LNG for Hawai'i


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Asian Market *Hawaii's LNG*LNG pricing*US export*LNG export*North American prices

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  • Our territory covers more than 2,000 miles from South Point on the Big Island of Hawai`i to Johnson island in the western Pacific. The 7 main islands, Oahu, Maui, Hawai`i, Kauai, Molokai, Lanai and Niihau are where the bulk of our population lives. Nearly 80% of our population lives and works on the island of Oahu in a strip of land about 25 miles long and 4 miles wide. As a result, the bulk of the state’s electricity demand is on that island.We are the furthest inhabited islands from any continental land mass, without access to any support form a pipeline network or grid. Where once up to 33% of our power was supplied from biomass utilizing agricultural waste, we are now nearly 90% dependent upon imported oil for our energy supply.
  • Conservation and renewables are the obvious solution, but the investments required are staggering—especially since most of the energy resources are not on Oahu. Even the most ambitious projections see renewables contributing no more than 40% of energy by 2030.LNG can play an important role in helping displace oil—and in creating steady supplies of energy that fill in for fluctuating sources of energy like wind and solar.BUT: The investments required to start LNG are also huge. The minimum economic scale is usually taken as a half-million to a million tonnes of LNG per year. This would require large investments in terminals, pipelines, storage, and new consuming equipment (such as new power plants). Taken together, the investment needs of the renewable energy program plus a major think-big LNG program create huge cost barriers to solving Hawaii’s oil problem.Hawai’i Gas has another approach—bringing in LNG in small parcels to feed our existing pipeline gas network and demand from existing customers, and then grow the market step by step until large shipments can fit smoothly and easily into the system.
  • Hawaii’s oil dependence is not only above the national average—it also towers above any other state. Hawai’i gets 86% of its energy from oil. By comparison, Hawai’i’s closest competitor, Vermont, is at 55% dependence on oil. Even notoriously car-mad California gets only 64% of its energy supply from oil.Unlike the rest of the nation, Hawai’i doesn’t have large road systems, and doesn’t have extreme seasonal demands for heating and cooling. Despite all this, in 2010 Hawai’i’s per capita expenditures on oil were 35% higher than the US average.On the mainland, natural gas now costs about $14 per barrel of oil equivalent. Even though oil prices are high everywhere, low natural gas prices and a low percentage of oil in total energy means that mainland consumers have been sheltered from much of the oil price increase. By contrast, the best estimates of prices paid for by consumers in Hawaii in 2012 will be nearly $150 per barrel ($149.40/b)—more than ten times the price of natural gas on the mainland!There is no sign that oil prices in the Asia-Pacific region—where Hawaii gets most of its oil—will be coming down. Hawaii outlays on oil are reaching crisis proportions.
  • The differences between Hawaii and the mainland are even more dramatic in the power sector. (It is important to note that this chart is for fuel used in the power sector. Because of differing efficiencies and utilization rates, this can be somewhat different from statistics of how much electricity was generated from each source. This does not include electricity generated outside the power sector—for example, combined heat and power projects inside industrial plants—because there is no way to apportion the fuel use between the heat and electricity output.Estimates for Hawaii are that 9.5% of all electricity is generated from renewables, including rooftop solar, industrial cogeneration, private hydro, etc. The share of renewables which directly fuels the power sector is some 7.7% .No matter how it is added up, Hawaii’s reliance on oil in the power sector is enormous, and the mainland’s is tiny.On the mainland, gas has been expanding rapidly. Initially it pushed out the remaining drops of oil, but now it is beginning to push out coal as well. Renewables and gas are expected to make inroads into coal’s share in coming years, as emissions standards become more strict. The future of nuclear is uncertain.In Hawaii, the most remarkable growth has been in renewables, which have been expanding steadily at the expense of oil. Coal is essentially flat, as there is only one major coal power plant (as well as a smaller cogeneration facility on Maui). But the dependence on oil still overwhelms everything else.
  • This graph speaks for itself.Hawaii’s electricity-generation non-fuel costs are quite similar to those in California. The difference in electricity costs between Hawaii and the mainland is the reliance on oil, plain and simple. Electricity rates on the mainland would be sky-high today, as well, if they used oil for almost 80% of their power generation!The low-sulfur crude oil required by environmental specifications in Hawaii is the most expensive and scarce grade of oil. After Fukushima, Japan’s demand for low-sulfur crude and low-sulfur fuel oil has surged, and will not come down for many years.Furthermore, under coming federal regulations, even Hawaii’s current low-sulfur fuel oil will not meet specifications later in this decade—and an even more expensive grade of oil will have to be substituted.
