LNG – Weighing the cost of big switch to gas-fired energy

Is liquefied natural gas (LNG) the answer to the Caribbean’s energy needs? And if it is, what does this mean for the region’s ports and maritime sector in terms of new terminals and the specialized tonnage needed to move the gas?

The Caribbean’s overdependence on crude oil for energy generation has been a concern for some time. There is a plentiful supply of less expensive natural gas in both Trinidad and, more recently, in the United States, but it’s the cost of switching over from one energy source to another that has been holding back any switch.

Obviously, there is the physical transportation of LNG from its source of production to various islands across the Caribbean – and to Central and South America. In addition, there is the construction of terminal and storage facilities needed to handle the imported LNG; and, finally, the power generation plant to consume the gas. No one element can exist in isolation, so any plan to switch from crude oil to LNG for generating energy requires a lot of investment and security of supply.

The cost savings associated with replacing crude oil with LNG are considerable; yet so is the price to switch over.

The savings vary depending on the fluctuating prices for LNG and crude oil, transportation and other costs, but they are huge. Using the US as a benchmark and in terms of British thermal units (BTUs), one US dollar’s worth of natural gas generates 200,000 units of energy (at a spot rate of $5 per million BTU). This compares with $1 of crude, which produces around 60,000 units of energy (at a spot rate of under $100 per barrel).

Think big

But to get these savings, nations need to think big. So here is what’s required to set up an LNG terminal and plant:

• Installation of 100,000 or 200,000 cubic meter LNG storage tanks to handle the imported gas
• Construction of a regasification terminal for converting the imported LNG back into natural gas
• Building of a dedicated deepwater harbor and jetty for discharging LNG carriers
• Installation of a pipeline between the regasification plant and the power generation plant
• Purchase and installation of new combined-cycle generation turbine (CCGT) facilities to improve conversion efficiency.

Owing to the integrated nature of LNG use and transportation, the level of investment is huge (sums from $250 million to $1 billion are mentioned for a regular-sized installation) and the five-year timescale to build facilities is also a major disincentive.

So does LNG really make sense for small, often island, economies – even if gas is cheaper than oil and is set to remain so? Not only is gas cheaper; it’s also cleaner and therefore more environmentally and politically acceptable.

90 per cent

At present over 90 per cent of the Caribbean’s energy use is related to crude oil and only the Dominican Republic and Puerto Rico currently import LNG for power generation – in both cases from Atlantic LNG in Trinidad & Tobago. Barbados, Haiti, Jamaica and Cuba are all said to have plans to buy LNG.

Barbados currently imports LNG by barge. It produces only small quantities locally – certainly not enough for power generation as demand increases. But Barbados aims to benefit from a new 300 km gas pipeline from Tobago that should be completed by late 2015. The pipeline offers a less expensive and better option than deliveries by barge and may be extended to St Lucia, Dominica, Martinique and Guadeloupe.

For more than five years, the Jamaica Public Service Co has been discussing the possibility of converting the 120 MW Bogue power station on the island’s north coast from liquid fuels to natural gas and agreement to go ahead with this scheme now seems close.

More interestingly from a small-island perspective is the Maurice Bonnefil LNG Import Terminal, 14 km north of Port-au-Prince. This complex will cover an area of over a million square meters including the landfill to place the storage and regasification phases. The MB LNG Terminal is a complex project with an initial gross storage capacity of 15,000 cubic meters of LNG. The terminal jetty will be capable of receiving ships of 10,000 to 60,000 cubic meters capacity. The cost is put at $123 million and the project is a privately led initiative by Haytrac Power and Gas S.A. – a company specialising in the construction of small and mini LNG terminals.

The Haiti terminal looks like the perfect model for smaller island economies and will be fully operational 2016, creating around 160 jobs at the plant and another 6,000 indirectly across the nation.
In Cuba, the Chinese had been backing the construction of an LNG terminal in Cienfuegos capable of processing 2 million tons of gas annually, and a 150 MW electricity generation plant, in a project valued at $1.3 billion. Trinidad & Tobago is likely to supply the LNG for this plant, but as Venezuela had also been involved in the Cienfuegos project via a crude oil swap deal there is now some about its certainty and all has gone quiet.

Clearly, there are different benefits for different nations in switching to LNG. Haiti relies heavily on wood and plants for power generation and this has exacerbated local deforestation, in turn making the nation more vulnerable to natural disasters. So a change-over to LNG would not only reduce Haiti’s import bill and forex drain but would have local environmental benefits.

Flexible

The cost of transportation can also be reduced using this model. Deliveries can be made not only by using smaller and more flexible carriers, but also with the use of LNG barges, operating like ‘packets’ of LNG that can be pushed and towed where needed. Barges also serve a double role as both transportation and a storage system.

Aside from using Trinidad as an obvious source for LNG, the boom in US shale gas production opens up further possibilities for locating sources of gas supply at a more competitive price. Key to this could be the $600 million Floridian Natural Gas Storage in Martin County with its 8 million cubic feet capacity.

Further ideas are being floated. One is to build a mega terminal in the Caribbean from which to feed LNG to islands in much the same way as a container hub. The Dominican Republic has been mentioned as a possible location for such a hub; able to handle LNG ‘motherships’ of up to 260,000 cubic meters. The case for DomRep is based on its central location, its existing facilities and its growing domestic demand for LNG.

Another option is the installation of ‘low-cost’ floating storage and gasification units (FSGUs) at a cost of between $50 million and $200 million and in a comparatively speedy installation time of between 12 and 30 months.

So, providing the finance can be put in place to make the switch, LNG could indeed be the answer to reducing the Caribbean’s energy bills.

Mixed fortunes for LNG exporter

Trinidad & Tobago was only the second nation in the world to generate all its electricity from natural gas. It is also the sixth-largest exporter of LNG, with customers in 19 countries. But falling gas prices in the United States (as a result of the shale gas revolution) have seen T&T lose market share. At one time, the US took 80 per cent of all its exports, so the twin-island state is looking closer to home for new markets.

In 2012 the UK’s Gasfin signed a memorandum of understanding with the T&T government to build a $400 million LNG plant producing 500,000 tons annually just to supply Caribbean markets. It is understood that Panama and Costa Rica are among new markets being evaluated. Both have a bigger demand for energy than most Caribbean island nations.

The US is expected to start exporting gas by 2016, offering competition to T&T and the prospect of much lower LNG prices for regional importers.

Looking further afield, very little of T&T’s LNG exports from its Point Fortin terminal currently go through the Panama Canal as deepsea trading gas carriers are generally too big. But the expansion of the Panama Canal will clearly open up new possibilities. Experts say it will allow some 80 per cent of the world’s current fleet to transit the waterway.