0
Evaluating Liquefied Natural Gas (LNG)
    Options for the State of Hawaii

          Dr. Fereidun Fesharaki
             ...
Background
• FACTS had been asked to examine the
  prospects for LNG in Hawaii
   – Why the interest?: environment, fuel
 ...
FACTS
                                    Retainer List
                                 Private Corporations

1. ExxonMob...
FACTS
                                       Retainer List

                     Government-Owned State Oil Companies* and...
Presentation Overview
•   What is LNG?
•   Why LNG?
•   Key players in LNG
•   Trends in contract terms
•   Trends in pric...
What is LNG?
• Natural gas (mostly methane) cooled until it
  liquefies at -256° F or -161° C.
• In its liquid state it oc...
What is LNG?
                 Consuming West




                                                      Consuming East




...
What is LNG?
                           LNG Chain Overview




       Production     Liquefaction      Shipping      Regas...
Why LNG?

World Natural Gas Consumption, 2002

                         LNG
                          5%




     Piped Na...
Why LNG?
                                        Growth Rates by Fuel, World 2002-2020
                                   ...
Why LNG?
• Remote markets and/or remote gas
• Environmental benefits
• Fuel diversification
• Cost competitiveness
• Abund...
Why LNG?
     • Environmental benefits (e.g., power)

35

30


25


20                                                    ...
Why LNG?
                           LNG COSTS ARE DECLINING
                           Does not include feedstock prices
 ...
Why LNG?
                                            Electricity Generating Costs
                                        ...
Why LNG?
                             Proven Gas Reserves as of January 1, 2003




       Indonesia


        Australia

...
Why LNG?
Gas leaves options open:
• ―Clean‖ applications, e.g., CNG.
   – Relative to diesel engines, natural gas engines ...
Key LNG Players
              Current LNG Market



                                29mtpa
5mtpa
                         ...
Key LNG Players
                 LNG Market 2010+
                                                      Note: The Hawaii m...
East of Suez LNG Liquefaction Plants
                       (Current & Proposed)         Kenai


                        S...
NWS - ALNG
                                        Australia (World LNG Ranking:5th)
•Consortium: Woodside, Shell, BHP,
Ch...
Timor Sea
     Greater Sunrise
•Consortium: Woodside (33%),
ConocoPhillips (30%), Shell
(27%), Osaka Gas (10%)
•Onstream: ...
Indonesia (World LNG Ranking:1st)




                                                         Bontang
                   ...
Tangguh
                                Indonesia contd.
                                                   •Consortium: B...
Malaysia (World LNG Ranking: 3rd)
                                     MLNG
                         •Consortium: Petronas...
Russia
               Sakhalin II
         Consortium: Shell (55%),
         Mitsui (25%), Mitsubishi
         (20%)
     ...
Qatargas
            Qatar (World LNG Ranking: 4th)   •Consortium: Qatar Petroleum
                                       ...
Key LNG Players—Corporate Snapshot

• A number of LNG players were informed that
  Hawaii is exploring the possibility of ...
Mt
                                                                 So
                                                   ...
$bn




                                                                                       -
                         ...
Key LNG Players—Corporate Snapshot

• British Petroleum
  – World’s third largest private oil and gas producer
    (behind...
Key LNG Players—Corporate Snapshot
• ChevronTexaco
  – Fourth largest oil and gas producer in the world
    (behind ExxonM...
Key LNG Players—Corporate Snapshot
                          BP Key Corporate Data
   ($ million, unless noted)           ...
Trends in Contract Terms


• Historical Contracts
  – Prevalence of CIF/ex-ship contracts
  – Strict destination clauses
 ...
Trends in Contract Terms

• Recent Developments
  – New contracts predominately on a FOB basis
    (over 80% since 1995).
...
Trends in Contract Terms


• Anticipated Trends through 2010/2015
  – Contracts will continue to move towards an FOB
    b...
Trends in Pricing
            Natural Gas Pricing by Region



