by Keith Ventour
Overview
Within the last decade, Grenada, the Caribbean, and the rest of the world have had to confront devastating global challenges in every facet of life.
We have witnessed population growth and climate change resulting in various forms of deadly disasters, as well as Covid-19 which has set in motion an avalanche of events that will continue to affect the lives of every one of us. Covid-19 has reset our lives, reshaped our thinking, and forced us to find new and creative ideas to survive in the coming decades.
In spite of all the talk about the world becoming climate resilient, the green deal, the use of renewable energy, and the reduction of the world’s carbon deposits to 1.5 degrees, fossil fuels will remain, for the foreseeable future, the primary source of energy worldwide.
As a consequence of the Covid-19 global shutdown, there was a significant decline in world production of goods resulting in less demand for oil and other petroleum products on the world market. Crude oil prices declined drastically, for it is set by speculators who look at how future events affect demand and supply and, consequently, price. What happened in April 2020 was historic, for never before was there such a glut in oil supply on the world market that could not be sold. Oil was practically given away as world prices plummeted to under zero dollars ($0.00) per barrel.
It is a perception by many Grenadians that petroleum prices are set by the suppliers, i.e. Sol and Rubis and, by extension, Geo F Huggins. However, contrary to this, the prices of petroleum products are set and regulated by Government through the Ministry of Finance.
It must be understood that daily changes in crude oil prices will not affect the price of petroleum products immediately. This is so because (i) refineries have crude oil stocks for at least a minimum of 3 months, but more importantly, (ii) we receive finished petroleum products at ex-refinery prices. Thus, it is important for us to understand the mechanism used by the Energy Division in effecting a monthly price change. The method is highly consistent and straightforward.
As with any commodity imported, the Freight on Board (FOB) is the beginning of the costing process. This is the cost per US American Gallon (FOB/per US$/AG). In the price structure built up for gasoline, diesel, kerosene, and LPG, this is the only line item that changes from month to month. All the other items are fixed.
The FOB is derived by what is known as the Mean of Caribbean (MCP) Postings taken from our 2 local petroleum suppliers which they receive from Petrotrin in Trinidad from around the 13th of one month to the 13th of the next month. Petroleum prices in Grenada change on the 18th of every month. NB: In a Petroleum Price Structure, the reference to Company Margin refers to a fixed value received by our 2 main petroleum suppliers, Sol and Rubis and Dealers Margin refers to that for Gas Stations for Fuel and Cooking Gas Retailers for LPG Gas.
The following is the Petroleum Price Structure Buildup for 18 October 2022:
Grenada | Petroleum Products Price Structure | ||
14 October 2022 | Mogas (Gasoline) | Diesel | Kero |
FOB US$/AGÂ (1) | 3.0689 | 3.5875 | 3.7367 |
FOB EC$/IG | 10.0135 | 11.7057 | 12.1925 |
Freight + Ins (2) | 0.3746 | 0.3746 | 0.3746 |
CIF | 10.3881 | 12.0803 | 12.5671 |
Total Duties | 0.0000 | 0.0000 | 0.0000 |
Landed Cost | 10.3881 | 12.0803 | 12.5671 |
Petrol Tax (3) | 5.5000 | 5.5000 | 0.0000 |
Company Margin | 1.2500 | 1.2500 | 0.9500 |
Customs Service Charge (4) | 0.0000 | 0.0000 | 0.7540 |
Wholesale Value | 17.1381 | 18.8303 | 14.2711 |
Wholesale Price | 17.1381 | 18.8303 | 14.2711 |
Wholesale Price Rounded | 17.14 | 18.83 | 14.27 |
Dealers Margin | 0.9800 | 0.7500 | 0.3500 |
Retail Price | 18.1181 | 19.5803 | 14.6211 |
Retail Price Rounded | 18.12 | 19.58 | 14.62 |
Retail Price Rounded with Adjustment –$5.50 PT | 12.62 | 14.08 | 14.62 |
- Mean of Caribbean postings, Petrotrin, diesel, gasoline and kerosene. Average of the MCP for the period 10 September 2022 to 11 October 2022
- Average of Rubis and Sol’s freight and insurance rates
- Zero petrol tax on gasoline and on diesel as of [18:10:22]
- 6% CSC on kerosene
Prices of petroleum products from January 2019 to October 2022
In 2019, the prices of gasoline ranged from a low of $14.05 to a high of $15.91. In 2020, January recorded the highest price of the year, $14.68. By April 2020, gasoline prices dropped to a decade-low of $11.34.
With the relaxing of Covid restrictions and the resumption of economic activity and travel in 2021, the demand for oil and petroleum products slowly increased, hence increases in prices. Gasoline prices moved from a low of $13.86 in January to a high of $17.24 in November. During this period, the notion of having a fixed retail price (Cap), was foremost in the mind of Government. In December, when the market price for gasoline was $16 and diesel $14.73 per gallon, a Cap was set at $15.
