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For many of the islands in the Caribbean, the petroleum fuel demand is too small to get the same bulk pricing as the larger markets. Delivery costs are higher per unit when the delivered

quantities are smaller. Many of the islands have limited storage which makes them susceptible to shortages in the event of interruptions due to a scarcity of petroleum tankers, major weather events, or worldwide oil supply shortages. Fuel deliveries may go to larger markets first in the event of fuel shortages. Having larger regional/sub-regional storage facilities may offer a

solution to a more secure and cheaper fuel supply to these islands. To assure fuel security, a three month supply is preferred. To achieve this security, there will be costs for additional storage facilities as well as for interest on the cost of the increased inventory.

Another factor that existed for some time is that the major oil companies located storage

facilities next to large power plants and those power plants were dependent on the oil companies for their supplies. Having regional storage adds more flexibility to the power plants to obtain their liquid fuel supplies.

The larger islands and groups of islands have existing refineries which process crude and store petroleum products such as gasoline, jet fuel, diesel, and heavy fuel oil for domestic

consumption and store imported petroleum products above what they refine. Some of the storage is at the refineries and other storage is at the power generation facilities. Because Jamaica, Haiti, and Dominican Republic are remote from the smaller islands in the Eastern Caribbean, they would not be a part of a regional storage solution.

7.3.2 Existing Storage

In the eastern Caribbean countries there are already four centralized storage facilities that serve as transshipment storage facilities for delivery to nearby islands. In St. Lucia, Hess Oil operates a 9 million barrel storage facility at Cul de Sac that handles both crude and petroleum products. Several years ago Hess entered into discussions with the Venezuelan oil company PDVSA to store crude and petroleum products for delivery to other countries with Petro-Caribe agreements. In St. Lucia, LUCELEC also has three weeks of storage at its Cul de Sac power plant.

In Antigua the West Indies Oil Company (WIOC) has 200,000 barrels of storage at the location where they used to have a refinery. WIOC has an agreement with PDVSA to lease some of its storage to deliver to neighboring islands. Half the storage is for PDVSA and the other half is for Antigua and Barbuda. Currently due to limited storage in Antigua, a tanker may only deliver a fraction of its shipping storage capacity if no other islands have deliveries scheduled. This can significantly increase the shipping cost.

In Martinique, there is a 17,000 barrel per day refinery that supplies finished products for Martinique as well as the other French islands. There is crude oil storage capacity of 1 million barrels which is for two months of operation of the refinery. In addition, there is an additional 503,000 barrels of storage for finished products for domestic consumption as well as for delivery to other islands. Guadeloupe also has its own storage of 630,000 barrels of finished products which is 45 days of storage. Martinique has sometimes in the past rented storage space in St.

Caribbean Regional Electricity Generation, Interconnection, and Fuels Supply Strategy – Final Report 7-24 Lucia for refined products when the refinery was being revamped to make the latest specification of refined products.

There is a fourth regional storage and transshipment facility owned by NuStar Energy in St. Eustatius (Netherland Antilles) which has 13 million barrels of storage for crude oil and other refined petroleum products. NuStar leases 5 million barrels to a major oil producer which receives the crude in large crude carriers where it can be transferred to smaller crude carriers for further distribution in the region. Much of the remaining storage is leased to other parties for use as transshipment storage of distillate and residual fuels. The facility includes a 25,000 barrels per day (BPD) atmospheric topping unit. NuStar operates a bunkering service that delivers bunker fuel to cruise ships and other marine vessels in the region. They also have tugs to help to facilitate mooring at their facilities. This is a potential candidate for regional and sub-regional storage that is already in place. PDVSA has also had discussion with NuStar about leasing storage at their facility.

Whether these facilities could be part of a regional storage facility would require further discussions with these operators.

7.3.3 Economics

If larger tankers can be used to transport products, delivery costs per unit of fuel can be reduced as long as additional storage can be provided. A Handymax size product tanker in the Caribbean can transport 300,000 barrels of products. Compared to a tanker that holds 100,000 barrels, this would reduce the shipping cost by over half. However to handle this larger load an additional 200,000 barrels of tankage must be provided. In addition, interest must be paid on the cost of the additional inventory. Three different regional storage options were evaluated based on islands that are within 130 nautical miles of each other. The assumption is that a large tanker would deliver crude from one of the four large Caribbean refineries to a regional storage facility and then be shipped by smaller tanker or barge to each individual island. The four large refiners are Valero’s Aruba refinery, PDVSA’s Curacao refinery, Hess’s St. Croix refinery and Petrotrin’s Trinidad refinery. These are all approximately 500 nautical miles from the four potential regional storage facilities.

The first scenario is expanding the facility in Antigua to serve Nevis, St. Kitts, Barbuda, and St. Maarten. These are all within 87 nautical miles from Antigua. If 200,000 barrels is added, the shipping costs can be reduced from $3.2 million per year to $1.3 million per year. However, $8.4 million is required to develop the storage facilities. After amortizing the new tankage and adding interest on the cost of the additional inventory, the cost exceeds the shipping costs savings of using a larger delivery ship. This scenario is marginally unattractive although with a smaller incremental tankage it could be considered.

The second scenario is expanding the facility in St. Lucia to serve Dominica, Grenada, and St. Vincent and the Grenadines. These islands are within 130 nautical miles of St. Lucia. If 200,000 barrels are added, the shipping cost is reduced from $3.9 million to $1.9 million. As in the first scenario, $8.4 million is required to develop the storage facilities. After amortizing the new tankage and adding interest on the cost of the additional inventory, the cost is less than the shipping costs savings of using a larger ship. Thus having additional storage in St. Lucia is

economic as there is a potential savings of approximately $130,000/year (see Table 7-8). Since there already is sufficient tankage in St. Lucia, this is the logical place for regional storage. The third scenario is expanding of expanding tankage in Martinique to serve the French island of Guadeloupe. This facility is not necessary since there already is sufficient tankage here to handle the large ships which carry upwards of 800,000 barrels. In addition, the other French territory, Guadeloupe, has product storage equivalent to two months’ supply and is large enough to be supplied by large product tankers. No additional storage is needed there.

Table 7-7 summarizes regional petroleum consumption for the three scenarios. Table 7-8 provides details on the analysis summarized in the text above.

Table 7-7 Regional Petroleum Consumption

Countries 2008 Oil Consumption, Barrels/day Storage for 1 Month Consumption, Barrels Storage for Annual Consumption, Barrels

Scenario 1- Storage Terminal at Antigua

Antigua & Barbuda 4,560 136,680 1,664,400

St. Kitts & Nevis 980 29,400 357,700

Montserrat 530 15,900 193,450

Total 181,980 2,215,550

Scenario 2 Regional Storage at St Lucia

Dominica 850 25,530 310,250

Grenada 2,200 66,000 803,000

St. Lucia 2,800 84,000 1,022,000

St. Vincent 1,600 48,000 584,000

Total 223,530 2,719,250