  Europe
Oil Products                                US

  ...
Trends in Pricing

                                         Crude Oil and Gas Prices: 1976 - 2001
• Until recently, Henry ...
Trends in Pricing
• Historical Prices
   – Formula pricing with an 85% crude oil linkage (Asia)
                          ...
Trends in Pricing
• 2003
  – Formula pricing with tiered or lower crude linkages
    (Guangdong 30%)
                     ...
Trends in Pricing

• Evolution of LNG Pricing in Asia

   1969        Start of LNG trade     Fixed Pricing
               ...
Trends in Pricing

• Anticipated Trends through 2010/2015
  – More buyers inviting bids for prices.
  – Lower prices for i...
Environmental and Safety Issues
• Facts:
  – LNG is lighter than water
  – Natural gas is lighter than air
  – LNG vaporiz...
Environmental and Safety Issues

• Safety concerns (accidental release)
  – LNG vaporizes and causes condensation of atmos...
Environmental and Safety Issues
• Safety concerns (collision or terrorism)
   – A catastrophic failure caused by collision...
LNG in Hawaii: Alternative Scenarios
             Potential Fuel Substitution for LNG on Oahu (Fuel Use 2001)

           ...
LNG in Hawaii: Alternative Scenarios

             Probable Fuel Substitution for LNG on Oahu (Fuel Use 2001)
            ...
Advantages/Challenges for Hawaii
• Advantages
  –   Environmental
  –   Cost competitive
  –   Fuel diversification/energy...
Advantages for Hawaii
                                                                 Global Warming Potential of Oahu Po...
Advantages for Hawaii
                                  Cost of LNG vs. Other Fuels
                                  (Hi/...
Advantages for Hawaii



               Estimated Comparative Costs for Delivery to Honolulu, Hawaii ($/mmBTU)
           ...
Advantages for Hawaii
                                   State of Hawaii Primary Energy Fuel Mix: 2001



        Geotherm...
Challenges for Hawaii
• Major undertaking (public concerns, permits, etc.)
• Estimated capital expenditure $150-275 millio...
Possible Questions
• Infrastructure/site requirements?
• Scope of supply (e.g., all the way to the burner)?
• Integration ...
Thank you


