DOMINICAN REPUBLIC—2010-2030 Energy Forecast for the Dominican Republic

by Manatt, Phelps & Phillips, LLP

Last month the National Energy Commission (“CNE”) published a study updating the Dominican Republic’s energy forecast for the 2010-2030 period. The study was prepared by the Argentinean Fundación Bariloche, which performed the same study for the country in their 2003 and 2008 editions, with technical-economic support from the Inter-American Development Bank (IDB). This forecast plays an essential role in the formulation of the Dominican Republic’s energy policy and investment decisions for the energy sector in the country. Among others, the study projects for the next 20 years that (i) in terms of net energy, the total final consumption of the country is expected to grow between 2.3% and 3.0% annually, (ii) the final electricity demand will grow between 3.2% and 4.2% annually, and (iii) natural gas would take between 3.3% and 4.6% of the country’s final energy consumption. A copy of the study, including an executive summary thereof, is available on the CNE’s website.

The study contains, first, results from a review of the country’s energy balances for the 1998-2011 period and an update of the National Energy Balance in terms of net and useful energy by sector, subsector, sources and uses for 2010. Then the study sets forth the main characteristics of the socioeconomic scenarios proposed for the 2010-2030 period, describing their general and specific aspects, performance of the world economy and inclusion of the Dominican Republic in such context. Next, the study sets forth the main characteristics of the energy scenarios for the 2010-2030 period, which were prepared in line with the socioeconomic scenarios developed by the study. The study contemplates two potential energy scenarios for the 2010-2030 period, a Trend Scenario and an Alternative Scenario. Finally, the study describes and analyzes the results set forth in the forecast, which were prepared using econometric methods and the LEAP (Long-range Energy Alternatives Planning System) analytical model, and provides a series of conclusions.

Below are some highlights and conclusions set forth in the study:

