LNG pipe dream?

Experts warn of impending world shortage of the precious oil alternative

BY CONRAD HAMILTON Sunday Observer senior reporter hamiltonc@jamaicaobserver.com

Sunday, August 07, 2011

MUCH-TOUTED efforts to slash the country's high oil bill by introducing Liquefied Natural Gas (LNG), might remain a 'pipe-dream' if some key stakeholders in the local energy sector are to be believed.

The naysayers — one of whom described the Government's LNG plan as just that, a "piped dream" — contend that in addition to difficulties in sourcing adequate supplies of the product, Jamaica will not be able to afford the market prices being demanded by LNG producers.

The declaration comes even as the Bruce Golding administration tries to rebound from a ruling by the Office of the Contractor General, which cited procurement breaches in the award of a US$1.2-billion contract to Belgian firm Exmar Consortium, which was being engaged to supply LNG via a storage and regassification floating facility, to be located at Port Esquivel, St Catherine.

Under the proposed plan, the floating system (ship) would receive LNG and convert it to a gaseous form, which would then be piped ashore and distributed to designated consumers such as the Jamaica Public Service Company and bauxite/alumina plants.

In May, Contractor General Greg Christie recommended that the Government redo the tender process which was used to award the contract to the "preferred bidder". According to him, there may have been a conspiracy on the part of several individuals to benefit illicitly from the deal. However, Prime Minister Bruce Golding, in responding to the contractor general's claim, said the matter would be reviewed but it would not derail plans to implement the project.

The move to natural gas is the centrepiece of the Government's plan to diversify its energy sources and reduce its reliance on petroleum-based fuel. The ultimate beneficiary, the consumer, could finally see lower electricity prices which have been the source of much bitterness and public outcry recently.

However, while acknowledging the importance of identifying alternatives to oil, energy consultant and former Director General of the Office of Utilities Regulation Winston Hay is expressing concerns regarding the floating station regasification project.

"It's a relatively new technology, we know virtually nothing about what is being proposed, we don't know where it's going to be located, don't know where the power stations are going to be located, there needs to be more information," Hay told the Sunday Observer.

Regarding LNG itself, Hay suggested the Government needed to wake up and smell the gas, since it will not be able to source the supplies that it will need.

"They will not be successful, they are not facing up to reality, they are talking about the possibility of LNG being delivered to Jamaica and regassified at a price that is way below what the product is being sold for today, it's like a piped dream," he said.

Hay's views are quite similar to those expressed by Opposition spokesman on energy, Phillip Paulwell, who said more information is needed on where the LNG is going to come from. Speaking with the Sunday Observer, Paulwell said: "We need to identify a supplier who will be able to supply the commodity at a reasonable price for at least 15 years. I can't identify such a source, and I don't think the government can either."

Paulwell said he had no difficulty supporting the gassification project, "as conceptually, the technology is quite sound. But, the problem is where are we going to get the gas from, particularly since the demand for gas is going to grow."

Both he and Hay are suggesting that other energy sources should be explored by the Government.

"Coal is readily available, it is inexpensive. We also need to look at nuclear, despite what has happened in Japan," Paulwell said referring to the damage to nuclear power plants following the massive earthquake and Tsunami in that Asian country earlier this year.

He reiterated that private sector companies should be allowed to determine their source of fuel and reduce the role of government in this area.

Commenting on the use of coal as an alternative to LNG, Hay said: "People have a bad impression of coal, saying it's dirty, but a modern coal facility is much cleaner than the oil-burning power stations we now have. The (local) cement company changed from oil to coal some years ago and nobody is complaining, and they are close to densely populated residential areas."

According to Hay, the JPS made suggestions to introduce coal in the 1980s but the Government of the day threw out the proposal. He added that a similar proposal was presented by the power company in the last decade and that, too, was rejected by the Government, which at the time announced plans to introduce natural gas, which would be imported from Trinidad and Tobago. That plan did not materialise as the Government of the twin-island republic said at that time it was not able to satisfy Jamaica's LNG needs.

Research suggests that the global LNG industry is heading towards a supply crunch by 2015. 'Global LNG Industry to 2015 Investment Opportunities, Analysis and Forecasts of All Active and Planned Liquefaction and Regassification Terminals', a report published by industry analysis specialists GlobalData last year, suggested that the supply surge of LNG, which is due to decline in demand, will be replaced by supply shortages post 2012, as demand again picks up.

