The Bahamas, which has no proven reserves of oil or natural gas, is totally reliant on imports to meet its energy needs. A major upcoming development project, however, could change this situation in the foreseeable future.
In mid-May BPC Limited, a local oil and gas firm, announced a joint venture with the Norwegian-based StatoilHydro Company to conduct a major research project for oil reserves off the Bahamas.
From the mid-1940s to the late 1980s a series of international firms carried out exploration, surveys and test drilling at various sites both on and offshore. All met with little or no success. By 1988 the exploration licences granted by the government had expired.
Nevertheless, BPC officials believe the region still has untapped potential. The company has been conducting exploration at five offshore areas, covering approximately 15,676 sq km in the Bahamas' territorial waters and maritime economic zone since being granted permission in early 2007.
Based on these studies and a 2008 report that predicted 500m barrels of oil equivalent in the southern part of the country, BPC and StatoilHydro will conduct a more detailed exploration at Zapata, Islamorada and Falcones in the Cay Sal area of the south-western Bahamas, adjacent to BPC's existing licences.
According to Alan Burns, the chairman of BPC, StatoilHydro signing onto the project was a major step forward. "It is testament to the prospects of the southern Bahamas and to BPC's contacts and commitment to the region that a large business such as StatoilHydro sees it as an important addition to their exploration portfolio," Burns said on May 18.
The agreement states that there will be no drilling commitment during the first phase of the project. At the end of the initial three-year term the licence holders will have the option to commit to drilling a well in the second phase. It is at this point that the government will find out if it is a potential player in the regional energy market.
If the venture is successful, it could have a direct effect on the nation's economy, providing employment and state revenue through taxes, royalties and duties. However, until the sector develops its own refining capacity, any oil from offshore wells will only make its way back into Bahamian fuel tanks by way of overseas processing.
Currently the Bahamas has no operational refining capacity, though it once did. Built between 1968 and 1975, the refinery – located at Freeport, Grand Bahama – was temporarily shut down in 1985 in response to rising costs. Since that time, the facility has operated as a storage, blending, bunkering and trans-shipment terminal.
The refinery was established by the Bahamas Oil Refining Company International Limited (BORCO), which was purchased from Chevron in 1990 by the state-owned Venezuelan firm Petroleos de Venezuela. After operating the facility for nearly 20 years, BORCO was acquired by a joint venture consisting of the Dutch company Vopak and the international equity firm First Reserve Corporation. The new firm was rebranded as Vopak Terminal Bahamas.
Volpak, which currently operates the facility, has said that it does not intend to reopen the refinery, which is not surprising considering the firm's core activity is storage and trans-shipment. Petroleos had considered reactivating the plant in 2004 but was put off by the estimated price of $100m required to make it operational.
Two further refinery proposals surfaced in 2005, one from China and another locally, but both disappeared off the radar quickly, in part due to Petroleos's opposition to its site being used by third parties.
Currently the Bahamas has to import oil and oil derivatives to meet its energy needs, which are estimated at around 70,000 barrels per day. Imported fossil fuels are needed not only to power the country's vehicles, but also the whole of the economy, with the loss-making Bahamas Electricity Corporation, for example, relying on imported hydrocarbons to turn its electricity generators.
It will be a long time before the Bahamas begins to reap any benefits from the potential wealth beneath its waters. Until then the country will continue to be dependent on fluctuations in international energy prices.