Energy Minister Phillip Paulwell
Arthur Hall, Senior News Editor
The Government‘s long-touted plan to push down the cost of electricity for Jamaicans with the introduction of liquid natural gas (LNG) has hit yet another snag.
ELECTRICITY conservation may yield higher savings than including liquefied natural gas (LNG) in the energy mix.
High capital requirements to set up infrastructure, heavy supply contract obligations and fierce competition among buyers of LNG could result in little savings, according to a recent World Bank report.
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An LNG offshore terminal designed for unloading, storage and regasifying liquefied natural gas. High capital requirements to set up infrastructure, heavy supply contract obligations and fierce competition among buyers of LNG could result in little savings, according to a recent World Bank report. |
Jamaica hopes to save US$300 million ($27 billion) annually from switching from oil to gas.
But that’s if it can get cheaper LNG.
On the other hand, lowering electricity consumption by 10 per cent could save $13.8 billion a year. And using fatter power lines as well as switching off transformers in periods of low demand could save another $5.7 billion.
The Government has initiated a US$90 million ($7.8 billion) energy-saving programme aimed at improving efficiency across the public sector.
Electricity consumption in the public sector is set to exceed $13.4 billion this year, but the new programme is expected to save $3.2 billion annually.
The first phase, which will cost US$20 million, is to be implemented over the next four years.
Meanwhile, local distributor Jamaica Public Service Company (JPS) has already ordered a 360 megawatt electricity generation plant that will be fired by natural gas. And the LNG Steering Committee last month selected Samsung C&T to build a floating regasification and storage facility in Old Harbour, St Catherine.
Both have set 2014 as the deadline to introduce LNG in Jamaica.
The World Bank report identified Haiti, Jamaica, and Barbados as the countries within the region with the greatest potential for LNG consumption.
The Eastern Caribbean Gas Pipeline Company (ECGPC) is well advanced in plans to build a 300-kilometre natural gas pipeline to connect Trinidad to Barbados.
But importing natural gas, which is cheaper than oil, is not without its constraints.
The substantial investments in pipelines and receiving terminals, as well as tankers and other infrastructure, will have to be amortised over many years and recovered from end-user prices.
Moreover, “gas supply contracts normally include substantial take-or-pay obligations covering 80 per cent or more of the contracted volume”.
“As a result, the commercial structure of import projects can be highly complex, and the credit capacity of buyers a key limitation,” wrote World Bank energy specialists. “In addition, competition for long-term LNG supply is intense, and most LNG is traded at prices that, unlike in the United States, are closely tied to those of oil or petroleum products.”
Essentially, the World Bank believes that until supply increases, buyers may find that natural gas does not generate substantial cost savings compared to oil.
At the same time, the energy specialists also said that for creditworthy buyers who are able to “aggregate markets of sufficient size to realise economies of scale, natural gas can bring about important diversification in fuel supply”.
The experts did not say how big the demand would have to be to benefit from economies of scale.
The Government has approved the establishment of the Jamaica Gas Trust (JGT), which will handle the purchase and sale of LNG in Jamaica. It plans to capitalise JGT with at least US$100 million of cash, in addition to standby letters of credit totalling another US$100 million from the end users, in order to establish its creditworthines.
For the time being, Jamaica consumes just under 20 million barrels of oil annually. Last year, it cost the country US$2.4 billion to import.
The World Bank suggested that Jamaica could cut 1.7 million barrels out of its import bill if users improved the efficiency of their energy use by 10 per cent.
Lower energy use results in lower peak and non-peak demand, which results in a reduction in the generation capacity and transmission and distribution assets needed to supply the system.
“Measures to reduce peak demand tend to be more popular with utilities than energy-efficiency measures per se since the former reduce their costs while the latter also reduce their income,” said the report.
More specifically, energy-efficiency measures would include the promotion of compact fluorescent lamps (CFLs), instead of costly incandescent lights, and would encourage consumers to replace outdated and inefficient equipment and appliances.
Lack of access to commercial financing has also been a major impediment to expanding the market for energy-efficiency retrofitting projects in Latin America and the Caribbean.
“A step-by-step process is needed to familiarise banks with this market to reduce perceived risk, which can enable the adaptation of loan-evaluation criteria and possibly the design of appropriate instruments,” said the World Bank.
