THE Wisynco Group has touted its decision to setup a two-megawatt (MW) liquified natural gas (LNG) power generating plant as the reason it has been able to limit price increases on its products as other manufacturers raise prices from rising fuel costs.
The manufacturing and distribution company, which opened the plant in July 2020, has seen its utility costs drop by 45 per cent from $622.30 million in June 2020 to $342.55 million in June 2021. This is against the backdrop of other manufacturers such as Jamaica Broilers Group Limited (JBG) which has seen its energy costs go up by nearly 61 per cent in 2021. JBG increased the prices on its products by 10 per cent last month due to the increasing commodity costs.
"If we had to absorb the entire cost of JPS [Jamaica Public Service], our electricity and utility bill would have to be passed onto consumers through price increases. The cost savings allow us to hold the prices when energy prices have gone up for a lot of other producers. At the end of the day, we still had price increases, but they have been tempered by the fact that we're saving so much in energy because of the LNG investment," stated Wisynco Chairman William Mahfood in an interview with the Jamaica Observer.
The facility, which cost US$3.6 million ($500 million) to setup, has allowed the company to improve its self-generating capacity to 1,300,000 kWh per month and has exceeded initial expectations of the three-year payback period. Wisynco manufactures a variety of proprietary brands such as 'Wata' and 'Bigga' along with partnerships to produce certain goods for other entities.
Based on the savings realised so far, Wisynco will be adding more equipment to the facility in order to limit downtime which may be associated with the plant. This comes as it faces increases in the cost of bottle caps and plastics which are produced from oil which has hit seven-year highs of US$91.32 ($14,382.90) per barrel on February 7. Analysts at Goldman Sachs and Blackrock LP expect oil prices to hit US$100 ($15,763) a barrel in 2022. The last time oil hit US$100 per barrel was in 2014.
"We've seen the benefits from co-generation with the savings that we get from the investment is actually better than we had thought. We had an unfortunate incident in January where the plant had gone down for a couple days and we saw the effect on our January bill. We're actually going to put in more equipment to protect us should we have downtime on the engine. We believe that LNG is a much more practical investment for Wisynco than solar because of the activities of the company. Wisynco operates 24 hours for every day of the week including weekends. We'll have to step up our LNG investment," stated Wisynco Group CEO Andrew Mahfood at the company's annual general meeting held on Tuesday.
Other companies such as Red Stripe, Appleton, CB Group, Clarendon Distillers and The University of West Indies (UWI), Mona have switched to using LNG supplied by New Fortress Energy Inc to make up their energy needs and reduce energy costs. UWI, Mona stated in a release that its co-generation plant has saved the institution about $364 million annually, while Red Stripe is projected to save US$336,000 ($47.04 million) annually from its LNG switch.
Jamaicans have been facing additional costs related to fuel and energy as oil prices rebound to record highs. This has been manifested in the price of 87 and 90 octane gasoline surpassing $200 per litre at gas stations and higher electricity bills from the JPS.
World oil consumption has continued to eclipse world oil demand for the sixth-straight quarter, according to US Energy Information Administration. This has only been exasperated by the fear of a Russian invasion of Ukraine and further geopolitical risk if Russia stops supplying Europe with natural gas via the Nord Stream 2 pipeline.
Jamaica currently generates 47.4 per cent of its energy needs from crude oil with natural gas making up the second-largest segment at 23.8 per cent, according to the Ministry of Science, Energy and Technology's natural energy balance report for 2020. Renewable resources only make up 9.4 per cent of Jamaica's energy generation needs with petroleum products making up 14.8 per cent.
Jamaica previously benefited from the Petrocaribe agreement with Venezuela which allowed 17 members to purchase oil from the South American producer on favourable repayment terms. Former Prime Minister Portia Simpson Miller called it a lifeline for struggling Caribbean countries in September 2015 when the exchange rate was $120.03.
Although William Mahfood is pleased with the company's savings through LNG and solar power, he remains concerned about the impact rising oil prices will continue to have on inflation in Jamaica. Point-to-point inflation for 2021 was 7.3 per cent with the housing, water, electricity, gas and other fuels up 11.7 per cent. This is not far behind Jamaica's major trading partner, USA, which saw inflation close the year at seven per cent. This is a historic high for Jamaica which last saw inflation this high in 2013 which was 9.5 per cent. Jamaica's net international reserves declined by nine per cent between December and January to US$3.51 billion ($310.90 billion).
"We're mindful of when those increases come and how we pass it onto consumers through increases in our prices. What is more concerning is the balance of trade. At the end of the day, when you think of the single largest foreign exchange consumer in the country is oil. When you have increases in oil prices this way, what that does is it increases the FX demand for the country. There is going to be some impact on the reserves because that is something you have to buy. All of these factors are going to have inflationary effects on the consumer. I would not be surprised to see that number [CPI] go up," William closed.
