Power utility boss Kelly Tomblin views Softbank’s acquisition of Fortress Investment Group, to which New Fortress Energy is affiliated, as positive for furthering plans to build out gas facilities in Jamaica,
American company New Fortress Energy is a gas supply partner to Jamaica Public Service Company (JPS).
Last November, the partners celebrated the commissioning of Jamaica’s first LNG-fired plant at Bogue in Montego Bay, and they are about to start development on another gas facility in St Catherine. In both cases, New Fortress invests separately in the gas-supply infrastructure, while JPS develops the power plant.
The marine terminal and gas power plant development at Old Harbour in St Catherine is to get off the ground “in a couple of weeks,” said Tomlin, the president and CEO of JPS, on Friday.
JPS secured funding locally for its plant, while New Fortress planned to finance the project themselves with cash rather than debt, Tomlin, who noted that the acquisition by Softbank means “they will have a lot more cash”.
New Fortress did not return Gleaner calls up to press.
Last Wednesday, the two parties jointly announced a US$3.3 billion deal for Softbank of Japan to acquire New York-based Fortress Investment Group. Fortress, which is co-chaired by Pete Briger and Wes Edens, said its senior executives would remain with the company.
“I am in dialogue with Wes Eden,” said Tomblin. “I am assured that this acquisition doesn’t harm the project and that also he is excited about this deal; and so too the members on the ground who work for New Fortress,” said Tomlin.
Asked about any other implication to Jamaica, she said there would be “absolutely none”.
New Fortress plans to build and operate a liquefied natural gas marine terminal and pipeline within the Portland Bight area or close to the Goat Islands, according to the environmental report released last year.
The project will be executed through affiliate NFE South Holdings Limited. The marine terminal will feed gas to the 190MW plant that JPS will be developing at Old Harbour.
Asserting that “we must get it right”, Prime Minister Andrew Holness has urged utility regulators to take seriously their role in helping the Caribbean ease its dependence on oil and embrace technologies and renewables key to energy diversification.
The regulators’ role, he said, is linked to the creation of partnerships with investors who want returns, consumers and governments pushing for the economic development of their countries.
Holness was addressing the opening ceremony for the 14 Organisation Of Caribbean Utility Regulators (OOCUR) conference at the Secrets Resorts & Spa in Montego Bay, St James.
A variety of issues are set for discussion over three days by the more than 160 regional and international experts.
However, Holness, noting the importance of energy to the region’s development and the current high levels of dependence on oil, made it clear that the issue should be at the top of the agenda.
“Energy is clearly the mission-critical frontier,” he said, pointing to the role of Jamaica’s Office of Utilities Regulation (OUR) in helping Jamaica introduce liquefied natural gas (LNG) as part of the energy mix.
“The OUR approved the funding for the conversion of the Jamaica Public Service Bogue plant to enable the move from heavy dependence on oil to diversifying to LNG. I applaud the OUR in this regard for being a strong regulator and helping to make this move a reality – to take Jamaica on this new platform. This is a great example of collaboration among Government, regulator, and utility,” Holness added.
A shipment of LNG supplies arrived in Jamaica last week Saturday, and in two weeks, is expected to be in full use.
The prime minister emphasised that regulators have to take seriously their role in helping the Caribbean Community implement the Caribbean energy policy that was approved in 2013.
That policy promotes a shift in sustainable energy through increased use of renewable energy sources and energy efficiency, among other things.
“OOCUR, you have your work cut out for you as not only is Jamaica focused on diversifying its energy mix, so, too, is CARICOM, and we must get it right in the region. Access to affordable energy is a necessary requirement for addressing sustainable development in the region,” Holness said.
He also argued that while there is need for partnership with all stakeholders in the provision of utilities, the providers must insist on self-regulation to ensure that standards are upheld and service delivery is at a high quality.
Earlier, Albert Gordon, chairman of OOCUR, said the conference was happening at a time when regulation was becoming more important for sustainable development.
The conference schedule has placed heavy emphasis on renewable energy and investment.