Fuel and LPG prices
Through 2022, world prices increased from a Brent Crude low of $78.98 per barrel on 3 January to a high of $127.98 on 8 March. As of today, 2 November 2022, Brent Crude is $94.80. Our local gasoline actual prices (inclusive of the $5.50 Petrol Tax) moved from $15.88 in January to a high of $22.22 in June, dropping to $18.24 in September and $18.12 in October. In a bold political gesture, the Government removed the $5.50 petrol tax in September and October giving consumers relief at the pumps — gasoline and diesel $12.62 and 14.08 per gallon, respectively in October.
Similar volatility had been experienced with the price of LPG. In 2019, LPG 100 lb prices averaged $216.55. In 2020, we saw an expected decline with a low in May of $145.45 and an average of $174.19, a huge relief to customers. As world prices continued to rise, 2021’s average was $208.39, reaching a high of $220.30 in December. This year 2022, saw the highest prices ever from $236.20 in January to a high of $333.15 in May, remaining over $300 through to present, October — $301.20. NB: In May 2020, 20 lb LPG price went under the Fixed Wholesale Price of $38 to a low of $28.08.
Government Subsidy/Cap
For many years Government has assisted in alleviating the burden of high petroleum prices by subsidising a 20 lb LPG cylinder with a fixed wholesale and retail price of $38 and $40, respectively.
Once Government implements a Cap or subsidises prices, as in the case of 20 lb cylinders, some other programme(s) must be forgone. In the case of petroleum products, Government still must pay deferred revenues to the companies RUBIS, SOL and Grenlec for the subsidies/Caps imposed. For any government to effectively function, it must collect various levels of taxation from its citizenry. To facilitate this Cap, Government had to reduce its revenue base by giving up part or whole of the $5.50 petrol tax as was done in the September and October 18th price changes. For example, whenever the actual gasoline price exceeded $20.50 and the Cap is set at $15, Government collected no revenue from Petrol Tax.
It is my understanding from the Permanent Secretary in the Ministry of Finance that Government budgeted to collect $60 million in 2022 from Petrol Tax. However, up to August 2022, they had collected $15 million, one-quarter of the total budget. Similarly, for the LPG price structure, FOB is the only changing line item. All other items are fixed. NB: Government collects no duties or taxes from sale and purchase of LPG Gas.
Addition charges for Carriacou and Petite Martinique
In the price structure, Carriacou and Petite Martinique have additional charges for both fuel and LPG. Fuel in these 2 places will always be 18 cents more than on the mainland and this is reflected in the initial freight and insurance cost. There is a $10 and $13 charge for 100 lb cylinders as transportation cost and dealers margin respectively, and 20 lb, $9 for transportation. This means that a 100 lb cylinder will always cost $23mo re and a 20 lb, $11 in Carriacou and Petite Martinique.
Conclusion
Whereas we will like prices to be as low as possible and volatility in the market to be at a minimum, crude oil price is projected to fluctuate between $90 and $100 per barrel for the next year. This means that Fuel and LPG prices should remain around current prices within this period. It is the stated intention of Cabinet to forgo the collection of the $5.50 Petrol Tax until December of 2022. It is my expectation that fuel prices at the pump will go up in the first quarter of 2023 as Government will have to reintroduce the Petrol Tax whether incrementally or totally. It is highly likely therefore, we may see the reintroduction of the $15 Cap.
- Ref: Ministry of Finance – Energy Division Petroleum Price Structure
- The US Energy Information Administration (EIA) average price forecast for 2022 and 2023 in its latest short-term energy outlook (STEO) report 14 October 2022
Very good information.
While fossil fuels will be around and relied on for a long time, the question is, what areas can Grenada obtain net zero? How much fossil can a Grenadian household go without?
This can be a good case for solar power. Solar power is talked about but the adaptation is too slow.
If Grenlec can eliminate importation cost for fuel which is used to generate electricity, means, Grenada will only need to import fuel for transportation.
Solar panel that can withstand hurricanes should be an option.
What is the cost of a Hybrid vehicle compared to an Electric. Is there any cost savings between the two? At the moment Electric vehicles are very expensive.
The point is, if Hybrid are cheaper then Grenada can adopt Hybrid vehicles for transportation purposes which requires less fossil fuel. People still need to get work and other goods and services still needs to transported.
The region should collectively work with vehicle manufacturers to address this.
While everyone on the planet must do their fair share to address climate change, it’s unfair for places like Grenada to incur the significant cost. It is noted that the region contribute less than a percent of Greenhouse gas and is expected to contribute 100% while the major polluters give themselves targets. In some instances, the big polluters reneged and extend deadlines to meet their targets.
Not sure why Solar panels are not widely embraced….the initial cost is not cheap but long term savings is significant.
Very good commentary on the subject of Petroleum pricing. As a former employee of one of the Petroleum Companies namely Geo. F. Huggins, I think people need to be educated on this matter and you have done an excellent job in your explanation. This should be published through out the length and breadth of Grenada, Carriacou and Petit Martinique. Congratulations on such a splendid presentation