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Bank Executive Pushes Energy Price Hedging

By NATARIO McKENZIE

Tribune Business

nmckenzie@tribunemedia.net

A SENIOR financial executive said yesterday that countries such as the Bahamas should look at hedging structures to reduce the impact of crude oil price fluctuations.

Martin Peichl, CIBC First Caribbean’s clients solutions group director, told Tribune Business that while it was unlikely the price of crude oil would decrease significantly over the next few years, there were tools in the financial markets that can be used to lessen the impact of oil price fluctuations.

“In terms of the business that we do, while it doesn’t lower the price, it protects from price spikes. If the price were to continue to escalate, you can mitigate some of those price increases by entering into hedging instruments ,which will help dampen the effect of any price increase,” said Mr Peichl.

Bahamas Electricity Corporation (BEC) chairman, Leslie Miller, told Tribune Business previously that the Corporation would be in “good shape” if it could secure a long-term contract for fuel.

BEC’s general manager, Kevin Basden, told Tribune Business that the Corporation was spending upwards of $350 million per annum for fuel.

“Ultimately, you can’t run away from market prices, and the way crude has moved over the past few years, it’s very unlikely that crude will go down in the next few years,” said Mr Peichl.

“ There are strategies to help dampen that sort of potential market impact. There are different strategies, whether it is locking in a fixed price for a certain period of time, whether you are buying insurance to protect yourself from price increases so you know that you fluctuate to a certain level, and beyond that you have protection.

“There are different tools in the financial markets to help clients manage their price risk. Through these methods you can’t lower the price, but you can protect yourself from future price increases.”

Mr Peichl said countries in the Caribbean such as the Bahamas should also look at energy conservation and renewables.

“Conservation is probably the key to lower the overall usage of the product so you end up spending less. Looking for alternatives, renewables is also very important,” he added.

“Most of the islands in the Caribbean have largely a single source supply of energy. So if they are going to diversify that, it would help if something becomes more economic; it could switch to a different source of energy as opposed to just relying on fossil fuels.”

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