Jamaica and many other small-island states of the Caribbean are heavy importers of oil, which increases their vulnerabilities to external shocks such as sharp oil price rises. Except for Trinidad and Tobago, the only net exporter of oil and natural gas, all other Caribbean countries are net oil importers.
“For importers other than Suriname, around 87 per cent of primary energy consumed is in the form of imported petroleum products. Imports are mostly diesel fuel for electricity generation, gasolene for transportation, and liquefied petroleum gas used as cooking gas in households,” experts noted in a paper titled ‘Caribbean Energy: Macro-Related Challenges’ released in March by the International Monetary Fund.
This, they said, has led to consistently high electricity rates, which affects the competitiveness and development of CARICOM nations.
New Fortress Energy has committed to recurrent environmental monitoring and reporting on site preparation, construction and operation of the liquefied natural gas (LNG) terminal and pipeline project to be developed in St Catherine.
At a public consultation with residents of Old Harbour, the American company also promised, as far as is possible, to train and employ persons from the community to work at the facility instead of bringing in skill sets from outside.
The gas will be transported to Jamaica from the United States or other markets to a new offshore terminal at Portland Bight, where it will be regasified and distributed via an undersea pipeline to the Jamaica Public Service Company (JPS) power plant, said Managing Director of Fortress Investment Group Brannen McElmurray at the forum on Wednesday.
The main infrastructure will include a berth and regasification platform; a natural gas pipeline; and an automotive diesel pipeline and other facilities. The terminal is to be located on the western side of Portland Bight, about 2,000 metres from the shipping channel to Port Esquivel. It will have a depth of about 14 metres, sufficient to berth a floating storage unit for the LNG as well as LNG carrier vessels without the need for dredging.
McElmurray said the Port Authority of Jamaica has reviewed the general location and concluded it does not interfere with shipping activities. The floating unit, an LNG carrier refitted to for use as a storage vessel, will be located far enough from shore and, hence, will not be visually obtrusive.
Experts have recommended a 500-metre safety exclusion zone around the floating unit in which navigation is restricted.
However, environmental consultant Dr Carlton Campbell, whose company CL Environmental Limited undertook the environmental impact assessment presented at the public consultation, said that zone was reduced to 200 metres based on complaints from fisherfolk.
The exclusion zone would have denied them access to regular sites where they normally harvest fish.
However, one resident was against the compromise reached, saying the zone should not have been reduced to facilitate more fishing, given that the 500-metre recommendation was made by safety experts.
The LNG terminal being developed through NFE South Holdings will supply gas to JPS, which itself is finalising plans to build an LNG-fired power plant at Old Harbour.
According to the environmental impact assessment, monitoring of various aspects of the New Fortress project will be done by persons appointed by New Fortress Energy, the JPS, and “capable organisations”, the latter monitoring water quality, salinity and dissolved oxygen, among other conditions.
However, some residents suggested that members of the Old Harbour Bay community should be involved in monitoring as they did not entirely trust the National Environment and Planning Agency and the parish council to do so on their behalf.
McElmurray said some of the equipment for the project will be offloaded at Port Esquivel and transported by trailers to the Old Harbour Bay site, giving rise to concerns about road damage.
Campbell assured concerned residents that mitigation measures have been put in place for noise from heavy equipment, access road to facilitate movement of heavy vehicles and equipment, potential negative impact on marine life and various other environmental issues.
He said horizontal drilling would be used for the pipeline to ensure the reef is not destroyed, and that the developers would have to work with the fishing community to safeguard fish pots set to harvest fish.
In the regasification process, New Fortress will heat the LNG using seawater to convert it to natural gas and then release the water back to the sea. Campbell assured residents the water would be cooler at release and so would not affect marine life.
During construction an estimated 225 to 250 persons will be employed, McElmurray said. New Fortress Energy estimates that it can start delivering natural gas to JPS at Old Harbour by the second quarter of 2018.
As LNG partner New Fortress Energy begins shipment of liquefied natural gas to the island, power distributor Jamaica Public Service Company (JPSCo) is indicating that savings will depend on pricing, which varies from month to month.
