HawaiiWritten by Dennis Hollier On 06 December 2012
LNG in Hawaii

The prospects for Liquified Natural Gas in Hawaii continue to look up – to the delight of some and the chagrin of others. Two recent events in particular point to an increased likelihood that quantities of LNG will soon be imported into the Islands.

The latest, reported in Civil Beat, was a presentation given at the Natural Gas Roundtable last week by Jeff Kissel, CEO of Hawaii Gas (formerly The Gas Company). At the industry group’s monthly luncheon, Kissel outlined the company’s three-part plan to introduce U.S.-produced LNG to the Hawaii market. (That’s important because natural gas prices in the U.S. are nearly 9 times lower than the international price.) The first part of the plan is simply to bring in small quantities of LNG on Matson ships in containerized refrigerated carriers. These shipments would just serve as a safety net, a supplement to the synthetic natural gas the company currently produces from naphtha it purchases from Tesoro. The second, and more interesting, phase envisions 10 million cubic feet of LNG storage on Oahu, providing enough fuel to supply neighbor island power plants, replace up to 15 percent of the SNG piped to customers, and supply LNG for fleets of natural gas powered trucks and buses. The final stage of the Hawaii Gas plan bumps up Oahu’s storage capacity to a couple billion cubic feet and would entail a small fleet of dedicated LNG carriers. Ultimately, the company envisions itself as a fuel source for Hawaiian Electric.

Of course, most of this was reported in our September issue, so it’s not exactly news. Kissel’s speech did, though, emphasize yet again Hawaii Gas’s ongoing commitment to LNG.

A more interesting development, though, and one that will have far-reaching consequences not only here in Hawaii, but in the international market for LNG, was a report released yesterday by the U.S. Department of Energy. The long-awaited “Macroeconomic Impacts of LNG Exports from the United States” may go a long way toward establishing the U.S. as a major exporter of LNG. In effect, the report says that the net economic benefits of allowing companies to export LNG outweigh the economic costs that may result from tying the U.S. market to higher international prices. There will still be losers – consumers and industries that will inevitably pay a higher price for fuel – but the returns for the winners – LNG producers, exporters, developers and their surrounding communities – will outstrip those losses.

This report could be crucial for the Obama administration as it tries to weigh the economic advantages of cheap LNG against its environmental costs. After all, all that cheap LNG is the result of the controversial technology known as “fracking”, which environmental groups believe is a threat to the nation’s groundwater. Going all in on LNG is essentially a moral trade-off, and having some concrete numbers like those presented in DOE’s report may be just what the administration needs to make the jump. If it does – and Hawaii Gas carries forward with its plans – Hawaii may be the benefactor of some reduced fuel costs in the future.

Of course, Hawaii isn’t an “export market” for U.S. LNG. But because we’re such a small market, our access to the glut of U.S. shale gas is limited. In the absence of larger markets, there’s no financial justification for companies to invest in the expensive LNG infrastructure necessary to get it here. Hawaii will only be able to take advantage of those low mainland prices if U.S. exporters can export to the global market. Right now, though, there are dozens of mainland developers, including several on the West Coast, awaiting approval from the Federal Energy Regulatory Commission to build LNG export facilities. To some extent, that process depended on the outcome of this DOE study. If the Obama administration is sufficiently emboldened by the results of this study, projects in places like Jordan Cove Oregon may be shipping LNG to Hawaii within five years.

That’s exciting, if you’re mainly concerned about Hawaii’s soaring energy costs. Or course, if you’re worried about the nation’s water supply, you might have a different reaction.

 

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