Liquefied natural gas (LNG) imports could cut residents and businesses oil-based energy bills in Hawaii substantially during the next 20 years, according to a University of Hawaii study. Potential savings were classified as "huge," given gas-indexed pricing, but the report also acknowledged that LNG exports carry various risks, given sources, oil-gas price differences over time and the state's level of energy demand reduction in future years.

Before making any final determinations, LNG plans need to carefully consider questions about sourcing, terminal site options (offshore and onshore), regulatory controls and detailed cost-benefit analyses, the report said.

On Oahu, which includes Honolulu, natural gas would cost about half of what oil would through 2030, according to the $150,000 report, "LNG for Hawaii: Policy, Economic and Technical Questions," as complied by Honolulu-based consulting firm FACTS Inc. for the Hawaii Natural Energy Institute at the university.

While LNG infrastructure ultimately may be expensive -- "at least hundreds of millions of dollars of capital investment" -- the report said that is a one-time cost compared to Hawaii's current oil bill, which it estimated runs in excess of $6 billion annually.

The report follows a filing last fall by The Gas Co. LLC, Hawaii's only government-franchised full-service gas company, seeking to operate LNG facilities for receiving supplies sourced from natural gas produced in the continental United States (see Daily GPI, Oct. 2, 2012). The report is part of the Hawaii Clean Energy Initiative (HCEI).

"[Given caveats about costs of facilities and U.S.-based sources] the potential of LNG to cut fuel costs in Hawaii is enormous and need not conflict with the goals of the HCEI," the report said. "Indeed, LNG could play an important role in allowing renewables to be accommodated in Hawaii's energy system."

The report pegged Hawaii's total potential annual demand for LNG at 1-2 million tonnes per annum (mtpa) between 2015 and 2035. "If 50% of the HCEI goals are met in 2030, the LNG demand could be as high as 2.5 mtpa in 2030," the report said.

The report said LNG would be cheapest coming from the U.S. West or Gulf of Mexico; it said LNG from Alaska, Australia and Canada is likely to be priced by an index tied to global oil prices while the U.S.-based supplies would be tied to domestic gas prices in the United States.

"Cost savings from LNG imports into Hawaii clearly will depend on where and how it is procured," the FACTS report said. In the electric generation sector in Oahu, "fuel savings of 40-50% or more" are possible, compared to oil-fired power supplies.

The Honolulu-based gas utility company, a subsidiary of Macquarie Infrastructure Co., has an application pending at FERC seeking authorization to operate facilities that "will be used to receive, unload, load, store, transport, gasify or process natural gas that is sourced on the continental U.S. and transported by waterborne vessel to Hawaii."

Hawaii's Federal Energy Regulatory Commission application applies solely to the first phase of what will be a three-phase project, the firm said. It plans to seek authorizations for the Phase II and Phase III facilities in subsequent applications at FERC.

The firm said the objective of its strategy is to "ultimately develop the facilities necessary to supply gas for up to 75% of its customers' requirements, and [to] provide fuel for up to 400 MW of power generation facilities and for industrial and other commercial applications." It has asked FERC to issue an order approving the Phase I application by Nov. 7.

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