  • Hawaii received its first major energy shock since the Arab oil embargo in 2007/2008 when crude prices rose to $140 to $150/Bbl. Without access to an alternative fuel, the State turned to renewable energy sources, principally wind and solar to provide substitute base load power and to avoid increasing reliance on imported petroleum. The strategy relies on substantial capital investment and utilizing wind and solar technology at efficiency levels substantially greater than utilized elsewhere.At present abut 9.5% of the energy supply emanates from renewable and sustainable energy sources. We have assumed that the HCEI goals will be met, but regardless, there is a near term imperative to lower costs for energy in the Hawaii economy.
  • If we don’t add gas to Hawai‘i’s energy mix as soon as possible, we’ll continue running up an annual fuel oil bill that costs our state hundreds of millions of dollars each year. We are heavily dependent on fuel oil for power generation, and Hawai`ian refineries require low sulfur crude oil, which is necessary for the production of low sulfur fuel oil (LSFO). Usually crude prices are higher than fuel oil prices, since fuel oil is “the bottom of the barrel”—the fractions too heavy for use as gasoline, jet fuel, or diesel. But today, Hawaii’s LSFO prices are above the prices of low-sulfur crudes. (For example, according to DBEDT statistics, at the end of March 2012—the latest available number—Oahu LSFO costs were $138.75/b as compared to Asian low-sulfur crude costs: Tapis--$126.81/b; Minas--$130.15/b. The LSFO costs was far above the low-sulfur-crude cost of WTI in US Gulf Coast and the Midwest.) With LSFO nearly ten times the mainland gas price, the attraction of bringing gas to Hawaii is obvious. But new emission standards will require a switch away from fuel oil in a few years in any case—unless huge investments are to be made in scrubbers and other control equipment.The state’s commitment to renewables means that more and more reliance will be placed on wind and solar. Fuel oil power plants are designed to be run as baseload facilities. That means they will have trouble following fluctuating sources of power. On the mainland, gas turbines have long been the preferred means of load-following, even when natural gas was still expensive. (With natural gas now so cheap, many mainland utilities are running gas for load-following as well as baseload.)Increased low-sulfur crude prices and shrinking energy demand in Hawaii have put severe pressure on the Hawaiian refineries, and closure of one or both is a serious possibility. This will disrupt existing supply arrangements and require new approaches to acquiring Hawaii’s oil needs.Prices alone would be a compelling reason to switch from oil to gas in the power sector. In Hawaii, the other reasons for moving away from oil are almost as strong.
  • These figures show a “cost-build-up” of wellhead-to-Honolulu production and delivery of LNG. The figures include a fuel cost of 115% of Henry Hub gas prices at EIA’s 2015 Henry Hub projection (this is almost twice the current Henry Hub price). Although 115% of Henry Hub will deliver gas to most locales on the mainland, the exact relationship between Henry Hub and prices such as the SoCal Index Price fluctuate from day to day. In July 2012, they were only a fraction of a cent apart per mmBTU.The liquefaction cost is the amortized cost of a new liquefaction facility plus return on investment.The shipping costs are based on small-vessel charter rates across two possible distances: Oregon to Hawaii, and Peru to Hawaii.Regasification costs cover typical ranges of 30-60 cents per mmBTU .The LSFO cost is the most recent price (end-March Oahu cost according to DBEDT).The price advantage delivered to Hawaii is enormous.Equally important, the presence of a competing fuel in the marketplace creates a leverage point that can influence the prices of conventional fuels and begin to move the cost curve favorably for the consumer.
  • Steam-turbine fuel oil plants havevery limited efficiencies. In Hawaii, the average efficiency of the fuel oil steam turbines is about 31%--that it, it takes slightly more than 3 BTUs of oil to make a BTU of electricity.Combined Cycle Gas Turbines (CCGT) are the most efficient means of thermal generation of electricity. In effect, they use every BTU twice. The initial combustion turns a gas turbine, and the waste heat from that turbine turns a steam turbine. A Siemens CCGT recently achieved 61% efficiency—nearly twice the electricity output per BTU of existing Hawaiian steam turbines.Although 61% efficiency is uncommon, CCGTs in daily service run at far higher efficiencies than steam turbines alone. A typical CCGT uses only about 55% as much energy as a typical Hawaii steam turbine. This means that in power generation, the 35-50% advantage in the delivered price of LNG compared to LSFO is leveraged into a 60-70% reduction in fuel costs for electricity. In addition, the environmental advantages are huge. In comparison to LSFO, gas burned in a CCGT reduces sulfur dioxide emissions by 100%, nitrogen oxides by 91%, and carbon dioxide (the main greenhouse gas) by 62%. In addition, it totally eliminates the emission of ash and of heavy metals. (Those are some of the main targets of the new federal emissions standards.)