Chief Financial Officer of the Jamaica Public Service Company (JPSCo) Dan Theoc told the Jamaica Observer: “The cost of LNG at Bogue is likely to be cheaper than the cost of oil next month (September) when Bogue is expected to come on line.”
But, based on current price differentials and the fact that Bogue will only represent approximately 12 to 15 per cent of the generation mix, it is expected that total savings — based on this price differential – will be marginal (less than five per cent), all other things remaining equal, Theoc told the Business Observer.
Spot prices for LNG on the Henry Hub (HH) index registered US$2.82 per million Btu in July after starting the year at US$2.28 in January and falling to US$1.73 in March.
Crude, on the West Texas Intermediate index, started the year at US$30.32 per barrel and crested at US$44.65 in July.
“Unfortunately, we cannot say definitively what the impact of natural gas will be in the future because of the volatility in oil prices relative to natural gas prices,” Theoc said.
JPS will be buying natural gas from Fortress under a 20-year exclusive gas supply agreement and they will be responsible for all of the supply chain logistics and infrastructure costs.
That includes the mode of delivery to the island, the frequency of delivery, the storage of the LNG, the regasification and the distribution by pipeline to the property.
Theoc noted, “We will pay for gas based on the Henry Hub Index plus an agreed margin (which we cannot disclose), similar to how we buy fuel today from Petrojam based on the US Gulf Average Mean Index plus an agreed margin.”
In general, he added, “It is worth noting that the HH index in the past five years has been far less volatile compared to Oil-based Indices (like US Gulf, WTI and Brent Crude), so we view the move to HH as being a plus for price stability.”
It is expected that Bogue will actually make up 12 to 15 per cent of the generation mix on natural gas and that when the 190MW plant in Old Harbour comes on line in 2018, approximately 40 per cent of our generation mix will be based on gas-fired power plants.
In general, it is expected that renewables penetration will increase from five per cent in 2015 to 12 per cent by 2018.
The consequence, Theoc said, will be an improvement in fuel diversity from a situation where 95 per cent of production was oil-fired last year to a situation where less than 50 per cent is fired by oil.
The CFO said the pending award of a gas project to Jamalco will also potentially increase the percentage of generation units which are fired by natural gas by about ten per cent to further replace oil-fired units by 2019.
New Fortress Energy was issued at the weekend with a stop order by the National Environment and Planning Agency (NEPA) on pipe-laying works to link its LNG terminal to the Jamaica Public Service Company’s (JPS) Bogue plant in Montego Bay.
Representatives of the company, following a meeting with NEPA Tuesday morning, managed to secure a new permit allowing work to continue on the project, which has an end-of-summer deadline to start supplying gas to JPS.
New Fortress, a subsidiary of Fortress Investment Group LLC, is currently laying the pipelines from the port to the 120MW Bogue plant, but has faced setbacks getting landowners to allow the pipes to pass through their property.
“It’s a minor issue, actually. We had some property owners that were being difficult about their rights of way. So Fortress had taken a different route, which wasn’t permitted. They had to go back to get the permit just for the switch in the route,” JPS boss Kelly Tomblin told Gleaner Business.
She said, initially, all landowners were in agreement with the route “but then a property owner changed their mind”.
New Fortress had gone to NEPA for approval of the new route, but “NEPA hadn’t approved it yet. They did so today (Tuesday),” Tomblin said, while conceding that work on the project had continued.
Officials from NEPA visited the site at the weekend to enforce a stop order.
Tomblin said the project or its timelines won’t suffer any adverse fallout from the work stoppage, which roughly spanned two working days.
“I’m sure they can make that up,” she said.
New Fortress said as much last night, after affirming “utmost respect” for planning rules.
“We have received official notice that work can continue on our pipeline installation, subject to our permit conditions,” said New Fortress spokesman Jake Suski.
“We have the utmost respect for the rules and process and will continue to take direction from NEPA around permit issues. At this time, we don’t anticipate any delays as a result of these conversations around the pipeline installation,” he said.
The LNG project is already running about five months behind its original schedule. Gas delivery should have begun in April.