"Assuming that all the LNG production plants worldwide commence operations as per schedule, the demand-supply gap will stand at more than 600 million 't' (tonnes) of LNG by 2012. The global regassification capacity, which is expected to be built without assured long-term LNG supply contracts, will be 742.8 million 'tpy' (tonnes per year) in 2015, whereas the available liquefaction capacity that can be contracted out will be 217.9 million 'tpy'. This huge gap between the demand and the supply is clearly suggesting an acute shortage for LNG supply by 2015," the report stated.

In an interview with the Sunday Observer, energy minister Clive Mullings acknowledged that there are challenges, but expressed optimism that Jamaica will be able to identify adequate sources of LNG, at the right price.

"LNG is based on long term contracts and the challenge is to find a source that will be able to supply at the right price," he said.

The minister added, "It is a dynamic market, there are certain things that have happened however, for example, in the US they have made their own discoveries of natural gas. Trinidad is their main supplier, so we are of the view that we will be able to source natural gas from Trinidad once the US starts to tap into its own resources, so I wouldn't go so far to say it's a 'piped dream'."

"EWP (Korea East-West Power Company limited), one of the new partners in JPS, has been involved in the natural gas business and there is a distinct possibility that we could get LNG at the Bogue plant within say 12 months," he added.

In providing an update on the multimillion-dollar project which has been slowed by the contractor general's ruling, the energy minister said the government will have to retender.

He explained that the Request for Proposals will be issued by the end of this month. This means that the completion date for the proposed floating facility (ship) will be adjusted to the latter part of 2014. The original completion date was 2013.

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COMMENTS (20)

e h
8/10/2011

My friend I will not continue to engage you on the pairing education and roads with Power generation fuel but you have something here I wish to correct.
GOJ cannot make Electricity cheap to consumer. Fuel (while one of the most important}, is not the only price component. Due to our consumption-culture, cheap electricity is a moving target.

Noel Richards
8/10/2011

The State should ensure that very child has the opportunity to be formally educated. It takes an enormous amount of funds to do this, so the State must consider how it can sustain its effort. It cannot succeed without a sound economy that's based on earning, not begging and borrowing.
Making electricity cheap, reliable and widely available, will ensure job creating FDI's.
Building roads at this time is an unwise expense, those roads lead nowhere economically. The issue is prioritization.

Noel Richards
8/10/2011

e h, fusion is the future of nuclear power generation There are no existing commercial plants based on NIF's design, which is why I said that coal is the better option to LNG, for the time being. Note that fission plants would likely not exist without the work of scientists on the Manhattan Project during WWII.
There is no need to worry about radioactive waste disposal. There is no Uranium involved and no Plutonium to be derived. That means that US/IAEA oversight will not be overly intrusive.

e h
8/10/2011

//Noel Richards-8/10/2011
e h, you are confusing nuclear fission with fusion. The fuel used by NIF is Deuterium and Tritium,.///
Fair enough how many of these plants are around and what is the cost? What about safety in case of a Natural Disaster?
I don't think you are serious in your arguments re Education and Roads, they have zero place in this discussion about sourcing energy. GOJ has a mandate to keep our byways in good order. JDIP is just the catch-all vehicle they chose.

Noel Richards
8/10/2011

e h, you are confusing nuclear fission with fusion. The fuel used by NIF is Deuterium and Tritium, both extracts of Hydrogen from seawater. Tritium is the slightly radioactive ingredient, but it is continually recycled in the process.
There is no usage of heavily radioactive, fissile materials like Uranium or Plutonium and there is no chance of meltdown. It's a completely new process using high energy lasers.
Roads and education are necessary, but should not be the overriding FOCUS right now.

e h
8/10/2011

//Noel Richards-8/9/2011
Using US$400 million+ to repair and build roads only succeeds in encouraging the further consumption of oil//
You are not going to wean Jamaicans off oil by keeping the roads unrepaired. JDIP also involved breakaways, footpaths, embankments, bridges, pot-holes, new development roads, etc. So even if you ban all private vehicles you would still need to repair a ton of infrastructure connected with trade and movement of people.

e h
8/10/2011

Less than 2 weeks ago Federal Government report on USA Nuclear Waste left many arguing over what the Federal Government was up to as it said one site that millions of dollars was spent on is unsuitable.
If USA, with such a considerable history of NE cannot agree on NWaste why do you think Jamaica should go NE?
As for Education did you see the JO Roundtable discussion? They want even more spending on Education. Free Education and Health Care should be a human right in Jamaica.

Noel Richards
8/9/2011

On the issue of nuclear power generation, fusion is the future and NIF (National Ignition Facility) is going to make it available (US Gov permitting) in the coming decade. NIF just recently fired all 192 of its lasers into a Deuterium-Tritium BB-sized pellet and got a split second yield of 428 Terawatts (428 Million Megawatts). NIF's goal is to control the continual split second firing of the lasers into the pellet, generating even higher yields. It may sound too good to be true but it isn't.

