LNG is an option for Hawaii, but major obstacles loom

Hawaii is looking at the possibility of purchasing liquefied natural gas from Alaska, but it is unlikely to happen anytime soon even though LNG could be purchased today, in theory, from the ConocoPhillips plant in Kenai.

That’s what Hawaiian officials told a gathering of business leaders convened in Anchorage by Alaska U.S. Sen. Mark Begich on Aug. 23.

There’s also a problem long-familiar to Alaskans, the U.S. Jones Act, which requires shipments between U.S. ports to be done in American-built and manned vessels. Currently there are no U.S.-built LNG carriers.

Robert Isler, Hawaii Electric Co.’s manager for generation development, told Begich and others at the meeting that his utility is studying imports of liquefied natural gas for power generation but concerns over infrastructure, mainly a site for an LNG terminal and re-gasification facilities, must be worked out before a source of LNG can be decided.

Hawaii residents pay some of the highest electricity costs in the nation because power is mostly generated with fuel oil, Isler said.

Dale Hahn, energy advisor to Hawaii’s lieutenant governor, also attended the meeting and said a major complication is the effect that fuel switching could have on the two refineries in Hawaii, he said. About half the fuel produced at the refineries owned by Tesoro and Chevron is used for power generation, she said. The concern is that if LNG takes that market away it could adversely affect the refineries and local supplies of transportation fuels they also produce.

Infrastructure is the immediate concern, however.

“We have not yet identified where we would place LNG import infrastructure,” Isler said. “We have limited land and harbor space, and being volcanic it gets really deep immediately offshore,” which limits the ability to build offshore,” he said.

A more immediate problem for Hawaii Electric are new U.S. Environmental Protection Agency emissions rules that will limit particulates and sulfur emissions for generation plants now using oil, he said.

‘’We have a situation where we have either do an estimated $900 million upgrade of our plants to meet the rules or switch fuels, and we have decided to switch fuels,” Isler said.

LNG is a solution but the EPA won’t wait six to seven years for facilities to be in place, so as an interim step Hawaii Electric will switching to a lower-sulfur fuel.

“We currently use a No. 6 fuel oil which is low-sulfur, with a sulfur content of 0.5 percent, but to meet the EPA rules we will go to a lower sulfur fuel at 0.05 percent by 2015,” he said.

Even this will cause problems for the refineries because they cannot make fuel with this specification. An added complication is that Tesoro is looking for sell its refinery, Isler said. Chevron would be able to bring in the fuel from elsewhere, however, he said.

As for LNG, the infrastructure issues have to be settled before it will be known what size vessel can be accommodated, whether a large LNG carrier, a smaller ship or even a barge, he said.

Once that is known, a source for LNG can be found. Alaska is closer to Hawaii than LNG suppliers in Sakhalin, Australia or Indonesia, and there is an LNG plant in Cook Inlet operated by ConocoPhillips, but the Jones Act, a federal law requiring use of U.S.-built and operated ships in domestic intra-coastal shipping, creates an additional problem, Isler said.

An exemption from the Jones Act for Hawaii would probably require action by Congress, Isler said.

“Those issues are down the road for us,” he said.

11/11/2016 - 11:10am