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  1. 1. Evaluating Liquefied Natural Gas (LNG) Options for the State of Hawaii Dr. Fereidun Fesharaki Dr. Jeff Brown Shasha Fesharaki Tomoko Hosoe 1
  2. 2. Background • FACTS had been asked to examine the prospects for LNG in Hawaii – Why the interest?: environment, fuel diversification, declining costs, options for future • Act as impartial information source over the course of corporate visits • Focus of this presentation: – Key Issues in LNG – Topics corporate reps may not discuss • Potential competitors • Strengths/weaknesses • The final report will be submitted Nov. 1, 2003 • Who/What is FACTS? 2
  3. 3. FACTS Retainer List Private Corporations 1. ExxonMobil Corporation (USA, 18. S-Oil Corporation (Korea) Singapore) 19. Reliance Petroleum Limited (India) 2. ChevronTexaco Corporation (USA) 20. Reliance Industries Limited (India) 3. Unocal Corporation (USA) 21. Tata International, Ltd. (India) 4. ConocoPhillips (USA) 22. Total (France) 5. Universal Oil Products: UOP (USA, 23. Aluminium Pechiney (France) Singapore) 24. Shell Oil Products (Singapore) 6. Tesoro Petroleum Companies (USA) 25. Arthur D. Little (Singapore) 7. Nippon Oil Company (Japan) 26. Singapore Petroleum Corporation, Ltd. 8. Showa Shell Sekiyu (Japan) (Singapore) 9. Cosmo Research Institute/Cosmo Oil 27. Societe Generale (Singapore) (Japan) 28. Koch Supply & Trading Co. (Singapore, 10. Idemitsu Kosan (Japan) USA) 11. Mitsubishi Corporation (Japan) 29. Shell International Gas (UK) 12. Kansai Electric Company (Japan) 30. McKinsey and Company (UK, USA, 13. Itochu Corporation (Japan) Singapore) 14. BP (Singapore, UK) 31. BHP Billiton (Australia) 15. Oiltanking (Singapore, Germany) 32. North West Shelf Australia LNG 16. LG-Caltex/LG Gas/Kukdong Gas (Korea) (Australia) 17. SK Corporation: Yukong (Korea) 33. Gorgon Australian Gas (Australia) 3
  4. 4. FACTS Retainer List Government-Owned State Oil Companies* and Agencies 1. Saudi Aramco (Saudi Arabia) 12. SINOPEC/CPCCC (China) 2. Kuwait Petroleum Corporation: KPC 13. Chinese Petroleum Corporation: CPC (Kuwait) (Taiwan) 3. Abu Dhabi National Oil Company: ADNOC 14. Petron Corporation (Philippines) (Abu Dhabi, UAE) 15. PTT Public Company Limited: PTTPLC 4. Abu Dhabi Gas Liquefaction Company: (Thailand) ADGAS, (Abu Dhabi, UAE) 16. Petroleos de Venezuela: PDVSA (Venezuela) 5. Emirates National Oil Company Ltd.: 17. Indian Oil Corporation: IOC (India) ENOC (Dubai, UAE) 18. Petronet LNG Limited (India) 6. Bahrain Petroleum Company: BAPCO 19. International Energy Agency: IEA (France) (Bahrain) 20. Statoil (Norway, Singapore) 7. Petronas (Malaysia) 21. U.S. Government 8. Malaysia LNG: MLNG (Malaysia) 22. U.S. Department of Energy 9. Pertamina (Indonesia) 23. U.S. Energy Information Administration 10. Korea National Oil Corporation: KNOC 24. Australian Bureau of Agriculture & Research (Korea) Economics: ABARE (Australia) 11. Korea Gas Corporation: KOGAS (Korea) Note: *some partially privatized 4
  5. 5. Presentation Overview • What is LNG? • Why LNG? • Key players in LNG • Trends in contract terms • Trends in pricing • Environmental and safety Issues • LNG: Advantages for Hawaii • LNG: Challenges for Hawaii 5
  6. 6. What is LNG? • Natural gas (mostly methane) cooled until it liquefies at -256° F or -161° C. • In its liquid state it occupies 1/600th the volume of its gaseous state • LNG IS NOT PRESSURIZED/FLAMMABLE • LNG has been around for a long time: – First plant (1917) – Peak shaving (1941) – International transport (1959) 6