Noel Richards
8/9/2011

The issue of education is a very interesting one. In the case of the US, it's rise to dominance after WWII was based on putting the returning military to work. Most of these men were not high school graduates, but they were smart and industrious. The GI Bill also helped by supporting the advent of the pre fab housing boom that took off with the demand for housing. These men sired the baby boomers who then benefited from post high school levels of education. It was a generational process.

Noel Richards
8/9/2011

Using US$400 million+ to repair and build roads only succeeds in encouraging the further consumption of oil, to what end? I agree with the importance of education, but it has to take a backseat to energy at this point. Many of the educated in JA cannot find work. Focusing resources on energy is critical. Without a reliable, ubiquitous and cheap supply of electricity, companies that are interested in JA won't take the plunge. I know a few peripherally interested, influential Corporations.

e h
8/9/2011

A. The roads needed repair. JDIP was not such a bad idea, if the idea was a one-stop fix via a one-stop loan.
The opportunity-cost of repairing the roads is far lower and less complicated than GOJ investing in new energy (even though I don't agree with putting them in the same box).

e h
8/9/2011

B. GOJ's thrust in the first term should have been education. Off-loading (as much a possible), the implementation of Solar to the end users. I have yet to see Politicians conveying to their followers, the need to change personal consumption patterns. That they need to go solar; wind; any other safe, sustainable renewables.
GOJ should remove all impediments to the acquisition of Renewable Energy, for each Jamaican Citizen, Institution and businesses.

Noel Richards
8/8/2011

Considering the cost of oil, distribution of solar panels, which could also be manufactured in JA, is cheap. Instead of JDIP, money should have been sourced for future coal plants and two solar troughs like Kramer Junction, CA.
Natural Gas will be difficult to lock down because it is not easy to extract and the liquefaction process is expensive. Most countries that extract NG do so with subsidies. Selling on to others will be done at a premium. LNG can be used with Bloom Energy Servers.

Noel Richards
8/8/2011

LNG as JA's power generation focus is a no go. Coal is the best bet, currently. Solar power generation from tiling and panels on roofs and Solar Troughs can be complementary. Nuclear is not advisable until NIF sorts out fusion. The Administration missed the boat when it sourced money for JDIP, versus looking at a mass importation of solar paneling for distribution to established residences. They could have renegotiated the agreement with JPSCo to have them accept the return of power to the grid.

e h
8/7/2011

There is not such thing as Clean Coal.
Don't even bother with Nu-Dirty.
See Japan!

Wayne L
8/7/2011

The route to be travelled is to allow and encourage every household to produce energy to supply or supplement their needs. Make solar panels more affordable. The JPS could buy exess energy generated by those households and business. Employ reverse metering so that excess energy produced by individuals can flow back to the grid and producers can be compensated.

Donald Chung
8/7/2011

Hindsight is 20/20 and Paulwell has a lot of it. We need foresight and action. Connect with the Chinesefor fifth generation nuclear and clean coal / coke / anthracite in Colombia and many suppliers. Handling and converting to clean coal use is easier, cheaper and enivonmentally beneficial and create jobs . Maximize wind and solar with meaningful incentives, and also encourage biofuels from garbage. Nuff talk, more action from OUR. Allow investors to work around the monopoly. Soon come show how!

Mark Forbes
8/7/2011

I have long questioned why we are being given the impression that LNG is not subjected the same supply and demand dynamic as oil. Or is it that we are the only ones that recognises its advantages to that of oil? Whose interests is being served by the obsession with LNG when a mix of energy sources is clearly what is needed?

e h
8/7/2011

Was it ever anything but a pipe-dream?. Expense not worth it, worse not a panacea to our rates problem. I agree it's cleaner and we must use cleaner fuel, but trucking it halfway around the world + the need for its specialized processing, puts us directly in the path of unforeseen Price-Escalation-Risk.
To think, merely delivering cheaper fuel to JPS and Bauxite Companies will lower consumer and manufacturing electricity rates is a joke. Another area where our culture has let us down.

Jay Brown
8/7/2011

I warned everyone since last year in two pieces I wrote about going down this route. I have read the government energy policy and its hinged directly on lng which would make up more that 42% on fuel purchased as part of the energy mix, up from 0% today.
In June 2010 under commonsenseja dot wordpress dotcom, I asked the question, " Will LNG solve our energy problem", I followed up with a part in July 2010.
Now a year later its back and seems set to derail our energy policy 2009-2030 !

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LNG pipe dream?