Potential disruptions in the global oil supply have left Hawaii vulnerable to major price fluctuations and the ability to ensure adequate fuel supplies, according to a number of state and electric utility officials.
Unlike other states that have abundant coal, natural gas and nuclear energy sources, Hawaii is nearly 90 percent dependent on oil to power its overall energy needs. The predicament has spurred a major state policy push to switch to renewable energy sources.
But the switch could actually make Hawaii consumers of electricity, gas and other petroleum products more vulnerable, according to Fereidun Fesharaki, an international oil consultant and a senior fellow at the East-West Center. The point was echoed by other economists.
And Tuesday’s announcement by Tesoro, which owns one of two oil refineries in the state, that it is selling its Hawaii assets, may be an indicator of problems to come.
Lance Tanaka, manager of government and public affairs for Tesoro Hawaii, said that the company was “optimistic that there is a right buyer out there that has a business model that can make this operation viable.”
But the move has heightened concerns that Hawaii’s oil refineries may not be able to survive the loss of business from Hawaii’s electric utilities which are switching from oil to increasing amounts of solar, wind and geothermal energy.
Some worry that the refineries may end up shutting down.
“The idea that the move to renewables could constrain or impact the profits of Tesoro or Chevron is really something that people have been talking about for quite a while,” said Carl Bonham, an economist and executive director at the University of Hawaii’s Economic Research Organization.
Tesoro would not say specifically whether Hawaii’s target of switching to 40 percent renewables by 2030 to power its electricity needs factored into its decision to pull out of the Hawaii market. The company did point to the high cost of importing crude and the high cost of electricity to operate its refinery.
Both Chevron and Tesoro import crude oil that is then refined into fuel oil for electricity generation, gasoline and marine and jet fuel. Hawaiian Electric Co., which operates the utilities on Oahu, the Big Island and Maui county, accounts for about one-fourth of the refineries’ business, according to Fesharaki.
“If the refining business is doing well and margins are strong with demand growing, the refiners can withstand the loss of business from fuel oil to renewables,” Fesharaki told Civil Beat by email. “If on the other hand, the refining business is weak and margins look bad the loss of fuel oil business will tip the balance to closure.”
If one or both of the refineries end up shuting down, than the electric utilities would have to import an already refined product — which is why energy experts say that Hawaii could become more vulnerable to disruptions in the global oil supply. There are a lot fewer sources for low-sulfur fuel oil, the type of fuel that the utilities use in their generators, and importing it could be more costly.
“If something were to happen in the supply chains of the world or disruptions, then you would be in a very vulnerable position compared to some other places,” said Robert Schaaf, an oil consultant at California-based RPS International.
If there were global shortages in the supply of fuel oil then sellers would gravitate to the larger markets where economies of scale bring greater profits margins, said Schaaf, and Hawaii could face problems in obtaining adequate supplies.
HECO spokesman Peter Rosegg said that Tesoro’s announcement that it was selling its assets was not a concern to the utility at this time.
“We do know Hawaii’s goal is to dramatically decrease the oil imported over the next 20 years and beyond,” he said by email. “We are now and will be ever more vulnerable to volatile prices and supply risks of oil. Most people agree Hawaii is better off less dependent on oil, whether crude or finished product.”
Gov. Neil Abercrombie issued a statement saying that refineries in Hawaii would likely experience changes given the circumstances in the global market, but that it was important to stay committed to reducing Hawaii’s dependency on imported oil. He said that he had spoken with Tesoro CEO Gregory Geoff and that his administration would work with the company and key players to ensure that fuel production and distribution was not disrupted in Hawaii.
“In the meantime, we must remind ourselves that the move towards alternative or renewable energies is essential to Hawai’i’s survival,” he said in a statement.
As for Chevron, local spokesman Albert Chee said that there weren’t many answers at this time as to how the company may position its refining operations if renewable energy sources increase.
“If we are going to march in this direction, Chevron supports it,” he said. “The question is how do we do it. Because you want to do it in a manner that gets you to the goal without unintended consequences.”
Sign up for our FREE morning newsletter and face each day more informed.