Earlier this month, officials from more than two dozen of some of the world’s largest energy companies convened in Honolulu to learn more about Hawaii Gas’ plans to bring enough liquefied natural gas to Hawaii to supply a good portion of the state’s power needs.

Hawaii Gas, a subsidiary of New York-based Macquarie Infrastructure and the state’s only natural gas company, is hoping to build a regasification plant off of Barber’s Point and an undersea pipeline to bring the natural gas ashore, and the companies in attendance were jockeying for the contracts.

According to company plans, the gas would not only supply its own needs, but those of Hawaiian Electric Co. and in future years, the state’s marine and ground transportation needs. Hawaii Gas estimates that the initial infrastructure investment would be $200 million to $300 million, generating significant earnings for the utility and giving it control of the state’s natural gas market.

natural gas tanker

A ship carts liquefied natural gas.

State of Connecticut

It’s a plan that the gas company began exploring four years ago, said Joe Boivin, a senior vice president at Hawaii Gas. The company plans to seek binding offers next April for both the infrastructure and natural gas supply.

But the announcement earlier this month that NextEra Energy, one of the country’s largest purchasers of natural gas, was in the process of buying Hawaiian Electric Co., has raised questions about whether NextEra will try to edge out Hawaii Gas as the state’s natural gas supplier. After all, the majority of the gas, at least initially, will be used by HECO.

NextEra executives have so far declined to say what the company’s plans are for natural gas in Hawaii, other than to signal their support for HECO’s intent to convert its oil-powered generators to run on LNG — a move that is expected to lower electricity bills.

But in a meeting with Civil Beat on Tuesday, Eric Gleason, president of NextEra Energy Transmission, noted the company’s ideal positioning in the natural gas market.

“We buy a lot of stuff and we get really good prices,” he said. “To the extent that natural gas is part of the solution here in Hawaii, we are the largest purchaser of natural gas in the U.S. Nobody in the power business knows more about buying gas and sourcing it cheaply than we do.”

Adding to the competitive posturing, HECO says it’s moving forward with its own, separate plans to begin importing LNG — not in bulk, as Hawaii Gas intends, but rather in thousands of small containers.

That plan could ultimately undermine Hawaii Gas hopes of developing Hawaii’s natural gas infrastructure and supply.

Ultimately, it will be up to the Public Utilities Commission, which regulates the companies, to decide which plans move forward. The commission must approve any contracts.

Gas Rush is On

Hawaii Gas, which serves 70,000 customers throughout the islands, has for decades obtained its gas supply from Hawaii Independent Energy, formerly Tesoro — one of the state’s two oil refineries. The gas is derived from naphtha, a byproduct of cracking a barrel of oil that’s converted into synthetic natural gas.

But whether HIE and Chevron, Hawaii’s other refinery, will survive in the coming years has come into question as the state reduces its dependence on imported oil in its transition to renewable energy.

Tesoro almost closed last year, before securing HIE as a buyer at the last minute. The company had actually ceased refining oil for about a month in anticipation of shutting down. In September, Chevron announced that its Hawaii refinery was up for sale.

“If you’re operating in a market with declining demand, at some point your business may not be able to continue,” Boivin said of the refineries. Worried about where it was going to get its gas supply, Hawaii Gas began looking at importing natural gas.

“It is critical for our business that we fuel switch, plain and simple.” he said.

When it comes to getting the best prices on natural gas for consumers, Boivin said it makes sense to combine the state’s natural gas needs,  said Joe Boivin, a senior vice president at Hawaii Gas.

Dovetailing with Hawaii Gas plans for LNG, HECO last year began seriously considering converting its oil-powered generators to natural gas — a cleaner burning fossil fuel that would allow it to heed costly environmental regulations related to greenhouse gases. Nearly all of HECO’s fossil fuels come from oil, with a small portion from coal.

In recent years, improved technology for natural gas drilling, including fracking, has driven down domestic gas prices. That makes it an attractive option for the utility, which is under pressure from state regulators and the public to bring down electricity bills.

Hawaii’s major shipping companies, Matson and Horizon, are also looking to switch to natural gas to comply with environmental regulations.

When it comes to getting the best prices on natural gas for consumers, Boivin said it makes sense to combine the state’s natural gas needs.

“If we are going to utilize natural gas in Hawaii, it makes a lot more sense if we aggregate the state’s energy needs — the power generation of the utilities, Hawaii Gas, the marine industry and ground transportation in future years,” he said. “If we are able to do this in a way that aggregates the buying power of market participants then we can get the lowest cost fuel to Hawaii.”

Hawaii Gas has been moving aggressively in that direction. Earlier this year, it sought pricing information for LNG from up to 60 companies, said Boivin, and received 21 responses in August.

