U.S. must act to prevent regional energy crisis

By Peter Schechter and Jason Marczak, Special to CNN

Editor’s note: Peter Schechter is director and Jason Marczak is deputy director of the Atlantic Council’s Adrienne Arsht Latin America Center. The Center recently published a report titled “Uncertain Energy: The Caribbean’s Gamble with Venezuela.” The views expressed are their own.

Chinese President Xi Jinping arrived in Caracas last week with a new $4 billion gift for a country desperately looking to external financing to keep its economy afloat. The catch? Venezuelan President Nicolás Maduro reportedly must send China an additional 100,000 barrels per day (bpd) of oil in addition to the more than 500,000 bpd of crude it is already providing to China.

With Venezuela’s production in decline, this latest announcement calls into question the long-term viability of Venezuela’s Petrocaribe oil alliance and the energy future for the Caribbean and Central American states that depend on it. The United States must act to proactively prevent a crisis off our shores. Vice President Biden has taken initial steps to lead this effort, but more must be done.

For nearly ten years, some of the United States’ closest neighbors have used Petrocaribe – Venezuela’s financially attractive energy alliance and Chávez’s brainchild – to procure flexible credit terms to purchase crude oil and petroleum products. But Venezuela’s economic situation is dire, putting the benefits of the oil alliance at risk. Central American and Caribbean states will have little recourse if credit dries up, and the alliance’s government ministers, business leaders, and consumer advocates privately fret about how continued dependence on Venezuela for energy supplies might come back to pull the rug from under their economies.

Meanwhile, the United States has entered into an unprecedented energy boom, securing its own energy future. Shale gas has revolutionized U.S. natural gas production, creating a potential for exporting liquefied natural gas (LNG) and incentivizing a transformation in the Caribbean’s consumption from fuel oil and diesel to low-carbon natural gas.

The Obama Administration has shown some recognition of the threat to the energy matrix so close to U.S. shores, and there is an opportunity for a new, natural gas fueled partnership. Vice President Biden’s announcement of the Caribbean Energy Security Initiative (CESI) last month is a step in the right direction. But, the initiative fails to include all of the policy options at the United States’ disposal – the most important one potentially being natural gas.

The United States must go beyond aspiring for renewables to comprise a large share of the Caribbean’s long-term energy mix. Instead, it must recognize the near-term role that natural gas could play in reforming the Caribbean region’s economies and in weaning states off an overreliance on Venezuelan oil.

This will require leadership, and the United States must therefore push for a forward-thinking, multilateral strategy redesign that can help Central American and Caribbean countries reduce debt, energy costs, and their own carbon footprint. This requires buy-in from and coordination with local governments, the private sector, and international lending institutions.

The perils of inaction that await Petrocaribe member states are profound – but now they have no other option. This is a once-in-a-lifetime policy opportunity for the United States and international financial institutions to step up and seize leadership on this issue. The United States must declare LNG and crude oil exports to be in the national interest, a mechanism that would both legalize U.S. crude oil exports and expedite LNG sales. Together with entities like the World Bank, the Obama administration must also provide market signals for energy infrastructure changes that would enable natural gas to move to the forefront of the Caribbean’s fuel usage. Converting the region to natural gas would introduce a cleaner-burning alternative while acting as a bridge to more renewable – but currently technologically- and cost-prohibitive – energy sources.

Such policy shifts would improve U.S. positioning throughout the region. Too often, American foreign policy has appeared anti-Venezuelan instead of pro-Caribbean. Now is the time to change this perception.

Petrocaribe has been a welcome assistance to member states, but Venezuela is in a downward economic spiral, with the threat of devaluation even looming on the horizon. The United States must capitalize on its own oil and gas boom to avoid an energy crisis – and the broader security, economic, and immigration challenges that would bring in the region.