by Michael Hansen, President, Hawaii Shippers’ Council

My guest commentary, “No Natural Gas for Hawaii with Jones Act Ships,” appeared in Hawai`i Free Press April 16, 2012. That article responded to a major Honolulu Star-Advertiser business story of the previous day regarding the potential use of natural gas to fire electrical power plants in Hawaii. I explained if Hawaii is to make large scale use of low cost domestic natural gas in Hawaii, an exemption from the U.S.-build requirement of the Jones Act would be required to provide for its transportation.

In response to my article, a reader asks: “We get all the natural gas we need now. How does it get here? The article makes it sound impossible, but it’s here.”

To clarify, we do not use natural gas in Hawaii. The primary distributer of hydrocarbon gas in the State of Hawaii is The Gas Company. It’s a utility regulated by the Hawaii State Public Utilities Commission (PUC). The Gas Company produces synthetic petroleum gas at its plant in Kapolei, Oahu, from naphtha feedstock purchased either from Tesoro Corporation or Chevron U.S.A., Inc. refineries.

In its refrigerated form, synthetic petroleum gas is known as liquefied petroleum gas (LPG) as opposed to liquefied natural gas (LNG). In general, LPG is more expensive than LNG because it is manufactured from a distilled petroleum product, i.e., naphtha, incurring both an additional manufacturing cost and a higher input cost. In comparison, natural gas, as its name implies, occurs naturally in that form. LPG and LNG can be used interchangeably for home and industrial use.

The Gas Company manufactures LPG locally because its sales volume is not great. Imported LNG would only be competitive with locally manufactured LPG if the Gas Company’s sales volumes were large enough to support deliveries by the kind of highly specialized tanker ship known as an LNG carrier and the associated infrastructure.

In the past, the Gas Company has occasionally imported LNG, normally from Venezuela, using smaller Foreign-Flag LNG carriers. Typically this has been done when the Gas Company’s synthetic petroleum gas plant is down for maintenance or there have been other interruptions in their normal operations.

When the Gas Company has purchased LNG it’s been an expensive operation primarily because a relatively small ship must be chartered to carry a smaller cargo over a long voyage. For example, there have been times when a Foreign-Flag LNG carrier on a single voyage has made two rounds of deliveries around Hawaii – Honolulu, Hilo, Kahului, and Nawiliwili – to unload a full cargo of LNG because of limited storage tank capacity and consumption on shore. And, in between delivery rounds, the ship had to lay idle in Honolulu with a part cargo onboard to wait for shore tank capacity. This adds considerably to the landed cost of the LNG delivered to Hawaii.

The outlook for smaller LNG deliveries to Hawaii has only worsened over time. As newer LNG carriers have been built over the past ten or more years, most are much larger than those previously used to make the occasional deliveries to Hawaii. As the older and smaller deep draft LNG carriers are phased-out of the international Foreign-Flag fleet and replaced by larger ships, it will become increasingly more difficult to arrange for these kinds of smaller deliveries to Hawaii in the future.

The Gas Company makes deliveries of LNG from its Kapolei plant to the Neighbor Islands using its LPG barge Huki Kai.

The Gas Company can adequately meet the existing gas demand in Hawaii from its synthetic petroleum gas plant in Kapolei. However, in the future, if significantly larger volumes of gas were needed, for example, to fire an electrical power plant, completely different arrangements would have to be made on a much larger scale. This would entail the large scale movement of natural gas on LNG carriers to Hawaii.

There are no deep draft LNG carriers in the Jones Act fleet to make domestic deliveries of LNG to Hawaii. An LNG carrier has not been built in the United States since the mid-1970’s – nearly 40 years ago.

With the current development of very large natural gas reserves in Alaska, there is the opportunity for Hawaii to take advantage of this low cost, clean burning, domestic fuel resource, but only if there are ships to transport it.

To remedy this and other ocean transportation bottlenecks, the Hawaii Shippers’ Council has proposed an exemption to the U.S.-build requirement of the Jones Act to allow Foreign-Built U.S.-Flag U.S.-Owned and U.S.-Crewed self-propelled deep draft ships into the noncontiguous domestic trades – Alaska, Guam, Hawaii and Puerto Rico – of the United States.

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