World Bank questions LNG strategy
ELECTRICITY conservation may yield higher savings than including liquefied natural gas (LNG) in the energy mix.
High capital requirements to set up infrastructure, heavy supply contract obligations and fierce competition among buyers of LNG could result in little savings, according to a recent World Bank report.
Jamaica hopes to save US$300 million ($27 billion) annually from switching from oil to gas.
But that's if it can get cheaper LNG.
On the other hand, lowering electricity consumption by 10 per cent could save $13.8 billion a year. And using fatter power lines as well as switching off transformers in periods of low demand could save another $5.7 billion.
The Government has initiated a US$90 million ($7.8 billion) energy-saving programme aimed at improving efficiency across the public sector.
Electricity consumption in the public sector is set to exceed $13.4 billion this year, but the new programme is expected to save $3.2 billion annually.
The first phase, which will cost US$20 million, is to be implemented over the next four years.
Meanwhile, local distributor Jamaica Public Service Company (JPS) has already ordered a 360 megawatt electricity generation plant that will be fired by natural gas. And the LNG Steering Committee last month selected Samsung C&T to build a floating regasification and storage facility in Old Harbour, St Catherine.
Both have set 2014 as the deadline to introduce LNG in Jamaica.
The World Bank report identified Haiti, Jamaica, and Barbados as the countries within the region with the greatest potential for LNG consumption.
The Eastern Caribbean Gas Pipeline Company (ECGPC) is well advanced in plans to build a 300-kilometre natural gas pipeline to connect Trinidad to Barbados.
But importing natural gas, which is cheaper than oil, is not without its constraints.
The substantial investments in pipelines and receiving terminals, as well as tankers and other infrastructure, will have to be amortised over many years and recovered from end-user prices.
Moreover, "gas supply contracts normally include substantial take-or-pay obligations covering 80 per cent or more of the contracted volume".
"As a result, the commercial structure of import projects can be highly complex, and the credit capacity of buyers a key limitation," wrote World Bank energy specialists. "In addition, competition for long-term LNG supply is intense, and most LNG is traded at prices that, unlike in the United States, are closely tied to those of oil or petroleum products."
Essentially, the World Bank believes that until supply increases, buyers may find that natural gas does not generate substantial cost savings compared to oil.
At the same time, the energy specialists also said that for creditworthy buyers who are able to "aggregate markets of sufficient size to realise economies of scale, natural gas can bring about important diversification in fuel supply".
The experts did not say how big the demand would have to be to benefit from economies of scale.
The Government has approved the establishment of the Jamaica Gas Trust (JGT), which will handle the purchase and sale of LNG in Jamaica. It plans to capitalise JGT with at least US$100 million of cash, in addition to standby letters of credit totalling another US$100 million from the end users, in order to establish its creditworthines.
For the time being, Jamaica consumes just under 20 million barrels of oil annually. Last year, it cost the country US$2.4 billion to import.
The World Bank suggested that Jamaica could cut 1.7 million barrels out of its import bill if users improved the efficiency of their energy use by 10 per cent.
Lower energy use results in lower peak and non-peak demand, which results in a reduction in the generation capacity and transmission and distribution assets needed to supply the system.
"Measures to reduce peak demand tend to be more popular with utilities than energy-efficiency measures per se since the former reduce their costs while the latter also reduce their income," said the report.
More specifically, energy-efficiency measures would include the promotion of compact fluorescent lamps (CFLs), instead of costly incandescent lights, and would encourage consumers to replace outdated and inefficient equipment and appliances.
Lack of access to commercial financing has also been a major impediment to expanding the market for energy-efficiency retrofitting projects in Latin America and the Caribbean.
"A step-by-step process is needed to familiarise banks with this market to reduce perceived risk, which can enable the adaptation of loan-evaluation criteria and possibly the design of appropriate instruments," said the World Bank.
On the supply side, the energy specialists at the multilateral agency believe Jamaica can save another 700,000 barrels of oil a year by reducing electricity losses.
Increasing the cross-sectional area of lines and cables that make up the national grid, results in decreased losses, which leads to a direct trade-off between the cost of losses and capital expenditure.
The level of fixed losses in a transformer depends, in large part, on the quantity and quality of the raw materials in the core.
"Transformers with more expensive core materials, such as special steel or amorphous iron cores, incur lower losses.," said the report. "Thus, in selecting transformers, there is a direct trade-off between capital expenditure and cost of losses."
The biggest challenge in reducing losses comes from commercial losses, which occur for a variety of social, economic, and cultural reasons.
Such losses — illicit uses, metering errors, and billing or administrative errors — have been the focus of the Government and JPS for well over a decade, yet system losses still remain as high as 24 per cent. That is, almost a quarter of all electricity generated is lost to heat and theft.
Overall, the World Bank projects that Jamaica would see the largest reductions in oil consumption by taking advantage of energy-efficiency strategies supply and demand-side efficiency gains, which would lead to savings of up to 1.5 per cent of GDP, or $19.5 billion.