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Saturday, September 08, 2012
Liquefied Natural Gas for Hawaii: Sourcing and Transportation Options
By Michael Hansen @ 8:26 PM :: 7012 Views :: Energy, Jones Act

Liquefied Natural Gas (LNG) for Hawaii: Sourcing and Transportation Options; A Maritime Perspective

by Michael Hansen, President, Hawaii Shippers Council

I will address the possible sources of Liquefied Natural Gas or LNG for Hawaii and how it might be transported.

The major Hawaii players in this scenario are: Hawaii Gas – formerly the Gas Company; Hawaiian Electric Company or HEI; and, the Hawaii State Government through the Governor’s Office and the Public Utilities Commission or PUC.

Hawaii Gas currently manufactures approximately 60,000 short tons annually of Synthetic Natural Gas or SNG at its Campbell Industrial Park plant. Hawaii Gas manufactures SNG from naphtha feedstock supplied by the two oil refineries – Tesoro and Chevron – at Kalaeloa, Oahu.

In June 2012, Hawaii Gas announced that they were applying for permits to ship LNG from California to Hawaii using highly specialized refrigerated 40 foot tank containers on the existing containership services – Matson and Horizon. Over time, Hawaii Gas plans to increase LNG shipments to completely replace locally manufactured SNG for their current customer base.

The Hawaii Gas LNG container shipping program is based upon an existing model developed by Carib Energy. Late last year after extensive planning, Carib began shipping LNG from the U.S. Gulf in 40 foot refrigerated tank containers on existing containership services to Caribbean countries.

To go beyond supplying their current gas customer base in Hawaii, it will be necessary for Hawaii Gas and the other players to look at a very much larger scale program to bring in bulk gas. Such a program could provide for the conversion of electrical power plants, road fleets – such as city buses and garbage trucks – and the commercial interisland fleet to gas and LNG.

Large scale use of LNG in Hawaii would require extensive infrastructure including an LNG receiving and liquefaction terminal at Kalaeloa Harbor, and possibly additional terminals at other neighbor island ports, new gas pipelines, and conversion of the electrical power plants from oil to gas.

It would also require the use of specialized tanker ships to bring in the LNG – known as LNG Carriers. The probable capacity of the ships would be between 20,000 and 40,000 metric tonnes or by volume 50,000 to 100,000 cubic meters depending on the shore tank capacities and number of discharge ports in Hawaii.

The most likely sources of LNG would be from the West Coast of North America. That would allow for the most economical voyages especially as it is probable that smaller LNG Carriers will be used. More distant sources such as Australia, Indonesia and Russian Far East, would involve much longer and more expensive voyages, and higher wellhead prices due to strong demand in Asia for natural gas.

I have identified five possible load ports on the North American West Coast. There are two existing facilities one each at Nikiski, Alaska, and Ensenada, Mexico. And, five proposed export terminals at three ports – Valdez, Alaska – Kitimat, British Columbia – and Coos Bay, Oregon.

Because there are virtually no natural gas reserves in North America west of the Rocky Mountains, the available gas would be from fields in the Canadian and United States interior and transported to the Pacific Coast by pipeline.

Alaska is an exception. In the case of Nikiski, the supply is local in Cook Inlet, but the resource is declining and export shipments are only made to Japan in the summer when the gas is not needed for heating in the Anchorage area during the winter. For the $40 billion Valdez LNG Project, a pipeline would have to be built from the Point Thompson field on the North Slope to Prince William Sound.

The costs of gas pipeline and LNG export terminal construction are very high and could not be justified for the sole purpose of supplying Hawaii. As such, Hawaii will have to piggyback on other requirements. For the proposed large North American West Coast export terminals – that will be markets in Asia where the price of natural gas is significantly higher.

To transport the LNG from foreign ports – Kitimat and Ensenada – existing foreign flag LNG Carriers can be readily chartered in from the international fleet.

However, to bring LNG from United States ports – Nikiski – Valdez – and Coos Bay – the Jones Act requires U.S. –built, -flag, -crewed and – owned ships.

No LNG carriers have been built in the U.S. since the 1970’s. Those who have looked into building an LNG carrier in the U.S. recently concluded that prices would be far too high and delivery schedules so uncertain that they decided domestic LNG projects with a Jones Act component would not be feasible.

The Hawaii Shippers Council’s Jones Act reform proposal would solve this problem by exempting the noncontiguous domestic trades from the U.S. build requirement of the Jones Act for large self-propelled oceangoing ships.

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Related: Hawaii Shippers Council Outlines Jones Act Reform Proposals

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