Does JA’s oil savings exceed loss from shuttered alumina plants?
LOWER demand for imported fuel, primarily associated with the closure of alumina refineries, have accounted for a third of Jamaica’s savings on its oil bill this year.
What’s more, the savings Jamaica is currently benefiting from may far exceed the loss of foreign-exchange revenue it has incurred due to reduction in bauxite and alumina production output since the start of the year.
World oil prices, which have been on average 50 per cent lower than the previous year, only account for a fraction of the reduction in Jamaica’s oil import bill.
According to the latest Bank of Jamaica (BOJ) balance of payments (BOP) data, Jamaica spent US$859 million on importing mineral fuels between January and August this year, US$1.9 billion less than the comparative period last year.
But based on monthly average oil prices — OPEC and World averages — the reduction in oil prices would have resulted in a $1.4 billion saving on import if the demand for the commodity was at 2008 levels.
Lower demand would have accounted for $545 million reduction in the oil bill based on Business Observer calculations.
The three primary consumers of petroleum up to 2008, according to the Petroleum Corporation of Jamaica, were the bauxite/alumina sectors, which used to consume 30 per cent, electricity generation (23 per cent) and road and rail transportation (21 per cent).
According to BOJ data, electricity generation during the eight-month period under review was marginal up over the comparative period last year while no data was available representing the transport sector.
BOJ data, however, showed that alumina production for the eight-month period was down 51 per cent last year, after Windalco shuttered its plants in March followed by Alpart in May, while Bauxite production was down 37 per cent as St Ann Bauxite scaled back production.
The downturn in the bauxite/alumina sector, which undoubtedly fuelled considerably lower demand for imported oil, followed on lower alumina prices.
The average price per tonne of alumina declined from US$342 per tonne at the end of June last year to US$183 a tonne by the time Windalco shuttered its plants.
Moreover, the price on the commodity has not significantly improved since — at the end of August 2009 the price stood at US$215 per tonne.
Meanwhile, oil prices have been climbing and in October this year surpassed the comparative price the same time last year. Yesterday, average oil prices stood at twice the level it was the same time last year.
That aside, the savings Jamaica as accrued from lower oil demand and prices exceed that of the losses made from producing bauxite and alumina.
Alumina export volume for the eight-month period was down 48 per cent while bauxite export volume was down 37 per cent. But at lower prices, export earnings was down 70 per cent and 35 per cent for alumina and bauxite respectively.
However, even at 2008 levels of export volumes, collective earnings from bauxite and alumina export would have only been US$269 million higher than what was actually earned between January and August 2009.
Inferred from the data is that revenue that may have been earned from keeping the plants open, given current commodity price levels, would not have exceeded the savings from lower oil imports associated with shuttering the plants.
Jamalco, the one remaining plant, is currently selling alumina at a small profit — two per cent higher than cost price, according to one reliable source.
But that plant is said to be the most efficient among the existing alumina assets in Jamaica.
Meanwhile, owners of the shuttered plants have not indicated a willingness to recommence production without first addressing high energy costs.