Blue Hawaii—Plans to Shift Hawaii’s Utilities from Oil to LNG

Hawaii is unique among the states. Not only is it a group of islands hours by plane from the US mainland, it alone—unlike the Lower 48 and Alaska—has neither indigenous oil or natural gas of its own nor any pipeline connections. That leaves Hawaii with no choice but to bring in via ship whatever energy it cannot wring from the sun, the wind or the earth (as in geothermal). After decades of burning oil to generate most of its electricity and making synthetic natural gas from naphtha, the state’s electric and gas utilities are moving toward liquefied natural gas (LNG). Today, we continue our examination of the Aloha State’s energy future with a detailed look at Hawaiian Electric’s plan to quickly shift from oil to LNG.

In our First Episode, we discussed Hawaii’s heavy reliance on shipped-in oil and petroleum products for its electricity, gas, and transportation fuels (gasoline, diesel and jet fuel), and the real worry that one or both of the state’s refineries may shut down, leaving Oahu and the other islands even more “at sea” from an energy perspective. We also reviewed Hawaii’s unusually high energy costs, and took a look at the Chevron and Par Petroleum refineries and the roles they play. Finally, we summarized Hawaiian Electric’s plan to switch its fossil-fired plants from oil to LNG, and Hawaii Gas’s test run of importing LNG as a back-up fuel in case the supply of naphtha (used to produce synthetic natural gas, or SNG) was interrupted. As we said last time, Hawaiian Electric (electricity supplier to 95% of Hawaiians) in August 2014 unveiled its plan to convert most of its oil-fired units to LNG-based gas firing (or to replace the oil burners with new gas/LNG-fired units) by 2017-18, and to switch the rest to LNG in the 2020s. Hawaiian Electric also reached a deal with FortisBC to lock in up to 800,000 metric tons/year (800 MMTA) of LNG production capacity at a planned expansion of FortisBC’s Tilbury Island facility near Vancouver, BC for 15 years starting in 2017. (Hawaiian Electric by the end of 2014 plans to select the winner of a request for proposals for the natural gas supply and the LNG delivery--there are three finalists.) The LNG at first would be shipped in ISO containers and later—once the offloading facilities are in place—the LNG would be shipped in bulk.

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Hawaiian Electric’s plan is revolutionary, though it still needs to be approved by state regulators (and that is by no means certain). Currently, less than one-quarter of the utility’s customers’ electricity needs are met from a combination of solar, wind and other renewable sources, energy storage, and energy efficiency. By 2030, two-thirds of customer needs would be met that way, according to the plan. That far exceeds the state’s 40%-by-2030 renewable portfolio standard (RPS) mandate, but the utility says the plan makes sense not just from an environmental perspective (all existing and planned federal emissions regulations will be met with ease) but also from a financial one. In fact, it expects the average residential customer’s monthly electric bill (now a whopping $219) will fall 23% (in current dollars) to less than $170 in 2030. The shift to LNG plays a role in the cost savings too. While significant dollars will be spent in converting or replacing the islands’ old oil-fired units, fuel costs would go down. For example, in 2017—the first year LNG would be used—the per-MMBTU cost of LNG (shipped in ISO containers) would be $2.05 less than that of low-sulfur fuel oil (LSFO) used to fire most of the utility’s units (see blue circles in Figure #1). By 2022, when LNG first starts coming in via bulk shipments, the savings will balloon to $8.52/MMBTU (yellow circles), and by 2030 the savings will be even greater: $13.41/MMBTU (red circles). LNG also would be cheaper than the diesel and other fuels Hawaiian Electric uses to run its smaller units.

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