Go Lean…Caribbean

Go Lean Commentary

Energy is a basic need. We need it for a functional life in modern society.

Behavioral Scientist & Psychologist Abraham Maslow provided the world with his definitive Hierarchy of Needs^[a]; he identified a pyramid, where at the bottom, or base level, are basic survival elements (food, water, shelter, etc.). Rise above that level, the next need relates to security and/or safety. Any consideration of energy (fuel and oil) need to address it as a basic need. Then once our survival has been facilitated, we then need to elevate and focus more on energy security. At this level, energy (fuel and oil) is not so basic or simple; it becomes a subject of Advanced Economics.

Today, gas prices have remained consistently low in the US for the past year and a half. The price per barrel had dipped as low as $30, (on the retail level prices have dropped below $2 per gallon), and now is hovering around $36.

This is good; this is bad. This is due to complexities within the Advanced Economics of crude oil supply-and-demand. Just recently, in 2008, retail gas prices where near $5 per gallon, while the wholesale price per barrel were straddling $130. This cyclical industry is amazingly complicated, and yet it so directly affects the everyday man, everyday. These “peaks and valleys” – “feasts and famine” – call for a more normalized system for oil producing/exporting countries. These cyclical extremes create crises and heighten the need for a more diversified economic system. See Appendix A regarding Saudi Arabia’s efforts to diversify. Now is the time too, for the Caribbean to plan for similar solutions.

The book Go Lean … Caribbean quotes noted Economist Paul Romer in his declaration that “a crisis is a terrible thing to waste”. We need to use the exigency of the current crisis to forge change in the Caribbean region. We can optimize the economic, security and governing engines of our Caribbean communities. There are a number of strategies for accomplishing this goal; one notable one is to apply lessons learned from other communities. We have such a role model in Saudi Arabia; they are known for their abundant oil wealth and yet the economic metrics are trending in the wrong direction:

Saudi Arabia’s reserves dropped to $611.9 billion at the end of 2015, the lowest level since 2011, down from $732 billion a year before, the Saudi Jadwa Investment said in an economic report.
Source: http://news.yahoo.com/saudi-fiscal-reserves-slide-4-low-weak-oil-104815796.html retrieved 02-02-2016.

Another strategy is maximizing the metrics of “supply-and-demand”. At its very heart, Economics is all about supply-and-demand. The more advanced the exercise in Economics, the more complex the dimensions of the supply-side and the demand-side of a commodity; in this case “oil”. There is BIG money in oil and assuredly too, BIG complications in the economic formulas. Yet still, there is more that the Caribbean community can do to optimize our demand and supply factors.

Previously, this commentary delved on the demand-side of the oil-for-energy eco-system; consider these blogs:

Now we focus on the supply side. We can start first with bridging the gap between wholesale and retail prices. How? Oil refineries. There are a number of refineries in the region already. But obviously, not enough. See the list here:

* Shuttered in 2009 after a major fire-explosion; had a capacity of 48,000 barrels/day.
Source: Retrieved February 1, 2016 from https://en.wikipedia.org/wiki/List of oil refineries

The book Go Lean… Caribbean, a roadmap for the introduction and implementation of the Caribbean Union Trade Federation (CU), calls for confederating, collaborating and convening the 30 member-states of the region into a Single Market; and to one intergovernmental organization. The CU seeks to facilitate better strategies for Advanced Economics in the Caribbean region. This is part-and-parcel of the prime directives (3) of the CU/Go Lean roadmap:

• Optimization of the economic engines – accepting that energy is as basic a need as food, clothing and shelter – in order to grow the regional economy to $800 Billion & create 2.2 million new jobs.
• Establishment of a security apparatus, including energy security, to protect the resultant economic engines.
• Improve Caribbean governance to support these engines.

By coordinating all the oil refineries in the region – a million barrels a day with the Puerto Rico option – in one concerted effort, there will be benefits for the wholesale and retail markets in the Caribbean. Why? Due to the realities of Advanced Economics.

