By Winston C. Hay, Guest Columnist
The recent announcement by Phillip Paulwell, the minister with portfolio responsibility for energy and mining, that sourcing liquefied natural gas (LNG) for power generation will no longer be the responsibility of the Government, engenders hope that after more than a decade of steady increases in electricity prices, some relief to stressed consumers may at last be achieved.
Having failed in its most recent attempt to identify sources of LNG supply at prices which would enable the Jamaica Public Service Company (JPS) to reduce electricity costs to its customers by 30 per cent or more, the Government has decided to entrust sourcing of the fuel to JPS.
The minister stated that he has obtained firm assurance from JPS that the LNG-fuelled generating plant will come into service by 2015 “and will achieve a 30 per cent reduction in the price of electricity to the consumer”.
Kelly Tomblin, JPS president and chief executive officer, told media representatives on October 21 that JPS needed LNG prices to get to US$12 per million British Thermal Units (BTU) if the 30 per cent reduction in electricity costs to the consumer is to be achieved.
The JPS target price is about 30 per cent less than the lowest cost of US$15.6 submitted in response to the Government’s invitations for supply of LNG to be used as fuel in the electricity and alumina industries.
The bid invitation would consequently have been for much higher volumes of fuel than would now be required by JPS alone. The reduction in the quantity of fuel to be supplied would tend to increase, not lower, unit fuel costs.
The firm assurance that JPS will achieve a 30 per cent reduction in the price of electricity to the consumer may not be realised if the company-stipulated maximum fuel price of US$12 per million BTU cannot be achieved.
Term used broadly
With regard to JPS’s role in sourcing LNG, Tomblin told the reporters that the term ‘JPS’ is used pretty broadly as the fuel could come from one of the company’s subsidiaries, such as the power station itself, which will not be wholly owned by JPS.
Marubeni Corporation is not only a major shareholder in JPS but an active trader in the LNG industry as well. It is, therefore, possible that that company could negotiate lower LNG prices than the Government was able to achieve, but given the drastic reduction of quantities of fuel to be purchased, about 50 per cent, it is unlikely that Marubeni’s influence alone would be able to achieve the 30 per cent reduction in LNG unit costs required if electricity prices to consumers are to be reduced by 30 per cent.
Marubeni has substantial interests in the Canadian company Sea NG, which is actively attempting to transport natural gas in ships, but in a compressed, not liquefied, condition – known as CNG.
CNG is natural gas which has been compressed to about 4,000 pounds per square inch, at which pressure its specific volume will be less than one per cent of its value at atmospheric pressure.
The high pressure at which the compressed gas must be transported requires it to be constrained within thick-walled piping or containment vessels, the resulting heavy weight increasing the cost of transportation.
The advantages of CNG include reduced pre-shipment preparation, no requirement for ultra-low-temperature liquefaction, thickly insulated transport vessels, and no need for regasification at its destination.
CNG is considered to have a clear advantage over LNG for delivery of modest-size quantities of gas over relatively short distances.
Supply cost
The International Energy Agency estimates that with proximity to sources of gas and relatively short transport distances, the supply cost of CNG would be one-half that of LNG.
However, although CNG is transported over land in several countries, currently there is no marine-transported CNG system in operation anywhere in the world.
A number of companies have been attempting internationally to provide marine CNG services, unsuccessfully to date although the international societies which certify the safety of marine vessels have all approved a number of CNG designs.
To date, the demand for marine transportation of natural gas has focused exclusively on transportation of large volumes over long distances.
That focus may be about to become more varied. In July of this year, Kevin Ramnarine, minister of energy in Trinidad & Tobago, announced that gas from a well about to be exploited will be delivered to Tobago for pre-treatment and subsequent loading into marine CNG carriers.
This would represent the first transportation of CNG by ship anywhere in the world.
Negotiations with the Puerto Rico Electric Power Authority (PREPA) were reportedly already far advanced. The minister expressed the expectation that CNG will play a greater future role in transportation of gas to both emerging and mature markets.
The CNG transportation services would most likely be provided by one of two Canadian companies, including Marubeni-connected Sea NG.
The company selected to supply CNG to PREPA would naturally be seeking larger markets and the JPS combined cycle generators would be natural targets, given Marubeni’s interests in Sea NG and JPS.
Although the new generators are normally referred to as being designed for LNG as fuel, in reality they are designed to burn natural gas and will be operationally indifferent as to whether the gas was once liquefied or super-compressed.
It is interesting to note that Marubeni prepared a bid for LNG supplies in response to the Government’s invitation earlier this year, but the bid was delivered about 10 minutes too late and was, therefore, not evaluated. Perhaps Marubeni could soon have an opportunity to bid for JPS fuel supplies again.
Winston C. Hay is an energy consultant and former director general of the Office of Utilities Regulation.winstonhay@hotmail.combusiness@gleanerjm.com
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