  • THE STANDARD APPROACH:Bringing LNG into a new market usually involves a new import terminal, cryogenic storage, and new pipelines to major consumers—a huge upfront investment.End-users must often modify their equipment to use gas. In the case of the power sector, to use gas efficiently, they often need to build entirely new power plantsThe minimum economic scale for LNG imports is usually taken to be a about a million tonnes per year. This is equivalent to nearly 20% of Hawaii’s total energy consumption. Even at a more modest minimum economic scale of 500,000 tonnes per year, this is still almost 10% of total energy demand. This is like trying to swallow an apple whole rather than taking bites.The huge investments plus the regulatory requirements, environmental impact studies, and acquisition of land and rights-of-way results in very long lead times before a single BTU of LNG arrives.THE HAWAII GAS STRATEGYHawaii Gas already has a customer base and gas distribution infrastructure. Therefore small volumes of imports can be fed seamlessly into the existing system without huge investments.Some neighbor islands already have Gas Turbines or CCGT plants running on naphtha or diesel. These can be converted to gas with minimal investment. Other small plants can be replaced without major investments or siting problems.The minimum scale is the import of a single ISO container—a container that can be delivered by a standard freighter and transported on a truck. Even at this tiny scale, gas is competitive with SNG made from oil—and with many fuels burned in the power sector. In the early phases of the TGC plan, LNG imports would amount to less than 1% of Hawaii’s energy use – an amount that the system can easily swallow. Volumes grow substantially later, but we start small.The lead times for bringing LNG into the Hawaiianmarket in this way are minimal. We would plan to start immediately.
  • Hawai’I Gas brings:--Local presence and a 108 year history of serving the people of Hawaii without interruption or disruption of supply – even under difficult circumstances.- The infrastructure (gas utility status, pipelines, storage yards, capital, local presence).- Base load demand that can shift to LNG immediately.-Ability to move now – with our own customer base and infrastructure.-Ability to phase, without any need for electric utility early-commitment.We have a very specific plan for infrastructure development to support this program, and a commitment for the capital required to execute effectively. To that end, the Company engaged CH2M Hill to perform preliminary engineering, market and site identification work to assist in drawing up implementation plans for introducing natural gas to the Hawaii market, as well as market and economic modeling support.
  • LNG for Hawai'i

    1. 1. LNG FOR HAWAI’I ALASKA LNG SUMMIT 20121 Alaska LNG Summit 2012 September 14, 2012
    2. 2. THE PROBLEM AND TGC’s SOLUTION THE PROBLEM THE SOLUTION Conservation Hawaii is and renewables too ASAP dependen + LNG to t on oil displace other oil needs BUT… THE PROBLEM WITH THE THE HAWAI’I GAS SOLUTION ALTERNATIVE • Start with facilities we have • Start with existing customers • Start smaller Massive upfront LNG investments • Start today2 Long lead times Alaska LNG Summit 2012 September 14, 2012
    3. 3. HAWAII IS BY FAR THE MOSTOIL-DEPENDENT STATE IN THEUS Oil as Percent of Total Energy Consumption 100%  Nearly 90% of Hawaii’s total 90% energy demand is met by oil. 80%  In 2012, Hawaii’s oil bill is projected to reach $6.2 billion. 70%  About 9% of State GDP will be 60% spent on oil. 50%  Oil costs are probably heading 86% up, not down. 40% 30% 20% 38% 10% 0% Hawaii US Mainland3 Alaska LNG Summit 2012 September 14, 2012
    4. 4. THE REST OF THE COUNTRY HASMOVED AWAY FROM OIL FORELECTRICITY U.S. Mainland reliance on oil for electricity is now less than 1% of the total Hawaii’s reliance is over 77% US Mainland: Fuel Mix in Power Sector Hawaii: Fuel Mix in Power Sector Nuclear, 21.4% Coal, 14.8% Other Renewables, 5.9% Gas, 19.1% Geothermal, 1.8%Hydro, 6.4% Coal, 48.4%Wind, 2.3% Other, 1.6% Oil, 77.5% Oil, 0.8% (EIA data for 2010)4 Alaska LNG Summit 2012 September 14, 2012