  7. 7. What is LNG? Consuming West Consuming East Depleted Fields Salt Caverns Aquifers LNG Storage Facilities U.S. has the largest number of LNG Total withdrawal capability is 78 billion cubic feet per day. facilities in the world—Most used Source: EIA for peak shaving Producing 7
  8. 8. What is LNG? LNG Chain Overview Production Liquefaction Shipping Regasification Markets Cost: $0.30-1.25 $0.50-1.50 $0.50-1.40 $0.30-.65 Total: $1.60-4.80 ($/MMBTU) (HI?: $0.90-1.22) • Greenfield vs. expansion projects • FOB vs. CIF Photos: BG • Ownership structure typically varies from project to project 8
  9. 9. Why LNG? World Natural Gas Consumption, 2002 LNG 5% Piped Natural Gas 95% Source: EIA 9
  10. 10. Why LNG? Growth Rates by Fuel, World 2002-2020 (2001=100) 260 240 220 200 LNG 180 160 Natural Gas 140 Oil 120 Coal 100 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: EIA International Energy Outlook 2002 10
  11. 11. Why LNG? • Remote markets and/or remote gas • Environmental benefits • Fuel diversification • Cost competitiveness • Abundant resources/Flat supply in some markets • Alternative uses for gas—CNG, hydrogen 11
  12. 12. Why LNG? • Environmental benefits (e.g., power) 35 30 25 20 S O 2 k g / TO E N O x k g / TO E 15 C O 2 k g C /b il li o n J 10 5 0 N a t u ra l G a s O il (1 % S ) C o a l (1 % S ) 12
  13. 13. Why LNG? LNG COSTS ARE DECLINING Does not include feedstock prices $/MMBTU 2.5 0.5 2 0.1 0.1 1.5 2.5 1.8 1 0.5 0 1980's Liquefaction Shipping Regasification and 2000's Storage Source: El Paso 13
  14. 14. Why LNG? Electricity Generating Costs (80% Load Factor, 10% Discount Rate) 5 4.5 4 3.5 3 cents/kWh 2.5 2 1.5 1 0.5 0 Gas at $3/mmBTU Gas at $3.5/mmBTU Gas at $4/mmBTU Coal Source: Cedigaz Capital Cost Operating Cost Fuel Cost 14
  15. 15. Why LNG? Proven Gas Reserves as of January 1, 2003 Indonesia Australia Malaysia Timor Sea Hawaii needs roughly 1.5 Russia (Sakhalin) Tcf to support demand of Brunei 1.2 mtpa + demand growth for 20 years. Hawaii 0 10 20 30 40 50 60 70 80 90 100 Tcf 15
  16. 16. Why LNG? Gas leaves options open: • ―Clean‖ applications, e.g., CNG. – Relative to diesel engines, natural gas engines produce over 90% less CO and particulate matter and over 50% less NOX. • Potential bridge to a hydrogen economy – Currently steam methane reforming (using natural gas) is the most energy-efficient and cost-effective way to produce hydrogen. – Could be used to produce hydrogen for fuel cells until other methods become more competitive. • Develop hydrogen infrastructure – Eventually move to renewables/electrolysis as hydrogen source. 16
  17. 17. Key LNG Players Current LNG Market 29mtpa 5mtpa 77mtpa Algeria Middle East Trinidad W.Africa S.E.Asia Australia Source : BG
  18. 18. Key LNG Players LNG Market 2010+ Note: The Hawaii market would initially require Norway approx 1.2 mtpa—The global market is currently approximately 111 mtpa Egypt Middle East Hawaii Algeria W.Africa Trinidad S.E.Asia Bolivia Australia Source : BG
  19. 19. East of Suez LNG Liquefaction Plants (Current & Proposed) Kenai Sakhalin Iran Red=Existing Green=Greenfield Das Lumut RasGas Island Bontang Qatargas Tangguh Donggi Omani LNG Greater Sunrise Arun Bayu Undan MLNG Gorgon NWS 19
