Belco could slash its electricity charges by around 15 percent if plans to convert its systems to burn liquefied natural gas (LNG) instead of diesel fuel come to fruition.

Walter Higgins, CEO of Belco’s parent company Ascendant Group, told The Royal Gazette yesterday that the Ascendant board of directors will within the next month be asked to approve a massive infrastructure project to enable the conversion.

The work, which would cost in the region of $200 million, would enable Belco to use a fuel that is cheaper and which creates 50 percent fewer carbon emissions than the diesel oil it currently burns.

The process would include feasibility studies, policymakers’ approvals, securing financing, as well as getting the green light from regulators and planners. The actual construction phase would generate badly needed jobs for the Island, Mr Higgins pointed out, and would take around two to three years. The cost of natural gas has plunged in recent years, especially in the US, where “fracking” technology has freed up decades’ supply of the fuel that is trapped in shale rock and had previously been thought to be unreachable. On an energy equivalent basis, it is meaningfully less expensive than crude oil, and will remain so for many years, according to energy experts.

“LNG is much cheaper than oil, so after this conversion, we would be able to reduce the $130 million a year we spend now on fuel by tens of millions of dollars,” Mr Higgins said.

“If you believe the oil price is going to fall to $20 a barrel, then the economics of LNG don’t work. But if you believe the oil price could go up to $200 a barrel — as I do — then our prices would be much uglier than they are today.”

Crude oil was trading at about $102 a barrel in the US yesterday.

The company estimates the conversion could lop up to six cents a kilowatt hour off the current price of around 40 cents, Mr Higgins said.

According to energy giant Shell, LNG is created by super-cooling natural gas to minus 160 degrees Centigrade. The resulting liquid occupies up to 600 times less space than the gas, allowing for easier transportation. Mr Higgins estimated that one shipment per month could serve the Island’s needs.

Facilities required would include a terminal with a processing plant to convert the liquid back into a gas, a pipeline to get the gas to Belco’s power generation plant in Pembroke and the conversion or replacement of generators and turbines to burn gas instead of diesel.

While the US forbids natural gas exports to countries outside the North American Free Trade Agreement (NAFTA), such as Bermuda, Mr Higgins said: “People we deal with are applying to get licences to export to Bermuda and places like us.”

Approaches had already been made to potential investors and there was strong enough interest for the company to be confident it could raise the necessary funds, Mr Higgins said.

“We will gather whatever capital it takes,” Mr Higgins said. “However, investors will need to be confident that their investment is safe, that Bermuda is a safe place to invest, that the company will be treated fairly and that customers will be willing to pay the rates necessary.

“Whatever the cost of money borrowed will become part of what is charged to the customer. That is a fact of life in business, whatever kind of business you’re running.”

Mr Higgins said the cost of the project would be spread over decades as the principal was paid back to investors, along with interest payments. If the project cost Belco $200 million, for example, and the cost were spread over 30 years, it could work out at roughly $10 million a year in depreciation and amortisation, the CEO added.

This would be more than offset in savings made from using the cheaper fuel, resulting in lower rates for customers.

Conversion to LNG is just one part of the company’s long-term plans. It also aims to significantly expand the use of solar panels on the Island and launch an efficiency drive to help consumers cut down on wastage. This would conform with Government’s stated plans to work toward more efficient power generation with a lower environmental impact.

Finance Minister Bob Richards last month criticised Belco in his Budget statement, suggesting the public were paying a heavy price for the monopoly utility’s inefficiencies, while conceding that Bermuda’s electricity market was a “natural monopoly” because of the Island’s small size.

Mr Higgins said: “The Finance Minister is entitled to his opinion. He has a mountain of challenges to solve and there is no doubt that anything that contributes to the Island’s high cost of living needs to be on his radar.

“We need to do everything we can to stop money flowing out of Bermuda and to be more efficient.”

Belco had made major cost-cutting strides through an early retirement offer that had reduced staffing levels by about eight percent and by switching from a defined benefit pension plan to a defined contribution one, he said.

Bermuda was reliant on Belco for electricity and Belco needed its investors to remain strong, he added. For those reasons, a cut in electricity rates would be unhealthy for Bermuda.

“Utilities are among the first people to feel the recession,” he said. “For five consecutive years, we have sold less electricity. The stock is down about 60 percent and earnings are down about 60 percent.” Further erosion of earnings heightened the risk of investors deserting the company and Belco being unable to raise capital for essential plant upgrades to continues to provide electricity to the Island, he said.