    5. 5. UNLIKE THE MAINLAND, HAWAII ISEXPOSED TO THE STEEP INCREASESIN OIL PRICES Electricity Rates, Jan-Apr 2012 35 • Hawaii’s non-fuel costs are typical, 30 but fuel costs are much higher— because of oil. 25 • Hawaii’s 2012 electricity price is 20 more than 3 times the US average. • Hawaii’s prices are twice the cost cents/kWh 15 of the second-highest state. 10 • Post-Fukushima, Hawaii is in competition with Japan for scarce 5 low-sulfur crude oil. - Average, US Average, Hawaii Low-Cost Average High-Cost States* States* * Low-Cost: 33 states below US average; High-Cost: 16 states (exc.HI) above US average.5 Alaska LNG Summit 2012 September 14, 2012
    6. 6. THE HAWAII CLEAN ENERGYINITIATIVE (HCEI) HASAGGRESSIVE GOALS 45% 40%  70% clean energy by 2030: 35% 30% from efficiency and 40% Percent of power from renewable sources 30% from renewable sources.  In 2010, 9.5% of generation 25% was from renewable sources. 20%  Despite the ambitious goals, the plan will still leave Hawaii 15% exposed to the high cost of 10% foreign oil. 5% 0% 2010 2015 2020 2030 6 Alaska LNG Summit 2012 September 14, 2012
    7. 7. PRICES ARE ONLY ONE REASON ITIS URGENT TO SWITCH AWAYFROM OIL Prices, 1st Q 2012: $/b* $140 $130  New federal emissions $120 standards will require $110 eliminating most fuel oil or $100 installing expensive emissions $90 controls. $80  Increased use of wind and $70 solar will require load- $60 following generation rather $50 than large baseload power $40 plants. $30 $20  Possible closures of Hawaiian refineries could disrupt $10 existing supply arrangements. $- LS Fuel Oil, WTI Crude Oil, Natural Gas, Oahu Cushing Henry Hub*7 *gas converted at crude heat parity (5.8 mmBtu/b) Alaska LNG Summit 2012 September 14, 2012
    8. 8. LNG OFFERS HAWAII HUGE COSTSAVINGS $140 $20  LNG delivered in Hawaii could $120 offer major price discounts $/barrel oil equivalent, delivered to Oahu $44.19 over fuel oil—even if current $100 $64.49 gas prices double. $15 $80  Price advantage is 35%-50% $/mmBTU over recent Hawaii LSFO $60 $10 prices  This is $44-$64 savings per $40 $5 barrel oil equivalent (boe). $20 *Henry Hub and California gas prices have been $- $- tightly linked since 2005. On average, California LNG--Low LNG--High Low-Sulfur prices have been 5% lower. Cost Cost Fuel Oil This analysis assumes EIA’s forecast of Henry Hub 115% Henry Hub* Liquefaction Cost gas in 2015 at $25/bbl (4.27/mmBTU). 2012 YTD Shipping to Hawaii Regasification prices are much lower ($14/bbl). LSFO, Honolulu8 Alaska LNG Summit 2012 September 14, 2012
    9. 9. GAS IS FAR MORE EFFICIENT THANHAWAII’S FUEL OIL PLANTS 25  Gas is 35-50% cheaper than 20 fuel oil.  Gas in a CCGT uses only 60% about 55% as much energy to Fuel Cost, cents/kWh 70% 15 generate electricity as fuel oil requires.  Cheaper fuel plus higher 10 efficiency cuts electricity fuel costs by 60-70%.  Gas is also cleaner—and 5 compliant with new federal emissions standards. - LNG--Low LNG--High Low-Sulfur Cost Cost Fuel Oil9 Alaska LNG Summit 2012 September 14, 2012
    10. 10. HAWAI’I GAS HAS AN ALTERNATIVETO THE USUAL “THINK-BIG”APPROACH TO LNG… The LNG “Hurdles” HAWAI’I GAS Strategy Massive Infrastructure Begin with existing gas facilities Investments - Dedicated terminal and pipelines Conversion of Existing Equipment Supply existing turbine plants first - Powerplant conversions Minimum Economic Scale Start with ISO LNG containers - 1 million tonnes - 8,000 gallons per tank Long Lead Times - Begin imports in 2020 or later Start TODAY10 Alaska LNG Summit 2012 September 14, 2012
    11. 11. HAWAI’IGAS ADVANTAGES The Gas Company is positioned to bring LNG to Hawaii in a phased approach – lowering costs and reducing risk A detailed Ability to phase plan for development , execution and without need the Customer base commitment and baseload for prior electric utility for required demand to capital immediately commitment Infrastructure, shift to LNG statewide operation and utility status Local presence and 100+ year history11 Alaska LNG Summit 2012 September 14, 2012