Blue Hawaii—Aloha State Utilities Are Saying Goodbye to Oil, Hello to LNG

Hawaii’s electric and gas utilities plan to end their long-time reliance on oil and its by-products—gas on the islands is actually synthesized from naphtha—and to shift to LNG as their primary fossil fuel (in the case of Hawaiian Electric) or at least as a back-up fuel (in the case of Hawaii Gas). The key drivers are economy and environment, but there also has been a worry that one or both of Hawaii’s two oil refineries may shut down, leaving islanders “at sea” from a fuel-supply perspective. Today, we begin a look at the potentially rapid transition to LNG being planned in the Aloha state, and the significant challenges and costs involved in making the switch.

Hawaii has abundant renewable energy resources, from the sun, the wind, and even underground, in the form of geothermal energy that taps volcanic heat. What it lacks entirely, though, is coal or oil or natural gas reserves—all of the state’s fossil-fuel requirements need to be floated in by ship. (So does all of the ethanol used in Hawaii’s gasoline—ethanol is shipped in from Brazil.) That makes for a particularly high cost of island living. Hawaii may be the 50^th state, but it is first in electricity and gasoline prices; gasoline on the islands costs north of $4/gal and residential electricity rates averaged 39 cents/kWh in June 2014 (according to the US Energy Information Administration, or EIA), or three times the national average of 13 cents/kWh. Electric rates are astronomical mostly because three-quarters of Hawaii’s electricity is generated by oil-fired units, the likes of which most utilities on the US mainland either retired years ago or operate only a few hours a year when electric demand peaks. New federal environmental rules are forcing Hawaii electric utilities to either make their oil burners a lot cleaner or switch to something less polluting, with natural gas from LNG being the only realistic fossil alternative. The rates charged for the synthetic natural gas (SNG) produced by Hawaii Gas are also sky-high: In June 2014, the citygate price for SNG, which is made from naphtha on Oahu, was $32.97/MMBtu(yes, you read that right)—many multiples of the $4.75/MMBtu citygate average in California (again according to EIA).