  20. 20. NWS - ALNG Australia (World LNG Ranking:5th) •Consortium: Woodside, Shell, BHP, ChevronTexaco, BP, Japan ALNG, (all have 16.66% share) •Commissioned in 1989 •Existing Markets: Japan •Potential New Markets: China, Korea, USWC, Hawaii Gorgon •Uncommitted Supply: 3.5-5.5 mtpa •Consortium: ChevronTexaco (57%), Shell (29%), ExxonMobil (14%) •Onstream:2007 •Potential Markets: China, Japan, Korea, USWC, Hawaii •Uncommitted Supply: 5.0 mtpa 20
  21. 21. Timor Sea Greater Sunrise •Consortium: Woodside (33%), ConocoPhillips (30%), Shell (27%), Osaka Gas (10%) •Onstream: 2010 •Potential Markets: Japan, Korea, USWC, Hawaii •Uncommitted Supply: 5.3 mtpa Bayu Undan •Consortium: ConocoPhillips (54%), Agip (13%), Santos (12%), TEPCO (6%), Tokyo Gas (3%) •Onstream: 2006 •Potential Markets: Japan •Uncommitted Supply: 0 mtpa 21
  22. 22. Indonesia (World LNG Ranking:1st) Bontang •Consortium: Pertamina (55%) Vico (20%), Jilco (15%), Total (10%) •Commissioned:1977 Arun •Existing Markets: Japan, Korea, Taiwan •Consortium: Pertamina (55%). ExxonMobil (30%), Jilco (15%) •Potential New Markets: USWC, Hawaii •Commissioned: 1978 •Uncommitted Supply: 3.0 mtpa •Existing Markets: Japan and Korea 22
  23. 23. Tangguh Indonesia contd. •Consortium: BP (37.5%), Mitsubishi (17%), BG (10%), Kanematsu (10%), Nippon Oil (10%), Nissho Iwai (1%), CNOOC (12.5%) •Onstream:2007 •Potential Markets: China, Japan, Korea, USWC, Hawaii •Uncommitted Supply: 4.4 mtpa Donggi •Consortium: Pertamina (100%) •Onstream: 2010? •Potential Markets: Japan, Korea, USWC, Hawaii •Uncommitted Supply: 7.0 mtpa 23
  24. 24. Malaysia (World LNG Ranking: 3rd) MLNG •Consortium: Petronas (60%), Shell (15%), Sarawak Gov’t (10%), Nippon Oil (10%), Diamond Gas (10%) •Existing Markets: Japan, Korea, Taiwan •Potential New Markets: USWC, Hawaii •Uncommitted Supply: 1.8-2.8 mtpa 24
  25. 25. Russia Sakhalin II Consortium: Shell (55%), Mitsui (25%), Mitsubishi (20%) Onstream: 2006 Potential Markets: Japan, Korea, China, USWC, Hawaii Uncommitted Supply: 7.3 mtpa 25
  26. 26. Qatargas Qatar (World LNG Ranking: 4th) •Consortium: Qatar Petroleum (65%), ExxonMobil 10%, Total (10%), Mitsui (7.5%), RasGas Marubeni (7.5%) •Commissioned: 1998 •Consortium: Qatar •Existing Markets: Japan Petroleum (63%), ExxonMobil (25%), •Potential New Markets: Kogas (5%), Itochu (4%), India, US, Europe LNG Japan (3%) •Uncommitted Supply: 14.0 •Commissioned: 2000 mtpa •Existing Markets: Korea •Potential New Markets: India, US, Europe •Uncommitted Supply: 19.7 mtpa 26
  27. 27. Key LNG Players—Corporate Snapshot • A number of LNG players were informed that Hawaii is exploring the possibility of LNG – For example: • BP • ChevronTexaco • Shell • Australia LNG • Mitsui 27
  28. 28. Mt So na 0 1 2 3 4 5 6 7 8 9 10 tra ch Sh el Q l G Pe PC To tron ta as l O Fina m an Elf i Ex Sta xo te nM o AD bil N O C 28 BP N N PC Source: Deutsche Bank estimates and company information M its C ui he vr BH on Te P x W ac Equity LNG Capacity, 2002 C oo o on d Key LNG Players oc sid oP e hi llip s BG EN U I no R ca ep l so l-Y F
  29. 29. $bn - 1 2 3 4 5 6 7 8 9 10 Sh C el he l vr on BG Te xa co M its BP ub is h M i its u Q i G PC To PD tal V 29 Pe SA Ex tron xo a s nM ob Source: Deutsche Bank estimates and company information N il N N or PC w ay EG St PC at e D Global LNG Capex, 2002-2010 FI Key LNG Players R ep EN Ke sol I rr- -YF M c M Ge a e N rat or h C sk on on H oc yd oP ro hi llip s
  30. 30. Key LNG Players—Corporate Snapshot • British Petroleum – World’s third largest private oil and gas producer (behind ExxonMobil and Shell) with upstream activities in 24 countries. – Largest gas producer in both the US and UK. – Significant LNG player with projects in: • Atlantic Basin-Trinidad (operator) • Middle East-Abu Dhabi • Asia-Pacific-Australia (NWS), Indonesia – Recently purchased 2 LNG tankers (w/option for 3 more) that are not assigned to specific projects 30
