshore and 2 onshore. Currently, Petrojam produces a net profit of about $22 M per year and it is currently in its 38th year of operation.
The Money is in the Finished Goods
Let’s look at a different industry to illustrate a point. Cocoa is a crop and the beans are collected and processed and turned into chocolate.Ivory Coast accounts for more than 40 percent of world output, and Ghana at least 20 percent and more than half of their growers live below the poverty line while Swiss and other Western chocolatiers make a pretty penny. This is because the value is created in refining the raw material, cocoa beans, into the finished good chocolate. Jamaica needs to learn from Nigeria’s mistakes. For years Nigeria, an oil rich nation, had to import products like gasoline at a great expense to the common man because the productivity was not there at the state owned oil refinery to allow Nigeria citizens to benefit from their oil. Jamaica needs to focus on how it can become a country that is a net exporter of finished petroleum goods like gasoline instead of simply shipping barrels of crude all over the world. It would take more work and likely need the private entrepreneurs of Jamaicas to get involved, but Nigerians will be better off once the privately owned Dangote Refinery is open and operating and helping to turn Nigeria’s oil into products Nigerians can actually use instead of taking the quick buck and selling refined crude oil. The same would hold true for Jamaica; the island might have received a gift with this potianal oil discovery and should make the most of it. Not only could it ship finished petroleum goods Jamaica could do well with a sophisticated oil refining operation for example with its strategic location Jamaica could easily become a hub for ships that need refueling out of the Panama Canal. That is one of many things Jamaica could become if this oil is found and politicians took the road less traveled and Jamaica became a sophisticated operation that exported finished goods.
The Future of Oil and Jamaica
In the future, it is expected that oil demand will pick up throughout the world as Covid restrictions are lifted. This will likely lead to increased demand for oil. At that time, it may be practical for a drilling company to extract oil from the Jamaica reserves. Also, Jamaica may be able to have infrastructure in place to handle refinery duties.
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