Gas Co.’s natural gas plan is taking shape

The Gas Co. is moving ahead with plans to bring U.S.-produced natural gas to Hawaii, announcing Thursday it has chosen an engineering firm to help with the proj­ect, which would give local residents and businesses access to a new and potentially cheaper energy alternative.

In addition to hiring CH2M HILL, a Denver-based engineering and consulting firm, The Gas Co. officials also said they have begun seeking regulatory approval to bring in the first shipment of liquefied natural gas, or LNG, by the end of this year.

Natural gas is the second-largest source of electricity generation in the U.S. after coal, and hundreds of new natural gas-fired power plants are being planned to take advantage of low natural gas prices. Hawaii is the only state with no power plants fueled by natural gas.

The decline in natural gas prices in recent years is a major reason wholesale electricity prices nationwide have fallen by more than 50 percent since 2008, according to a recent research report by Standard & Poors Financial Services LLC. Meanwhile, high oil costs have been cited by Hawaii utilities as the main reason for soaring electric rates. The residential rate for electricity in Hawaii averaged a rec­ord 34.7 cents a kilowatt-hour in 2011 compared with the national average of 11.8 cents a kilowatt-hour.

The Gas Co. initially plans to ship the LNG to Hawaii in small amounts, using refrigerated tanks inside 40-foot shipping containers, said Jeff Kissel, president and chief executive officer. The company is aiming to ship larger quantities of the fuel to Hawaii within five years using custom-built LNG tankers sized to fit Hawaii’s ports, he said

The potential for savings with natural gas as an energy source is significant when compared with generation from crude oil products, according to Kissel.

"Natural gas is a clean and abundant alternative to the oil-based fuels now supplying more than 90 percent of Hawaii’s energy requirements," Kissel said. "It can be liquefied and transported to Hawaii at a cost which The Gas Co. believes will be well below the cost of oil. Moreover, the price of natural gas is expected to remain below the cost of oil for many years to come," he said.

The Gas Co. serves 68,000 customers statewide with synthetic natural gas and propane, which are made locally from derivatives of crude oil. The company’s commercial customers include restaurants, hotels, manufacturers and laundry companies that use gas mainly for heat energy. These current natural gas customers would be the first to make use of The Gas Co.’s imported natural gas.

Kissel said The Gas Co. would be open to supplying natural gas to Hawaii’s two electric utilities — Hawaiian Electric Co. and Kauai Island Utility Cooperative — for power generation. Both utilities use petroleum-based fuel for most of their electricity production. Most oil-fired power generators could be converted to use LNG.

"As a utility we’re making the material available to everybody, including KIUC, HECO and independent power producers," Kissel said.

Any natural gas brought to Hawaii would have to be liquefied, which is done to reduce its volume and make it easier to transport over long distances by ship. LNG takes up about one-six hundredth the volume of natural gas in its gaseous state. The equipment needed to unload the LNG and "regasify" it once it gets to Hawaii would add to its final cost.

The Gas Co., a subsidiary of Macquarie Infrastructure, is committed to making a "major investment in natural gas infrastructure to bring this low-cost fuel to Hawaii as soon as regulatory and environmental considerations will permit," according to a company press release.

Any investments made by The Gas Co., including a tanker terminal, pipelines and storage facilities, would have to be approved by the state Public Utilities Commission, Kissel said. The Gas Co. would also have to obtain regulatory approval from other state and federal agencies, including the U.S. Department of Transportation.

Lt. Gov. Brian Schatz said last month he supports the use of natural gas.

"Liquefied natural gas is a real option for us, and we’re looking at it very seriously," Schatz said. "It burns a lot cheaper and cleaner than coal or oil, so it’s attractive on a number of levels."

Natural gas futures have risen over the past month but remain relatively low by historical standards. Natural gas futures, which are priced in British thermal units, rose 0.4 cent to settle at $2.42 per million BTU Thursday. The futures price is up 27 percent since reaching a 10-year low of $1.90 on April 19.