  1. Energy Supply Evolution: The study conducted a comprehensive review of the National Energy Balances (BEN) for the 1998-2011 period. Among the results set forth for such period are:
    • An evolution of the total energy supply, which grew at an average cumulative annual rate of 1.5% during such period, reaching 8,172 kToe (thousands of tonnes of oil equivalent) in 2011.
    • Energy imports accounted for 87.8% of domestic energy supply in 2011, while the remaining 12.2% was attributed to domestic production. This composition of the domestic supply remained roughly the same ??throughout the period analyzed.
    • Imports are mainly composed of oil and oil products, and, to a lesser extent, natural gas and coal.
    • Domestic production of primary energy is composed exclusively of renewable, hydropower, wood, bagasse and other residual products, wind and solar sources.
    • Despite the significant increase in the import of natural gas and coal from 2002 onward, oil products still have the most weight, accounting for 58% of total imports in 2011, followed by crude oil (19%), natural gas (11%), coal (9%), and petroleum coke (4%).
    • During this period, electricity generation was primarily from fuel oil and gas oil.
    • Electricity generation from coal and natural gas began in 2001 and 2003, respectively.
    • In 2011, 37% of the intermediate consumption of electricity generation corresponded to fuel oil, 21% to natural gas, 19% to gas oil, 17% to coal, 5% to hydropower, and the remaining 1% to bagasse, other primary sources, wind and gasoline.
  2. Evolution of Final Energy Consumption:
    • Between 1998 and 2011, total final consumption (including energy and nonenergy consumption) grew at an average cumulative annual rate of 2.2%, increasing from 4,403 kToe in 1998 to 5.822 kToe in 2011, with a generally trending increase, with falls in 2003, and stagnation between 2007 and 2009.
    • Electricity consumption grew from 17.0% of the final consumption in 1998 to 20.0% in 2011.
  3. Final Consumption by Sector: The study lists the following as the most significant changes in the structure of final consumption by sector over the 1998-2011 period:
    • The total, urban and rural residential sector went from 25.2% of the final consumption to 23.3% of such consumption.
    • The industry sector went from 17.5% of the final consumption to 21.7% of such consumption.
    • The transportation sector went from 43.7% of the final consumption to 42.9% of such consumption.
  4. Final Consumption by Source: The study lists the following as the most significant changes in the structure of final consumption by source for the 1998-2011 period:
    • Increase in petroleum coke consumption (consumed in cement and electricity production), with increases of 4.7% (cement) and 3.0% (electricity).
    • 6.5% decline in gasoline consumption.
  5. Structure of the Dominican Energy Matrix—2010:
    • The total energy supply in 2010 was 7,946 kToe (12.5% ??of production from national primary sources and 87.8% from imports).
    • Analyzed by sources, the domestic supply is composed of 72.2% oil and oil products; 9.0% natural gas; 6.2% coal; 7.1% wood; and 5.4% biomass residues, biodiesel and solar. That is, the Dominican energy matrix is 87.5% dependent upon nonrenewable sources (all imported) and 12.5% ??upon domestic renewable sources.
    • Of the total amount of energy imports in 2010 (amounting to 6,980 kToe), 20.0% corresponded to crude oil.
    • Imports of natural gas and coal accounted for 10.3% and 7.1%, respectively, of the total amount of energy imports.
    • Biodiesel transactions accounted for only 0.1%.
  6. Net or Final Energy Consumption – 2010: The average final/net energy consumption (amount of energy entering the consumer units—households, businesses, industries, vehicles and other socioeconomic sectors) was 37.7% in 2010.
  7. Energy Scenarios:
    • For purposes of the study, two contrasting scenarios, referred to therein as Scenario I (Trend) and Scenario II (Alternative), were analyzed, one based upon pessimistic case examples of low growth, the other based on optimistic results that assume a greater degree of autonomy and capacity of the public policies to guide the country’s development.
    • Consistent with the socioeconomic trajectories discussed, the study proposes two energy scenarios for the country: the first aligned with the Trend Scenario and the second with the Alternative Scenario. In both cases, the study proposes measures for the rational and efficient use of energy and strategies to achieve the substitution of sources.
    • Trend Scenario:
      • Not a static stage – it takes into account decisions already made or likely to be made before 2030.
      • Contemplates that the equipment characteristics will be maintained and their performance will be improved in accordance with developments to take place at the international level.
      • Contemplates that there is no explicit policy to accelerate improvements in technological aspects.
      • Assumes, among other things, (i) continuity of the recent historical evolution of the energy system, (ii) moderate penetration of natural gas in the industry and transportation sectors, (iii) that the high prices of energy imports will not substantially increase the contribution of natural gas to electricity generation, (iv) extension of gas pipelines to supply only limited additional generators, and (v) continuation of moderate penetration of biodiesel (3% in 2030).
    • Alternative Scenario:
      • Assumes the implementation of policies that modify or alter the historical trends described in the Trend Scenario.
      • Contemplates, based upon a greater availability of natural gas supply, a higher penetration of natural gas in the final energy consumption, both at the sector level and in the generation of electricity.
      • Considers that the foregoing policy is accompanied by an increased penetration of other energy sources, such as liquefied petroleum gas (by having a higher availability of such gas in the country due to the expansion of the local refineries) and renewable sources, as well as an increase in the level of electrification and the amount and quality of energy in rural areas.
      • Assumes, among other things, (i) greater penetration of natural gas and renewable sources, (ii) increase in the level of rural electrification, (iii) higher penetration of natural gas in the industry, transportation and other sectors, (iv) efficiency improvements in the other sectors in respect of the Trend Scenario, and (v) penetration of biofuels (10% bioethanol and 5% biodiesel by 2030).     
  8. Principal Projections:
    • In terms of net energy, the total final consumption of the country during the 2010-2030 period is expected to grow at an average cumulative annual rate of 3.0%, under the Alternative Scenario, and 2.3%, under the Trend Scenario. The total final consumption in 2030 is expected to be 10,460 kToe, under the Alternative Scenario, and 9,153 kToe, under the Trend Scenario.
    • Under the Alternative Scenario, the principal energy sources expected to grow at a faster rate than the total net consumption are (i) natural gas (15.1% cumulative annual), (ii) biodiesel (13.2% cumulative annual), (iii) solar (10.9% cumulative annual), (iv) biomass residues (4.4% cumulative annual), (v) electricity (4.2% cumulative annual) and (vi) fuel oil (4.0% cumulative annual).
    • With regard to the structure by source category under the Alternative Scenario, the study projects:
      • Petroleum products would reduce their share from 66.9% to 62.2%.
      • Natural gas will increase to 4.6%.
      • Electricity will have a significant increase, moving from 19.4% to 24.8%.
      • Biomass sources will fall from 13.1% to 7.2%.
    • With regard to the structure by source category under the Trend Scenario, the study projects:
      • A decrease in the participation of petroleum products (from 66.9% to 65.3%).
      • A decrease in the participation of biomass sources (from 13.1% to 8.1%).
      • An increase in the participation of electricity (19.4% to 23.1%).
      • Natural gas will constitute 3.3% of the final consumption in 2030.
    • The final electricity demand will increase from the 13,110 GWh registered in 2010 to (i) 30,129 GWh in 2030, under the Alternative Scenario, and (ii) 24,658 GWh, under the Trend Scenario. The foregoing would signify an average cumulative annual growth rate of 4.2%, under the Alternative Scenario (as indicated above), and 3.2%, under the Trend Scenario.
    • Demand for natural gas in 2030 is expected to be (i) 575 million m3 per year in the Alternative Scenario, which amounts to nearly 1.6 million m3/day and (ii) 361 million m3 per year in the Trend Scenario, equivalent to almost 1.0 million m3/day.

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Manatt, Phelps & Phillips, LLP

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