By - Michael Drost

What is LNG’s role in Hawaii’s power supply mix?


By Michael Drost

Electricity customers in Hawaii are in a tough bind. Sure they have the warm beaches, friendly locals, and the inconceivably beautiful terrain, but that matters little when they also live on a densely populated, resource-scarce island chain that happens to be one of the most isolated places on earth. The result is a state that is almost entirely dependent on imports of coal and oil, and electricity rates that are between three and five times higher than prices on the mainland.

Consider it the islanders’ curse.

Regulators in Hawaii have been aware of this unsustainable paradox for years, and have recently begun to put their foot down on Hawaii utilities so that they diversify their energy sources. This includes a 70%-by-2030 clean energy portfolio standard, and an already-met state goal of 15%-by-2015 renewable target. And it has involved some ruffled feathers, including a decision by the Hawaii Public Utilities Commission (PUC) in May to reject Hawaiian Electric Company’s (HECO) integrated resource plan, saying the company did not propose an acceptable course correction to alleviate customers’ sky-high rates.

The most obvious energy sources to look into, given that it’s Hawaii, are solar and geothermal, however while utilities in Hawaii have invested heavily in the renewable sector since 2008, it is still not robust enough that it can help the islands wean off their dependence on oil in any significant way, at least not yet. As a result, experts and policy makers are clamoring for a cheaper, cleaner bridge fuel that Hawaii can use in the meantime while the renewable sector gets up and running.

Enter liquefied natural gas (LNG). According to Jeffrey Ono, executive director of the state Division of Consumer Advocacy, about 800,000 to 1 million metric tons of natural gas per year would be required to replace Hawaii’s existing oil products. Importing tons of natural gas to an island is an expensive endeavor; however the alternative (sticking with oil) is even more expensive. Ono says that most estimates suggest switching to natural gas from oil, inclusive of infrastructure costs, would save about 25 to 30 percent in fuel costs each year. As a result, several Hawaii utilities are looking into LNG as a cost effective bridge fuel that will accelerate adoption of renewables.

“We believe that natural gas is the enabler for a clean energy future in Hawaii. Natural gas can partner with intermittent renewable sources to increase its reliability therefore accelerating its adoption.” said Jill Tokunaga, Vice President of Sales & Marketing at Hawaii Gas; the state’s only franchised gas utility. Hawaii Gas has already shipped in 7,000 gallons of LNG this year, and is seeking regulatory approval to ship more. It is also investing about $13 million so it can replace about 30 percent of its current supply. Tokunaga said that natural gas can help Hawaii speed up its integration of clean energy resources. “Hawaii has a goal to reach 70 percent clean energy 2030 and we believe natural gas can help our state exceed this goal,” she said.

According to Allen McFarland, an energy analyst at U.S. Energy Information Administration (EIA), due to relatively low natural gas prices and tweaks in shipping technology, importing LNG is now a much more affordable option for island economies than it used to be. McFarland notes that LNG typically needs to be shipped in bulk carriers in quantities much greater than what an island economy can absorb, however with the advent of standardized cryogenic shipping containers, now small amounts of LNG can be transported to the islands like any other containerized cargo.


Source: U.S. Energy Information Administration, State Energy Data System and International Energy Statistics
Note: 2012 shares for Puerto Rico, U.S. Virgin Islands, Guam, and American Samoa based on 2011, the most recently available data. Data for the Northern Mariana Islands were unavailable


HECO, the object of the Hawaii PUC’s ire, is hoping to dive into the LNG market itself, entering a 15-year agreement with FortisBC for liquefaction capacity for LNG. HECO is planning to procure about 800,000 tonnes per annum (TPA) of LNG for five years beginning in 2017, 700,000 TPA for the following five years, and 600,000 TPA for the five years after that, having narrowed down finalists to supply and deliver the LNG in September. Todd Kanja, HECO’s manager of LNG Enterprise Solutions, says that one of the benefits of LNG is that the commodity price is only about 25% of total cost, much lower compared to oil, with the rest of the costs being stable and fixed under contract.

“This will result in less volatile fuel prices compared to oil since the gas commodity represents only a small portion of the overall cost of the LNG,” he said. Kanja also said that LNG should accelerate the use of renewable energy, with a portion of the savings from LNG being invested in infrastructure improvements to add more renewables to the system.

“LNG will help hold down customer costs while modernizing our system for the future,” said Kanja, adding that HECO is projecting overall 65 percent renewable energy by 2030, exceeding the state REP standard of 40 percent, according to its power supply energy plan submitted to the PUC in August.

The prospect of LNG offering Hawaii customers some relief was a topic of an hour-long gubernatorial candidate forum in October, with Governor-elect David Ige suggesting that the low costs of LNG would be welcome, however only if it is used as an interim fuel source.


Not everyone is convinced that LNG is the way to go. Environmental groups and sustainability advocates maintain that importing tons of LNG is too risky and expensive, and that ratepayers would be better served if HECO and other utilities were to invest those costs directly into renewable energy resources, instead of making the islands dependent on yet another fossil fuel. Blue Planet Foundation, a Honolulu-based non-profit that advocates for energy self-sufficiency, cites in a recent brief independent research from the University of California-Irvine and Stanford University that says the environmental benefits of importing LNG are overstated, and that by delaying deployment of renewable energy technologies, LNG may actually exacerbate carbon emissions over the long term.
Even among those who support substituting natural gas in place of oil, other fuels besides LNG are being touted, including methanol. Often referred to as “the other LNG”, methanol doesn’t need to be refrigerated and can be shipped and stored in conventional oil facilities. Phillip Lewis, chief technology officer at ZEEP, which produces chemical grade methanol plants, told EUCI in an interview that methanol is a more appropriate bridge fuel for Hawaii, for one simple reason.


“Methanol IS a renewable fuel,” he said, touting research from University of Hawaii professor Patrick K. Takahashi, who said that Hawaii can produce methanol from native grown biomass. “LNG, on the other hand, will impede transition to renewables because of its very large sunk costs and long lead times will inevitably entrench LNG in the Hawaiian energy mix.”

“Independent experts have estimated that LNG implementation in Hawaii will require ten years and capital expenditures on the order of $1 billion, Methanol is about the same or better as LNG on health, safety, and environmental issues,” he said.

HECO says that they have considered alternative fuels, however find that LNG is the lowest cost, cleanest alternative with a proven track record in power generation. Kanja noted that if natural gas is not made available, they will be forced to use more costly petroleum products and that will add to customer costs.

“Status quo is not an option for us,” he said.

To learn more about this and other topics related to the Hawaiian power grid, join EUCI December 3-4 in Honolulu for our Fourth Annual Hawaii Power Summit.

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