  31. 31. Key LNG Players—Corporate Snapshot • ChevronTexaco – Fourth largest oil and gas producer in the world (behind ExxonMobil, Shell, and BP). – Among the more oil-heavy of the majors • Gas accounts for only around 27% of global upstream production. – Gas markets concentrated in North America and Europe. Looking to expand in Asia. – Not a major LNG player yet, but (potential) projects in: • Africa - Nigeria, Angola • Asia-Pacific - Australia (NWS and Gorgon) – Hawaii’s Chevron refinery 31
  32. 32. Key LNG Players—Corporate Snapshot BP Key Corporate Data ($ million, unless noted) 1999 2000 2001 Revenue 85,277 150,562 176,551 Net Income (Reported) 5,006 11,868 8,008 Total Assets 89,561 143,938 141,158 Cash Flow from Operations 9,195 14,365 17,433 Capex 7,345 47,613 14,124 Total Gas Sales (mmscf/d) 8,930 14,471 18,794 Gas Reserves (Bcf) 35,526 43,918 46,715 Gas Production (mmscf/d) 6,067 7,532 8,524 Market Capitalization (at year-end) 196,487 183,699 172,494 ChevronTexaco Key Corporate Data ($ million, unless noted) 1999 2000 2001 Revenue 79,684 112,529 99,699 Net Income (Reported) 3,247 7,727 3,288 Total Assets - 77,621 77,572 Cash Flow from Operations 7,771 13,467 11,457 Capex 10,137 9,520 12,028 Total Gas Sales (mmscf/d) 8,876 9,700 10,505 Gas Reserves (Bcf) 17,163 17,844 19,410 Gas Production (mmscf/d) - 4,466 4,417 Market Capitalization (at year-end) 56,856 89,899 95,634 32
  33. 33. Trends in Contract Terms • Historical Contracts – Prevalence of CIF/ex-ship contracts – Strict destination clauses – Long term 20 year or greater contract durations – 90% or greater take-or-pay – Minimal seasonal offtake flexibility 33
  34. 34. Trends in Contract Terms • Recent Developments – New contracts predominately on a FOB basis (over 80% since 1995). – Increased flexibility in destination clauses • Bayu Undan to TEPCO and Tokyo Gas allows resale within Japan. – Some relaxation of take-or-pay levels (existing projects) – Season offtake flexibility has increased with KOGAS medium-term contracts. 34
  35. 35. Trends in Contract Terms • Anticipated Trends through 2010/2015 – Contracts will continue to move towards an FOB basis as this gives buyers more control. – Destination clauses will continue to be relaxed. – More long term and short term contract combinations along with options (creates greater offtake flexibility). – Take-or-pay levels expected to remain high for financing new projects (internally financed projects may be more flexible). 35
  36. 36. Trends in Pricing Natural Gas Pricing by Region Europe Oil Products US Asia Henry Hub Crude Oil (JCC) 36
  37. 37. Trends in Pricing Crude Oil and Gas Prices: 1976 - 2001 • Until recently, Henry 7 LNG (cif Japan) Hub normally the 6 US Henry Hub Europe Gas cif lowest (not in 2003). $/MMBTU 5 Oil (Brent) 4 • Asian LNG price 3 2 roughly in line with 1 Brent crude oil price. 0 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 37
  38. 38. Trends in Pricing • Historical Prices – Formula pricing with an 85% crude oil linkage (Asia) Histrocial Japanese LNG Prices, Delivered 4.50 4.30 4.10 3.90 3.70 ($/mmBtu) 3.50 3.30 3.10 2.90 2.70 2.50 15.00 16.00 17.00 18.00 19.00 20.00 21.00 22.00 23.00 24.00 25.00 Crude ($/b) 38