“In aggregate, it told us we can get gas here at a very low price,” he said.

Hawaii Gas estimates that if it bought enough LNG to supply most of the state’s needs, it could obtain prices of $9.50 to $13 per one million British Thermal Units. By comparison, Hawaii Gas’ current fuel cost is $28 MBTU and HECO’s cost for fuel equates to $21 MBTU, said Boivin. (However, these costs are expected to drop with declining oil prices.)

Boivin estimates that Hawaii Gas can obtain all the necessary regulatory approvals and build the infrastructure by 2019.

HECO a Wildcard

In December 2013, HECO and Hawaii Gas signed a memorandum of understanding outlining their working relationship for bringing LNG to Hawaii in a way that would benefit all sectors. (Neither company would provide Civil Beat with a copy of the MOU.)

But HECO’s exact intentions when it comes to what role it wants to play in developing the infrastructure has been murky.

For several years, the utility has suffered from a low bond rating, making it more expensive for HECO to borrow money and making it more difficult for the utility to persuade the larger energy sector that it should be the entity to invest in large capital projects.

But after NextEra’s announcement that it is buying the utility, Standard & Poor’s signaled that it would upgrade HECO’s bond rating from non-investment grade to a positive A-.

“As a large company with a very strong balance sheet, HECO gets the benefit of strong credit ratings,” NextEra’s Gleason said.

That rating could make HECO — provided that the NextEra sale goes through — more eager and better positioned to develop a large regasification plant and pipelines.

RIght,President and Chief Executive Officer of Hawaiian Electric Alan Oshima and NEXTera President Eric Gleason speak to editorial board.  16 dec 2014. photograph Cory Lum

Eric Gleason, left, president of NextEra Energy, and Alan Oshima, chief executive officer of Hawaiian Electric, speak to the Civil Beat Editorial Board.

Cory Lum/Civil Beat

For now, HECO won’t say whether it has that intention. “That is subject to future consideration,” said HECO spokesman Peter Rosegg.

The electric utility is moving forward on its plan to ship in natural gas in ISO containers , which critics say could clog Hawaii’s ports with thousands of natural gas containers and add to road congestion as the natural gas is trucked to HECO’s power plants.

Rosegg wouldn’t speculate on how many containers HECO may need for its plan, noting that the number would be determined when the utility picked a supplier. He also declined to provide a price estimate for the natural gas.

But in correspondence to the PUC, the Hawaii Shipper’s Council estimated that HECO’s plan will require more than 3,000 containers to supply the electric utility’s needs through 2023 and that the gas would cost at least $16/MBTU.

By contrast, Hawaii Gas says its plan will require one ship, and the natural gas will be transported through pipelines.

“The bulk vessel offshore approach is going to provide the lowest cost and least environmental impact and be the best approach for Hawaii,” said Boivin.

HECO said it’s in the final stage of selecting a company to supply the containerized natural gas for its power plants on Oahu, the Big Island and Maui County.  The utility has already signed a contract with a British Columbia company to convert the natural gas into liquid form for shipment.

Any contracts still must be approved by the PUC, and HECO still needs to conduct environmental studies on its proposal.

‘One Bulk Solution for Hawaii’

Rosegg noted that HECO’s plans for containerized LNG don’t necessarily undermine a bulk regasification plant. The containers could be used while the larger natural gas infrastructure is developed.

However, HECO’s contract for containerized natural gas is for 15 years, with potential decreases in supply every five years to make room for any new renewables that have been added to its grids. By contrast, Hawaii Gas wants to have the bulk regasification plant up and going in about five years — and it needs HECO as its primary customer.

Rosegg said it’s hard to predict when a regasification plant would come into play.

“Although our fuel quantities were included in Hawaii Gas’ recent invitation to bid, Hawaii Gas did not consult with or ask Hawaiian Electric to participate,” HECO said in its statement.

“Even though it is a floating factory, it would be quite an undertaking, we think,” said Rosegg. “So it is really hard to say when we would be ready to get off containers and onto bulk.”

In a statement released to the media Thursday, HECO officials criticized Hawaii Gas for moving ahead on its LNG plans without including the electric utility. Of the quantity of fuel that Hawaii Gas hopes to import, at least 80 percent of it is expected to be sold to HECO.

“Although our fuel quantities were included in Hawaii Gas’ recent invitation to bid, Hawaii Gas did not consult with or ask Hawaiian Electric to participate,” HECO said in its statement.

Boivin responded that Hawaii Gas’ bid invitation was “entirely in accordance with the MOU,” and that his company informed HECO of its intention to solicit bids. He said that ultimately natural gas importation needs to be a coordinated effort.

“If we are going to do it, there is only going to be one bulk solution for Hawaii,” he said.

About the Author