On the supply side, the energy specialists at the multilateral agency believe Jamaica can save another 700,000 barrels of oil a year by reducing electricity losses.
Increasing the cross-sectional area of lines and cables that make up the national grid, results in decreased losses, which leads to a direct trade-off between the cost of losses and capital expenditure.
The level of fixed losses in a transformer depends, in large part, on the quantity and quality of the raw materials in the core.
“Transformers with more expensive core materials, such as special steel or amorphous iron cores, incur lower losses.,” said the report. “Thus, in selecting transformers, there is a direct trade-off between capital expenditure and cost of losses.”
The biggest challenge in reducing losses comes from commercial losses, which occur for a variety of social, economic, and cultural reasons.
Such losses
Jamaica Energy Partners (JEP) has added its new 66 megawatt (MW) power plant at West Kingston to the national grid. Conduit Capital Partners, the US-based parent of JEP and a private equity investment firm focused on energy in the region, said it began “commercial operations of (its) West Kingston Power Project in Jamaica”, yesterday.
The new plant is expected to reduce the overall amount of energy lost to heat by the numerous generators that supply the power grid by a little more than 0.5 per cent.
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The new Jamaica Energy Partners plant will produce 66 megawatts of power for the capital. |
But Kingston will still have to import some 60 MW from other regions as the number of plants operating in the capital city fall short of the 340 MW peak demand.
JEP’s third plant to come into operations brings the independent power provider’s capacity up to 190 MW, and Kingston’s installed generation to 286 MW.
Plans on JPS’s drawing table include the construction of a US$475-million, 100-megawatt petcoke fuel plant at Hunts Bay, Kingston. But that is part of the second phase of a liquefied natural gas (LNG) project, which will first see JPS build a US$600-million, 360-MW plant in Old Harbour, St Catherine, running to 2014.
JEP broke ground on the US$126-million West Kingston power plant in December 2010. The new system is powered by engines that can run on natural gas, but will start operations using heavy fuel oil.
Jamaica is still a way off from using natural gas, having just last week announced the preferred bidder — Samsung C&T — to build a Floating LNG regasification and storage facility.
The West Kingston plant will sell energy under a 20-year power purchase agreement with Jamaica Public Service Company, the national utility. It is expected to create 60 permanent jobs, and was financed by the World Bank’s International Finance Corporation.
Conduit reacquired Jamaica Energy Partners and the right to develop the West Kingston Power Project through the firm’s Latin Power III Fund in mid-2009
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On the matter of energy, Gregory Mair has hit upon the right idea. Jamaica should be catholic in its approach.
We should not rule anything out, including, Mr Mair told fellow legislators last week, nuclear energy.
That last point is bound to be controversial, as it was three years ago when the Jamaica Labour Party (JLP), of which Mr Mair is a member, formed the Government and the case for nuclear energy was being pushed by the then Opposition. The suggestion was knocked down by then prime minister, Mr Bruce Golding.
The then proponents of nuclear power, Mr Phillip Paulwell and Mrs Portia Simpson Miller, are now, respectively, the minister of energy and prime minister.
They, clearly, are in a position to reopen and expand the debate. But, more important, Mrs Simpson Miller and Mr Paulwell bring urgency to the process of implementing a mix of available and cost-effective measures to deal with Jamaica’s energy crisis.
Indeed, the Government’s fiscal constraints apart, the cost of energy is perhaps the biggest drag on the Jamaican economy. At US$0.42 per cent per kilowatt-hour, the cost of electricity is not only substantially more expensive than most other countries in this region, but among the largest cost components of Jamaican firms. Expensive energy weakens their competitive positions.
Up to now, we have perceived the solution largely in terms of natural gas, to replace more expensive oil, to fire proposed, more-efficient power plants.
Indeed, the Jamaica Public Service Company (JPS), the light and power company, won a tender for a 360-megawatt power plant to be fired, primarily, by gas.
Further, the Government has just announced that Samsung, the Korean company, has emerged as the preferred bidder for an LNG storage and regasfication facility. It, however, remains unclear, who, and by what arrangement, will supply LNG for that facility.
JPS has projected that the use of natural gas will lower electricity by around 30 per cent, which some analysts say may not be enough to provide a competitive fillip to Jamaican firms.
