Combating rising gas prices

With gas prices increasing on the island as reported in the press earlier this month, there might be cause to approach more self-sustaining fuel ideas for the island.

Speculation for the latest rise in import price for gas points towards a particularly cold winter in the US. As demand rises there, so too does the price everywhere. Gas prices in Grand Cayman are thus chained to demand in the US. The price of crude oil is affected by the draw from American consumers, and can peak if it runs low after high demand.

US government regulations and taxes can also affect the price the Islands pay, as can regional conflicts around the world. Steady increases in the cost of bringing gas to the island come from refining and transportation. Prices surged across the US in September 2008 after Hurricane Ike battered drilling rigs in the Gulf of Mexico, as it led to some of the biggest refineries lying idle.

In this last case, prices also jumped higher in the US as drivers rushed to gas stations to fill their cars, stoking the demand. Larger gas companies expect disruption in the gas supply chain sometimes, and so their prices should remain steady. It didn't stop gas retailers on the roadside jacking up prices two or three times a day though, in an effort to make a quick buck on driver's fears.

Retailers know that gas is an inelastic commodity, which means people rely on gas, and will pay increasing amounts whether justified or not. The gas industry knows higher prices don't necessarily hurt demand.

So the Islands pay a market price that can be affected by factors ranging from general global demand to uncertainties in the supply because of bad weather, geopolitical instability, the US consumer, retailers looking to make a quick buck, regional instability or unforeseen operating and transport issues.

Taking each point on its own, is the price of gas likely to increase or decrease given the unstable world we live in?

What stranglehold does a foreign petrochemical industry currently hold over the Islands, that it can increase prices without any backlash or fear?

So if there are likely to be disruptions and demand increases, perhaps the Islands can insulate themselves by finding alternative fuel sources right here. Wind or solar energy seems possible, especially with large areas of unused land in the centre of the island. Wind turbines may not be feasible, given their height, but with the amount of sun Cayman receives all year round, perhaps solar panels could provide an alternative energy source.

The Islands will never stop importing fuel. Gas drives our cars and boats and powers our generators. It's incredibly important, and an economy without gas wouldn't function in the same way.

But what if 10 percent of the energy consumed on the Island was drawn by alternative power. That would be a 10 percent cushion against powerful global market forces, and the Islands would gain back control.

Economists will say that when a price goes up, demand will fall. Crude oil prices won't drift higher and higher forever; they'll reach a series of peaks and slows. But volatility in the wholesale price of crude oil is lower than volatility at the point of retail. Basically, drivers are more likely to panic if they hear of a shortage than oil companies are, because one has more information about the market than the other.

Alternative sources of power - especially renewable types made here on the Islands - would mean there's less reliance on an unpredictable and expensive foreign industry.

The next question is to ask what price the Islands have to pay for a long term freedom from imported gas. It may simply be that the price is too much for a small island nation, which relies on a healthy tourist economy and booming financial sector, to cover the bills for solar panels or wind farms. It may help to look at two small islands facing similar circumstances in other parts of the world. Both are extreme examples of what is possible.

There's an island off the coast of Denmark called Bonholm. It has 43,000 inhabitants and relies on tourism and short stay visitors from the Baltic cruise ships to feed its economy. It has no financial industry, and it gets very cold in the winters. It has made a pledge through its local government to be carbon neutral within the next five years. It uses wind power to create electricity, and burns straw for district heat.

Part of its future plans includes an electric car grid network around the island. Electric cars receive a lot of press, but perhaps they are only relevant to small islands; with their limited range and power, electric cars seem suited to islands where there's not very far to go and speed limits are naturally low.

Across the oceans, an island sits in the Pacific Ocean called Tuvalu. If you've ever been on a website with .tv at the end of its address, it's been registered through this little island.

Tuvalu has also declared it wants to be a carbon neutral island within a few years. It only has a population of 12,000, but it has pledged to commit $20m to introduce environmentally friendly energy projects to the island such as wind farming and recycling.

These two islands lie thousands of miles apart. Bornholm relies on tourism and farming, sits off mainland Europe, and deals with a mild European climate. Tuvalu's local economy is fishing, sits in the expanse of ocean between Hawaii and Australia, and its weather is split between a rainy season and tropical summer.

Culturally and geographically, these islands could not be any further apart.

In their outlooks on their environment however, they can be placed side by side.

Both islands are small, which means their regional government governs close enough to the actual community to act selflessly in its interest. There are no long term directives here.

Is there a case for solar or wind projects in Cayman beyond the economic value? What are the spiritual benefits to a society to know it is truly self-sustaining? With such a delicate and unique ecosystem, renewable energy might benefit the island in other ways. How proud might the Cayman Islands be if it became one of the only sustainable nations in the world? How much more tourism would it attract for its environmental credentials, and how much more would the islands feature in the foreign press for other reasons?

Gas prices will rise and fall and no one can do anything about it - unless there is another option for fuel.

First published in Cayman Net News print edition, February 3, 2010