Avia Collinder, Business Writer
Energy consultant Winston Hay says that while plans for use of LNG for power generation in Jamaica are in principle sound, the uncertainty around the cost of that fuel should not be ignored.
LNG is now selling at record prices in Asia where Japan as a top consumption market reportedly pays the highest price.
Hay, who was once the head of the Office of Utilities Regulation (OUR), said that application of relatively new technology – fracking – in the United States has led to greater extraction of “shale gas” at greater depths than had previously been exploited.
And it has dramatically decreased the price of natural gas in that country.
But the stability of those prices is uncertain and the Henry Hub price reports have already begun to show a significant upward trend, he said.
Production doesn’t affect price
Importantly, he adds, the price of LNG does not vary directly with natural gas production costs.
Flammable gasses trapped in the earth and consisting primarily of methane are found in many areas of the world – the Middle East, Russia, Nigeria, Australia, Nigeria and North America, for instance.
LNG has been used for decades as a source of heat for industrial processes, cooking, household heating, and other uses, but only in relatively small quantities for electricity generation until about the late 1960s, with development of the combined-cycle technology.
“The aggregate costs of delivering the gas to the liquefaction facility, the liquefaction process itself, transport by specially constructed vessels to the FSRU, operational costs of the FSRU and Jamaica Gas Trust, delivery by pipeline (yet to be constructed) to the end-users, etc, will all increase the price of gas from LNG significantly above that of the gas extracted from the earth,” Hay said.
Further, he notes, commodity prices are not necessarily determined by production costs.
“The demand-supply ratio is often more significant. The indications are that the demand for LNG internationally will steadily increase and therefore apply upward pressure on the prices of that commodity,” he said.
Several worldwide developments, he said, are likely to push LNG prices higher: