Bids to open next year for LNG terminal

On November 14, the Government of Jamaica began evaluating six proposals from companies hoping to supply liquefied natural gas (LNG) for a planned floating LNG storage and regasification terminal.

The terminal, for which bids will be submitted on January 13, 2012, would provide Jamaica with its first supplies of natural gas, a fuel that the Government believes will play a leading role in reducing the country's dependence on expensive heavy fuel-oil imports. Jamaica currently spends 13 per cent of its GDP on importing energy.

Jamaica has been seriously exploring the potential for importing LNG since 2001, and in 2004 signed a memorandum of understanding with Trinidad and Tobago to import gas from its Caribbean neighbour. Although this deal was shelved in 2006, LNG remained a centerpiece of Jamaica's fuel diversification strategy in its National Energy Plan, released in 2009, which also contains language supporting the development of renewable energy sources in the country's electricity mix.

Jamaica's Office of Utilities Regulation (OUR) 2010 Generation Expansion Plan compared three scenarios for the expansion of Jamaica's fossil-energy system through 2030 - a natural-gas scenario, a coal and natural-gas scenario, and a business-as-usual (heavy fuel-oil) scenario - and found that the natural-gas strategy would cost the least (US$5.77 billion versus US$5.85 billion for the coal and gas scenario and US$8.18 billion for the business-as-usual scenario). This year, with requests for proposals announced for both the terminal and the LNG to supply it, this strategy has begun to take on a definite shape.

Reducing costs

According to the terms of the request for proposal, the terminal would have an initial capacity of 0.8 million tonnes of LNG per year (mpta), the estimated firm demand from the country's power generation and bauxite/aluminum production sectors. In particular, the main customers during the terminal's first phase would be the Jamaica Public Service Company (JPS), the country's major power utility; Jamaica Energy Partners (JEP), an independent power producer; and Jamalco, a bauxite and aluminium company.

For these companies, some of the largest energy consumers on the island, switching from heavy fuel oil to LNG could mean a significant reduction in costs. And, since LNG also burns more cleanly than heavy fuel oil, Jamaica is also hoping that fuel switching will deliver environmental benefits.

Desire for greater environmental sustainability and fuel diversity is also increasing interest in renewable energy, an intersection Worldwatch is analysing through its Energy Roadmaps for the Caribbean project. But despite its interest in wind, hydro, and solar energy, the Jamaican Government seems to be betting more heavily on LNG.

According to a recent statement by Minister of Energy and Mining Clive Mullings, the Government of Jamaica hopes that new LNG supplies and renewable energy sources can meet at least 42 per cent and 20 per cent, respectively, of the country's energy by 2030. For comparison, natural gas currently accounts for zero per cent, and renewable energy, five per cent.

Viable alternative

Whether construction of the offshore regasification terminal will meet opposition on the basis of risks to aquatic wildlife and the environment, as similar projects have encountered in the United States, remains to be seen. Nevertheless, as long as the price differential between LNG and heavy fuel oil remains large (the OUR Generation Expansion Plan cites the US Energy Information Administration for prices of US$12.10/million Btu for heavy fuel oil and US$4.88 for natural gas in 2010), it is likely that many Caribbean nations that currently depend on oil imports may be tempted to consider switching to natural gas.

The Dominican Republic already has an LNG import terminal, which it uses to power a 304 megawatt gas-fired combined cycle power plant - a plant that has saved the country US$800 million since 2003 by replacing electricity that would have been generated from imported heavy fuel oil, according to its operator.

Yet while LNG may be a more appealing alternative to heavy fuel oil and certainly coal, these island nations will have to consider carefully whether the significant capital investment that the construction of import terminals entails might lock their energy systems into dependence on another imported fossil fuel at the expense of domestically produced renewable energy.