“The point is, we want to get gas to this power plant very quickly. So Fortress was moving very quickly. But we have to make sure we work very closely with the regulator and I think Fortress understands that now,” said Tomblin.
BY AVIA COLLINDER Business reporter firstname.lastname@example.org
LNG is coming to Jamaica
New Fortress Energy, the company which has won the contract to supply the island’s sole power distributor the Jamaica Public Service Company (JPS) with LNG for substations in Bogue, Montego Bay and another to be developed in Old Harbour, St Catherine, said it buys supplies from sources worldwide.
The company has declined to comment whether its suppliers include Trafigura Beheer, from which the Jamaica Observer understands it has sought to make buys.
Meanwhile, the Electricity Sector Enterprise Team (ESET) has indicated to theBusiness Observer that it does not matter where in the world the gas comes from.
Trafigura is the world’s third-largest private oil and metals trader. That company is also seeking to grow its market for LNG supply globally.
However, in 2011 the Dutch company was involved in controversy for a $31-million political donation to the the People’s National Party administration, which was then the governing party.
The company continues to sell supplies through third-party deals to the local market, including spot purchases made by Petrojam.
Describing the surge in LNG demand as an “LNG revolution”, Trafigura says on its wesbite that it plans to double supplies sold year over year from base year 2013 when the company transported one metric tonne (mt) of LNG globally.
The company has three full-time traders based in Geneva supported by its US Natural Gas team in Houston, Texas, and a European Natural Gas team, working with 27 LNG regional offices in key export and import countries across the globe.
However, as to sales programmed for Jamaica, the company said it has no comment.
“We don’t comment on our day-to-day commercial arrangements,” Victoria Dix, media liaison for Trafigura said when asked to channel questions about the Caribbean market, including Jamaica.
Bloomberg describes Trafigura Beheer as the world’s current largest LNG trader, reporting at year end December 2015 that the commodity trader “boosted the amount of LNG handled to 4.2 million metric tonnes in the financial year ended September 30, from 1.7 million a year earlier following a doubling in volumes… that made it the world’s biggest independent LNG trader.”
A source close to New Fortress Energy told the Business Observer that it is normal for ships to swap cargo and there may have been spot purchases, but that there is, however, no long-term relationship with Trafigura.
More directly, the company, through a spokesperson, said it sources LNG from all over the world.
“In addition to supplying our own gas from the United States, New Fortress Energy sources gas from all over the world. As a matter of policy, we cannot comment further,” New Fortress said.
He stated that in relation to Bogue, “we’re making significant progress and are excited to provide natural gas to help further Jamaica’s clean energy transition. We’re in close coordination with JPS on the process and timeline”.
Chairman of ESET Dr Vincent Lawrence told the Business Observer on Monday that the source of LNG was immaterial.
“ESET is not aware of any trades, swaps or short-term source arrangements that New Fortress Energy may make in satisfying its contractual arrangements with JPS.
“NFE under its Gas Supply Agreement arrangements can supply gas from any origin. However, in ESET granting approval of the Gas Supply Agreement between JPS and NFE, in order to ensure security of supply, NFE had to demonstrate as to its long-term ownership of and access to gas from the United States including the ability to obtain any required export permits.”
Lawrence added, “The contractual arrangements are private and between two private companies,” further adding that “the GOJ is not a party to the contractual nor day to day delivery arrangements”.
The island is moving towards the majority use of LNG as fuel for energy, with the aim of reducing dependence on oil which is subject to price volatility.
To that end, JPS has retrofitted its 115MW gas turbine plant in Montego Bay from automotive diesel oil to dual fuel use. The conversion, it was projected, will result in an approximate 40 per cent fuel price reduction.
New Fortress has also secured the supply contract for the JPS’s planned 195MW plant in Old Harbour which is being razed and will be rebuilt and expanded.
Start-up of LNG use at the JPS Bogue plant is due to begin in August, when construction of fuel lines and storage facilities are expected to be completed.