However, with a new plant, if it is built, and other conversions, no more than 70 per cent of Jamaica’s existing power requirement will be met by natural gas.
Explore cheaper fuels
There is an opportunity, therefore, to explore other cheaper fuels to cover the rest of the island’s power needs and future growth. We agree with Mr Mair that nothing, in this regard, ought to be off the table.
The most immediate possibility is coal, a cheaper fuel than LNG, but with environmental issues that new technologies have substantially lessened. Jamaica must also be aggressive on renewables, such as solar and wind power, doing everything in its capacity to enhance the stability and feasibility of such technologies for the domestic environment.
Not too far in the future also, nuclear power, we believe, should be an option for Jamaica. The idea of small nuclear power reactors of the type that would be useful for a country like Jamaica was not so long ago being viewed with scepticism.
Recently, the United States announced the availability of US$450 million to support the engineering and licensing of small reactors. In this regard, the Americans are playing catch-up. But theirs is an imprimatur that Jamaicans don’t usually ignore.
The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.
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Phillip Paulwell, minister of science, technology, energy and mining.
New cellphone, fibre-optic licence for auction
Philip Paulwell, minister of science, technology, energy and mining, said Tuesday that South Korean company Samsung has emerged the preferred bidder to develop Jamaica‘s liquefied natural gas (LNG) infrastructure.
He otherwise announced that Jamaica will auction off a new cellular phone licence and a fibre-optic licence, which will add increased competition in the telecoms market.
Speaking in Parliament, Paulwell told lawmakers that the LNG committee would now begin negotiations with Samsung, which beat out companies such as Exmar Marine of Belgium and Sener Ingenieria y Sisternas, SA of Spain for the job to develop the floating storage regasification unit.
Under the commercial structure formulated by Government, LNG gas will be funnelled through the LNG infrastructure, which will comprise a terminal and pipelines for distribution to end users, such as the Jamaica Public Service Company’s 360-megawatt plant.
Paulwell said that bidders for the supply of LNG have asked Government for a fortnight’s extension to Friday, July 27, which was granted based on a recommendation from the LNG committee now headed by Dr Carlton Davis.
“In terms of the LNG supply RFP (request for proposal), the Jamaica LNG project team received requests from all three short-listed LNG supply bidders for an extension of the original bid submission deadline,” he said.
The bids were originally due by July 17.
The introduction of LNG forms a key element of the Government’s effort to drive economic growth via slashing electricity costs, currently among the highest in the region. The submissions for the LNG terminal were due by Friday, April 27, 2012 and the final second-stage proposals for LNG supply was originally targeted for closure by the end of June 2012.
The initial demand for LNG is approximately 0.8 million tonnes of LNG per year, with future demand projected at 2.5 million tonnes per year by the end of the decade, according to Government. It is expected that the importation of LNG will serve to spur economic growth in industries across the island that would benefit from the availability of natural gas and lower energy prices.
The Cabinet, in March 2012, approved the formation of the Jamaica Gas Trust (JGT), which will act as the sole LNG purchaser for the project. It will be capitalised with US$100 million and managed by the private sector. The JGT will execute the major commercial agreements, including the LNG Sale & Purchase Agreement, Terminal Use Agreement, Gas Sales Agreements and Pipeline Transportation Agreement.
Part of the hold-up of the LNG project has been uncertainty over supplies of gas. Last week, Jamaica’s Ministry of Industry, Investment and Commerce issued a statement saying Trinidad had signalled it was committed to resolving the issue of supply.
Turning to the telecoms sector, Paulwell stated that the Government would auction spectrum to facilitate the introduction of new cellphone services.
“Mr Speaker, we intend to allocate one licence for the 700 spectrum by auction, for which there will be a reserve price. We will also attach to that award a new international fibre-optic cable licence,” said Paulwell.
He explained that the allocation of the 700-megahertz (MHz) band will provide a more cost-effective option for the deployment of 4G and Long-Term Evolution (LTE) networks in Jamaica. He said that 4G has the capacity to deliver data rates of up to 100 megabits per second (Mbits/s) of download, and up to 70 Mbits/s upload, which enables video application on the downlink as well as uplink.
“This will allow video-sharing, surveillance, conferencing and streaming in higher definition than is possible with existing 3G technologies,” the minister said.
business@gleanerjm.com
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