In many Caribbean locales, gas is still priced near $5.00 per gallon, due to challenges in the supply-chain.

The initiatives addressed here will remediate challenges to the Caribbean energy supply. Then considering all the risk in the global markets, a closer, more technocratic delivery can also mitigate many risks. Consider a scenario of a retail price of $2 per gallon – highly probable as a result of this roadmap – and a wholesale crude price of $30 per barrel (1 barrel = 55 gallons), there is a definitive margin to still cover the cost of production (refinery) and distribution; ($110/barrel versus $30/barrel ). The more mature the eco-system for crude-to-gasoline production, the better the savings on the supply side. So when there are more local refinery capabilities, this leads to better cost dynamics (and profit) for fuel at the retail level.

The goal of the CU is to optimize Caribbean society in the dimensions of confederation, collaboration and consolidation. Consider these queries:

• Can we deploy more oil refineries?
• Can we provide more industrial financing for refinery expansion and upgrades?
• Can we guarantee refineries the needed customers for their end-products?
• Can we coordinate downtime among the array of refineries to allow for required maintenance windows?
• Can we deploy pipelines to move crude or finished products from source location to destination?

The answers to all of these questions are “Yes, in the affirmative”. This is the power of the “collective” … for energy solutions. The Go Lean/CU roadmap calls for this type of cooperative effort, with the details of Purchasing Cooperatives and Utility Cooperatives, operating across national borders, within the region. The vision of a Single Market is a paradigm shift that forges benefits for all in the region: producers, wholesalers, retailers and consumers.

Pipelines will undoubtedly lower the cost of shipping fuel (crude or finished) among the island and coastal states.

Then too, consider the positive effects of developing a regional currency and capital market, as prescribed in the Go Lean roadmap. Trading in commodities, like crude oil, will be very viable for regional stakeholders. Local oil producers like Trinidad and Venezuela will be able to enter into commodities contracts to sell their crude oil, days, weeks, months and even years in advance. This too is the power of the “collective”, or Purchasing Cooperative, or Group Purchasing Organizations.

But there is a need for caution. The Go Lean/CU is not advocating “doubling down” on an oil-based economy. Rather, the strategy is just the opposite, to pursue the merits of diversification: energy diversity and economic diversity. There is too much pain associated with a mono-industrial economy. This is true for oil and true for tourism. There is always a need to “put the eggs in more than one basket”. But “it is what it is”. Oil is part of the energy solution today and this needs to be optimized. Oil dominated our past, and dominates our present, but hopefully there will be the need for less and less oil in the future. There is an urgency, in general, to wean-off from fossil fuels like oil to arrest Climate Change. The failure to do this has had dire consequences for our region – on the front-lines of global-warming-induced destructive hurricanes and rising sea levels.

The changes to lower the demand for oil needs to be planned and gradual. Sudden changes in the supply-chain creates economic shocks and devastating consequences to the economy. Just consider the impact on West Texas and North Dakota as depicted in this news VIDEO story here:

VIDEO:  The downsides of cheap oil – http://www.cbsnews.com/videos/is-cheap-gas-driving-the-oil-industry-broke

Posted January 31, 2015 – For people in the petroleum business, it’s a slippery slope: The plunge in oil prices that’s a boon for most of us [consumers] is a calamity for others. And it’s not just producers overseas taking the hit. Our Cover Story is reported here by Martha Teichner. (VIDEO plays best in Internet Explorer).

All of these empowerments on the macro-economy will surely make impact on the micro-economy: energy prices will decline and more jobs will emerge!

The Go Lean/CU roadmap proposes many solutions for the region to optimize energy generation, distribution and consumption. The book posits that the average costs of energy can be decreased from an average of US$0.35/kWh to US$0.088/kWh in the course of the 5-year term of this roadmap. This success will be a by-product of diversifying the energy eco-system with many alternative resources, like natural gas, solar, wind and tidal.