  39. 39. Trends in Pricing • 2003 – Formula pricing with tiered or lower crude linkages (Guangdong 30%) Guangdong vs. Japan LNG Price, Delivered 4.50 Japan 4.30 4.10 Guangdong 3.90 3.70 ($/mmBtu) 3.50 3.30 3.10 2.90 2.70 2.50 15.00 16.00 17.00 18.00 19.00 20.00 21.00 22.00 23.00 24.00 25.00 Crude ($/b) 39
  40. 40. Trends in Pricing • Evolution of LNG Pricing in Asia 1969 Start of LNG trade Fixed Pricing (Alaska to Japan) 1973 First oil crisis Change to Crude Oil Index - High oil prices 1986 Oil price crash Provisional pricing Introduction of S-Curve Late 90s- Market changes, Discussion of new indexes Supply to new markets and mechanisms 40
  41. 41. Trends in Pricing • Anticipated Trends through 2010/2015 – More buyers inviting bids for prices. – Lower prices for increased volumes. – Lower crude oil linkages and lower overall prices. – Linked to coal prices (India). – Possible return to fixed price (alleviates uncertainty related to price fluctuations). – Index a portion of prices to inflation. 41
  42. 42. Environmental and Safety Issues • Facts: – LNG is lighter than water – Natural gas is lighter than air – LNG vaporizes rapidly and natural gas dissipates quickly (depending on conditions) – LNG itself does not explode or burn – Natural gas needs to be in vapor form and appropriately mixed with air to burn • Environmental concerns (accidental release) – Because LNG vaporizes quickly the localized environmental concerns are minimal, especially when compared to oil. – 1991 study: oil spill cost estimated at 3 billion dollars • (Assuming oil washes up on Oahu and Kauai beaches) Source: US DOE 42
  43. 43. Environmental and Safety Issues • Safety concerns (accidental release) – LNG vaporizes and causes condensation of atmospheric moisture, forming a visible cloud – As the vapor cloud warms it lifts – An ignition source close to the origin is likely to cause ignition and result in rapid burn-off – Downwind ignition (probably from multiple ignition sources) of a plume would result in burn back (extremely unlikely, but potentially the most dangerous) 43
  44. 44. Environmental and Safety Issues • Safety concerns (collision or terrorism) – A catastrophic failure caused by collision or terrorism would likely result in ignition sources close to the vessel and ignition and rapid burn down would occur. – Note LPG (propane) tanker incident in Iran/Iraq war. • Summary – In general, the hazards appear to be manageable – Over 30+ years there have been no major LNG transport problems – US Coast Guard is comfortable with LNG―LPG (propane) is generally considered higher risk: • Under pressure • Heavier than air―does not disperse as easily 44
  45. 45. LNG in Hawaii: Alternative Scenarios Potential Fuel Substitution for LNG on Oahu (Fuel Use 2001) Fuel Type LNG equivalent LNG Application Displaced Billion BTU (tonnes) Power Sector HECO Steam Generation Units LSFO 46,668 906,343 Kalaeloa Partners LSFO 12,503 242,824 HECO Combustion Turbine Units Diesel 132 2,567 AES Hawaii Coal 13,930 270,534 Sub-Total 1,422,269 Utility Gas Sector Utility SNG and Propane SNG and Propane 3,107 60,350 Sub-Total 60,350 Highway Transportation Sector LPG Highway Vehicles LPG 27 530 Diesel Highway Vehicles Diesel 2,619 50,869 Gasoline Highway Vehicles Gasoline 33,009 641,085 Sub-Total 692,484 Total LNG Demand 2,175,103 LSFO=Low Sulfur Residual Fuel Oil; SNG=Synthetic Natural Gas; LPG=Liquefied Petroleum Gas 1 Tonne of LNG=51.49 million BTU Source: FACTS update of DBEDT's draft, "A Proposed Assesment of LNG Options for Hawaii" 45
