Gas utility seeks OK to import new cost-easing source of fuel

The state’s only natural gas utility has applied with federal regulators to ship liquefied natural gas to Hawaii in a move that would give local residents and businesses a cheaper alternative to high-priced, petroleum-based fuels that provide the bulk of the state’s energy needs.

HAWAI‘IGAS, formerly known as The Gas Co., is seeking approval from the Federal Energy Regulatory Commission to initially ship liquefied natural gas from the West Coast in refrigerated tanks mounted inside shipping containers starting later this year. The quantities of LNG would be relatively limited in the first phase of the project, but the company said it plans to eventually use specialized tankers to bring in larger quantities of LNG that could be used for electricity generation.

Importing LNG in large quantities would require extensive investments in shipping terminals, pipelines and storage facilities. However, the relative price advantage of LNG over oil could offset the infrastructure costs associated with transporting and storing natural gas.

HAWAI‘IGAS estimates that it could provide LNG for electricity generation at a price ranging from $44 to $64 less than the equivalent price of a barrel of oil. Hawaii’s utilities use oil to generate nearly 80 percent of the electricity they sell. High oil prices are the primary reason the average electricity bill in Hawaii is three times the national average.

In addition to the Federal Energy Regulatory Commission’s blessing, HAWAI‘IGAS will have to obtain the approval of other federal and state regulators, including the Hawaii Public Utilities Commission.

Pending approval, the company plans to bring in the first shipments of LNG by year’s end, using up to 20 shipping containers, said Jeff Kissel, president and CEO of HAWAI‘IGAS.

HAWAI‘IGAS at first would make LNG available to its existing customers who currently use more expensive synthetic natural gas and propane. Most of what HAWAI‘IGAS sells is synthetic natural gas, which is made locally from a petroleum derivative called naphtha.

HAWAI‘IGAS has divided its plan into three phases, and is asking the Federal Energy Regulatory Commission to approve the first phase. Phase II, which would start in 2016, calls for increasing the number of shipping containers to 120 and supplying LNG for neighbor island power generation of up to 7 megawatts. Starting in 2019, HAWAI‘IGAS would launch Phase III with a goal of providing enough LNG to generate 400 megawatts of electricity on Oahu, or about one-third of the peak load for the island.

Lt. Gov. Brian Schatz welcomed the announcement and said HAWAI‘IGAS can play a role in the state’s overall LNG strategy. Schatz, the Abercrombie administration’s point man on energy policy, said the governor has brought together a working group that includes officials from Hawaiian Electric Co. and the Hawaii Natural Energy Institute to form a comprehensive strategy to bring LNG to the state. The working group includes consultants who helped petroleum-dependent Puerto Rico build a 540-megawatt LNG-fired power plant in 2000.

"We want to minimize the expense to ratepayers and maximize savings," Schatz said.

"To replace burning fuel oil with LNG, we’re going to need to build infrastructure and retrofit the utility’s power-generating units," he said. "So this is an interesting and important project, but it by no means comprises the state’s LNG strategy."

HAWAI‘IGAS officials said in addition to securing a cheaper source for its natural gas supply, the company’s plan would help address possible disruptions in the supply of naphtha from Hawaii’s two oil refineries.

Tesoro, which operates the larger of the two facilities, announced in January that it was putting the refinery up for sale.

"To address the possibility that Tesoro or the potential purchaser of its assets shuts down the Kapolei refinery completely or limits supply, (HAWAI‘IGAS) has been evaluating supply alternatives for its utility business, including the importation of LNG to ensure continued reliability of its services," HAWAI‘IGAS said in its Federal Energy Regulatory Commission application.