The Go Lean roadmap identifies 4,000 new jobs tied to cooperatives, 2,000 new jobs tied to Capital Markets and 2,000 new jobs tied to the Pipeline industry. In truth, these empowerments will impact every aspect of Caribbean life. The Caribbean homeland will then be better to compete globally and present more favorable options for our youth to stay home in the region. We fail miserably at this quest now!

The Go Lean book details a series of community ethos, strategies, tactics, implementations and advocacies to foster progress in the fields of energy generation, distribution, and consumption. The following list applies:

This commentary asserts that energy needs are undeniable. Options abound when the total Caribbean market is leveraged. This is the underlying strategy of the Caribbean Single Market. This point was pronounced from the outset of the Go Lean book in the opening Declaration of Interdependence (Page 11), with these statements as follows:

viii. Whereas the population size is too small to foster good negotiations for products and commodities from international vendors, the Federation must allow the unification of the region as one purchasing agent, thereby garnering better terms and discounts.

xxx. Whereas the effects of globalization can be felt in every aspect of Caribbean life, from the acquisition of food and clothing, to the ubiquity of ICT, the region cannot only consume, it is imperative that our lands also produce and add to the international community, even if doing so requires some sacrifice and subsidy.

The Go Lean/CU roadmap describes the execution of this roadmap as heavy-lifting.

So be it! Bring it on!

This “heavy-lifting” is the charter for the lean, agile operations of the CU technocracy.

Many of these heavy-lifting issues have been previously identified and detailed in prior Go Lean blog-commentaries. See here as some peripheral issues of energy supply-and-demand have been addressed:

The message to the people of the Caribbean region is that there are solutions to these heady issues in the world energy markets. The Caribbean past is not to be the Caribbean future. Change is afoot!

Now is the time for all Caribbean stakeholders, to lean-in for the optimizations and empowerments described in the book Go Lean … Caribbean. Yes, we can make the region a better homeland to live, work and play.  🙂

Download the book Go Lean … Caribbean – now!

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Appendix A – Saudi Arabia to diversify economy away from oil

December 23, 2015 – Riyadh (AFP) – Saudi King Salman on Wednesday said he has ordered economic reforms to diversify sources of income and reduce high dependence on oil following a sharp drop in crude prices.

“Our vision for economic reform is to increase the efficiency of public spending, utilise economic resources and boost returns from state investment,” he said in an address to the Shura Council.

“I have directed the Council of Economic and Development Affairs to devise the necessary plans, policies and programmes to achieve that,” he told the consultative body, without elaborating.

Oil income accounts for more than 90 percent of public revenues in Saudi Arabia.

The world’s largest oil exporter, Saudi Arabia is facing an unprecedented budget crunch as the price of oil has dropped by more than 60 percent since mid-2014.

At midday Wednesday, benchmark Brent North Sea crude for delivery in February stood at $36.50 a barrel, hovering just above an 11-year low.

The king said Saudi Arabia carried out a large number of mega infrastructure projects and boosted its fiscal reserves in the past several years when oil prices were high.

The size of the fiscal buffers has enabled the kingdom to overcome the consequences from the sharp decline in oil revenues, said the king, adding that development projects have not been affected by the drop.

Saudi Arabia is projected to post a record budget deficit of around $130 billion for this year, the International Monetary Fund says.

The IMF has advised Riyadh to implement reforms, including expanding non-oil revenues, warning that failure to do so would deplete its foreign reserves.

The kingdom, which has been pumping around 10.4 million barrels a day, has withdrawn funds from its foreign reserves and also issued bonds to finance the budget deficit.

At the end of October, its reserves fell to $644 billion from $732 billion at the end of last year.

The finance ministry has issued bonds worth $20 billion for the domestic market.

In 2014, Saudi Arabia posted a budget deficit of $17.5 billion, only its second since 2002.

Source: http://news.yahoo.com/saudi-diversify-economy-away-oil-king-salman-151858656.html retrieved February 2, 2016.

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Appendix B – Citatation

a. Maslow, Abraham H. (1943). A Theory of Human Motivation. Psychological Review, 50(4), 370–96. Retrieved February 2, 2016.