  46. 46. LNG in Hawaii: Alternative Scenarios Probable Fuel Substitution for LNG on Oahu (Fuel Use 2001) Fuel Type LNG equivalent LNG Application Displaced Billion BTU (tonnes) Power Sector HECO Steam Generation Units LSFO 46,668 906,343 Kalaeloa Partners LSFO 12,503 242,824 Sub-Total 1,149,167 Utility Gas Sector Utility SNG and Propane SNG and Propane 3,107 60,350 Sub-Total 60,350 Total LNG Demand 1,209,518 LSFO=Low Sulfur Residual Fuel Oil; SNG=Synthetic Natural Gas; LPG=Liquefied Petroleum Gas 1 Tonne of LNG=51.49 million BTU Source: FACTS update of DBEDT's draft, "A Proposed Assesment of LNG Options for Hawaii" Increasing to approximately 1.5 mtpa by 2015 46
  47. 47. Advantages/Challenges for Hawaii • Advantages – Environmental – Cost competitive – Fuel diversification/energy security – Options for the future—CNG/Possible bridge to a hydrogen economy • Challenges 47
  48. 48. Advantages for Hawaii Global Warming Potential of Oahu Power Generation Current Fuel Plans vs. LNG in 2007 9,000 Thousand Tons of Carbon-Dioxide Equivalent 8,500 8,000 GWP w/ current fuel plans 7,500 7,000 25.5 percent reduction 6,500 GWP w/ LNG 6,000 5,500 5,000 4,500 4,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Steve Alber, DBEDT 48
  49. 49. Advantages for Hawaii Cost of LNG vs. Other Fuels (Hi/Low Range and Average) $8.00 $7.00 $6.00 $5.00 $/MMBTU Range $4.00 $3.00 Average $2.00 $1.00 $0.00 Industry standard Major producer for HI HECO fuel oil HECO diesel (Shell) (1990-2001) (1990-2001) 49
  50. 50. Advantages for Hawaii Estimated Comparative Costs for Delivery to Honolulu, Hawaii ($/mmBTU) Indonesia Australia Malaysia Russia Indonesia Australia Supply (Bontang) (NWS) (Bintulu) Qatar (Sakhalin) (Tangguh) Oman (Bayu-Undan) Feedgas 0.50 0.30 0.70 0.50 0.95 0.70 0.70 0.90 Liquefaction 0.80 1.00 0.85 0.70 1.10 1.20 0.80 1.30 Shipping 0.75 0.85 0.80 1.25 0.50 0.70 1.20 0.75 Regasification 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 Total $2.65 $2.75 $2.95 $3.05 $3.15 $3.20 $3.30 $3.55 *All costs are estimates; Hawaii port costs not included 50
  51. 51. Advantages for Hawaii State of Hawaii Primary Energy Fuel Mix: 2001 Geothermal, 0.7% Hydro, 0.3% Solar*, 1.3% Biomass, 1.5% MSW, 1.5% Coal, 5.6% Hypothetical State of Hawaii Primary Energy Fuel Mix w/LNG: 2001 (1.209 mtpa LNG) Oil, 89.1% Geothermal, 0.7% Hydro, 0.3% Solar*, 1.3% Oil, 68.7% Biomass, 1.5% MSW, 1.5% *Note: Solar includes wind and solar heated water. Source: DBEDT estimate for 2001. Coal, 5.6% Clear opportunity to diversify―especially if gas price is not closely linked to oil Gas, 20.4% price *Note: Solar includes wind and solar heated water. Source: DBEDT estimate for 2001. 51
  52. 52. Challenges for Hawaii • Major undertaking (public concerns, permits, etc.) • Estimated capital expenditure $150-275 million • Site: Target harbor (Barbers Point) may be inadequate for LNG—e.g., dredging required • Potentially disruptive to existing energy supply – ChevronTexaco refinery most at risk • Smaller, older • Simulation: Profits decline by 43 percent w/ LNG – Neighbor islands • May not be viable to include in LNG plans • LNG barges? 52
  53. 53. Possible Questions • Infrastructure/site requirements? • Scope of supply (e.g., all the way to the burner)? • Integration with other projects? • Tanker options? • Alternative supply? • Pricing? • Supply to neighbor islands? • Viability of Chevron refinery? 53
  54. 54. Thank you 54
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