New Fortress is also slated to construct an expandable 100MW, natural, gas-fired, cogeneration plant for alumina producer, Jamalco, replacing a previous plan for a coal-fired alternative
The Jamaica Public Service Company (JPS), managers of the national electricity grid expects Golar LNG to ship liquefied natural gas to Jamaica, despite its heavy losses.
Golar is contracted to New Fortress Energy (NFE), the latter being JPS’s selected partner to develop and supply natural gas to the Jamaican utility. New Fortress is five months behind schedule with deliveries.
JPS President and Chief Executive Officer Kelly Tomblin said that even in the worst-case scenario, the power utility remains protected.
“Golar is a public company with a market cap of about US$1.5 billion and a balance sheet with over US$4 billion of assets. It’s been in business since 1946 and is widely followed by investors all over the world,” said Tomblin in a response to Gleaner queries.
“New Fortress Energy has indicated to me that they have been a dependable and reliable partner in preparing to deliver gas to Jamaica. JPS is protected contractually if New Fortress fails to bring gas, as required in the gas supply agreement.”
NFE earlier this year contracted Golar for two years to ship LNG to Jamaica. The first shipments will feed JPS’s plant at Bogue in Montego Bay, which has already been retrofitted to burn gas as well as diesel oil.
In early June, NFE acknowledged Gleaner queries regarding the implications of Golar’s finances, but did not follow through with a response.
Golar reported net losses of US$80 million for its first quarter ending March. The loss was mainly because of its US$61.5 million in operating expenses, towering over its US$18.6 million in revenues for the period. Over 12 months, Golar posted a US$197.6-million net loss for financial year 2015 and US$43 million in net losses for 2014.
Last month, CEO Gary Smith resigned, and its former CEO, Oscar Spieler, retook control of the company amid restructuring of the operations.
Tomblin expects the LNG projects at Bogue and, later, at Old Harbour, along with additional capacity from renewable plants, to reduce the power utility’s reliance on heavy oil from 95 per cent to 50 per cent in the medium term.
Reacting to concerns that the raising of taxes on fuel has resulted in the spike in electricity bills consumers will face this month, Finance Minister Audley Shaw is arguing that the increase in special consumption tax (SCT) on heavy fuel oil (HFO) is only a nominal percentage of the rate increase the Jamaica Public Service Company (JPS) announced last week.
In response to questions from The Gleaner, the minister said that of the 12.8 per cent increase the JPS intends to apply, the increase in the SCT on HFO “translates to a mere 2.3 percentage points” or 18 per cent.
“As estimated in the tax measures, the effect of the increase in the overall SCT (specific and ad valorem) on HFO and LNG is approximately J$1.35 billion (or approximately US$11 million) in fuel costs to JPS. This would then approximate to a cost of US0.36 cents per kWh,” the minister said.
“Given the US two-cent-per kWh increase by JPS to consumers and the impact of the increased SCT of US0.36 cents per kwH to JPS costs, the percentage contribution of the tax to the pending JPS electricity bill increase would be 18 per cent. Therefore, the increase in SCT on HFO translates to a mere 2.3 percentage points of the 12.8 per cent electricity bill increase.”
Additionally, Shaw said he at no point stated that the increase would not affect the rates of the JPS as no one specifically asked him about the SCT on HFO.
“With reference to the comments by the minister of finance and the public service at the post-Budget press conference, it should be noted that the minister spoke to a question posed on the impact of the J$7.0 increase in SCT on fuel used for the purposes of ground transportation,” the statement read.
“The minister’s comments were not geared towards the impact of LNG or HFO on electricity prices. There were no questions posed about the effect of the increase in the overall SCT (specific and ad-valorem) of HFO.”
The increase in SCT on HFO that was announced during Shaw’s May 12 Budget presentation was one of three reasons Jamaica’s only power distribution company attributed to this month’s increase.
During his post-Budget press conference on May 13, Shaw, in responding to concerns that the new tax measures would affect light bills, said: “The argument also is that JPS light bills will go up as a result. And I want to remind everyone that this tax (on fuel) does not apply to Jamaica Public Service at all. It is only related to SCT for fuel for road transport only.”