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Friday, May 10, 2013
Hawaii Gas delays LNG shipping container program
By Michael Hansen @ 3:25 AM :: 6912 Views :: Energy, Jones Act

Hawaii Gas delays LNG shipping container program

by Michael N Hansen, President, Hawaii Shippers Council

Last week Thursday, the Gas Company LLC d.b.a. Hawaii Gas announced that it had withdrawn its application with the Hawaii State Public Utilities Commission (PUC) to bring-in Liquefied Natural Gas (LNG) in shipping containers.

Hawaii Gas planned to source LNG from Southern California and utilize the existing ocean container carriers – Matson Inc. and Horizon Lines Inc. – to ship their LNG containers to and from Honolulu.  The LNG was to be shipped in highly specialized 40 foot refrigerated tank containers meeting International Standard Organization (ISO) criteria.  Natural gas is predominately methane gas (CH4) and is liquefied by cooling it to minus 260° F which reduces its volume by 1/600th.

Another LNG container development was announced this week Wednesday by Crowley Maritime Corporation.  They purchased Carib Energy LLC, which developed the LNG shipping container model.  Carib uses containers to serve smaller LNG markets in the Caribbean Islands shipping from the United States Gulf Coast, which has a plentiful supply of lower cost natural gas.

In announcing their acquisition, Crowley said they would be expanding Carib operations from delivery of LNG by container to include delivery in bulk using smaller specialist tank ships designed for the carriage of LNG known as LNG Carriers.  Apparently, Crowley sees that bulk delivery to the Caribbean Islands by small LNG carrier will be more efficient than shipping smaller quantities in expensive specialist containers.

Hawaii Gas says they withdrew their LNG shipping container application with the PUC so that they can concentrate on another application with the PUC covering a new naphtha feedstock agreement with Tesoro Corporation.  That agreement and PUC approval will allow Hawaii Gas to continue operating their Synthetic Natural Gas (SNG) plant at Kapolei, Oahu, Hawaii.

Hawaii Gas has manufactured approximately 60,000 short tons of SNG annually from naphtha feedstock for distribution by pipeline through its municipal main system to commercial and residential customers.  The Hawaii Gas municipal main system delivers SNG to customers along Oahu Island’s urban south coast from Kapolei to Hawaii Kai.  Hawaii Gas’s LNG shipping container program was intended to replace the SNG manufactured from naphtha with what was projected to be a less expensive option.

The Hawaii Shippers Council has estimated that Hawaii Gas, to fully implement their LNG container program and completely cover their existing SNG requirements, would have to acquire a fleet of approximately 150 shipping containers that would make more than 1600 container movements annually.  The cost of the specialist containers was estimated to be $100,000 apiece.

In addition, Hawaii Gas provides Liquid Petroleum Gas (LPG) through its municipal systems in Central and Windward Oahu, and at the main neighbor Island port cities of Nawiliwili, Kahului, and Hilo.  Hawaii Gas ships LPG from its Kapolei facility using their interisland LPG barge, HUKI KAI.

LPG is a byproduct of petroleum refining comprised largely of propane (C3H8) and butane (C4H10) gases and liquefied by putting it under approximately 320 psi of pressure at ambient temperature.  In the past, Hawaii Gas obtained LPG from the two Hawaii petroleum refineries at Kapolei – Chevron Corporation and Tesoro – and has periodically imported LPG in bulk on smaller gas carriers because it is an internationally traded commodity.  Presumably the recent shutdown of the Tesoro Kapolei refinery will reduce the availability of LPG for Hawaii Gas. If, in the future, the Chevron refinery cannot supply sufficient LPG, Hawaii Gas will have to arrange occasional imports.

Hawaii Gas insists that once their arrangements for a future supply of naphtha feedstock are completed, they will return to pursue their LNG shipping container program.  However, it would seem that once Hawaii Gas secures a new naphtha feedstock supply agreement for the continued operation of their SNG plant and obtains the PUC’s approval for those arrangements, the rationale for LNG container program would be substantially lessened.  The justification for Hawaii Gas’ LNG shipping container program would also seem to be weakened by Crowley’s announcement to expand Carib Energy from container to bulk LNG deliveries in the Caribbean.

Originally, the Hawaii Gas LNG container program was only envisioned as an interim measure.  The long term and primary need for LNG in Hawaii is for large scale use to produce electrical power.  This would address the high cost of electricity and various Environmental Protection Agency (EPA) mandates for air pollution with which the power plants must comply.  The production of electricity in Hawaii is anachronistically fired 80% by liquid petroleum fuels, whereas across the United States it is just under 1%, and around the world approximately 5.5%.  The price of electricity in Hawaii is approximately three times more than the average rate across the United States.

The provision of LNG in bulk for large scale use in Hawaii would require a receiving terminal and interconnected gas pipelines to deliver natural gas to the major electrical power plants on Oahu.  This infrastructure is very roughly estimated to cost approximately one billion U.S. dollars.

Perhaps the Hawaii energy utilities should forgo the interim LNG container program now that Hawaii Gas has secured a naphtha feedstock agreement and continued operation of their SNG plant, and focus on the development of a bulk LNG solution that will address the high cost of electricity and EPA power plant compliance in Hawaii.

---30---

Links:

Pacific Business News: Hawaii Gas withdraws its application to use liquefied natural gas, May 2, 2013

Honolulu Star Advertiser:  Hawaii Gas, Tesoro reach deal on naphtha, May 3, 2013

Marine Log: Crowley enters the LNG market, May 8, 2013

Crowley Maritime Corporation: Crowley Enters Liquefied Natural Gas (LNG) Market, May 8, 2013

Carib Energy LLC

Hawaii Gas

Tesoro Corporation (NYSE: TSO)

Chevron Corporation (NTSE: CVX)

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