LNG could be powering Bermuda by 2020
Cleaner and cheaper liquefied natural gas could be powering Bermuda inside four years, a report has revealed.
Consultants Castalia said that electricity generation in Bermuda could be switched over to LNG by 2020 with a pricetag of between $258 million and $315 million, depending on the arrangements for supply and delivery to a power plant.
The report, tabled in the House of Assembly yesterday, said: “By quickly deciding on the best approach for procuring LNG, the Government can set Bermuda on the path to begin importing LNG by the end of 2019.
“Deciding on an approach and awarding contracts to providers will take until early 2017.
“From that point, it will take about 30 months to build an LNG carrier and other infrastructure necessary to receive LNG and to complete the rest of the needed infrastructure.”
The Castalia report came down in favour of making the switch from using fuel oil and diesel to produce electricity.
The report said: “Our analysis suggests that Bermuda could procure LNG and use natural gas to generate electricity at a lower cost than continuing to depend on oil products.
“Our market research suggests that LNG is quickly becoming available for small island markets such as Bermuda soon.
“Indeed, recent agreements in Jamaica and elsewhere suggest that it could be available immediately for Bermuda, if the right agreement were in place.”
The report, however, said that Bermuda would still have to pay a premium for the new fuel, although it would be cheaper than other options or continuing to use oil-based products.
It explained: “Current and projected prices for natural gas at Henry Hub, the largest natural gas trading hub in the United States, are easily the cheapest of the fuels shown.
“However, high transportation costs and competition for globally-traded gas lead to higher prices for imported natural gas, as shown by relatively high prices in Europe and Japan.”
Bermuda imported 1.6 million barrels of oil in 2014, with more than half, 54 per cent, used to generate electricity.
Using natural gas instead of oil would, depending on power plant specifications, would cut nitrogen oxide emissions by 56 per cent and carbon dioxide by 38 per cent, while sulphur dioxide emissions would be cut to almost zero. The report said: “The cost of the new power plants would make up about half of these investments — since much of Belco’s generating capacity needs to be replaced soon, costs of this magnitude would be incurred regardless of the fuel chosen for electricity generation.
“The rest of the investment is made up mostly of facilities to store and re-gasify the LNG and conversions of existing oil-fired plants to use natural gas.”
But the Castalia consultants said that their estimates showed power generated from LNG could be 16-20 cents per kilowatt hour, a discount of between 15 per cent and 42 per cent compared to oil-fired generation.
Tabling the report, Grant Gibbons, the Minister of Economic Development, told the House: “Bermuda has been wholly dependent upon environmentally unsustainable fuel — heavy fuel oil and diesel — for the majority of its electricity generation, leaving residents and businesses vulnerable to price shocks as global oil prices fluctuate.
“It seems that we are in the eye of a perfect storm of energy generation issues — we know that the utility’s existing generation assets area at or near the end of their useful lives and we watch as the world considers the long-term proposals for oil while monitoring the stability of supply and projected low prices for LNG.
“Bermuda is at a cross roads. We can either continue as we have for the past 100 years or take advantage of the opportunities before us by investing in lower-cost and more sustainable alternatives to oil-fired generation such as LNG.”
He added: “Any future action to adopt and deploy LNG as the principal source of fuel for the generation of electricity in Bermuda will not be made by the Government but by the private sector.
“Government’s role in this process will be simple — either we will or will not approve of the development of LNG.
“The mechanics, specifics and time frame for development will be up to the market and the private sector and contingent upon what is economically feasible for the developer.”
The consultants’ report said that the size of the Bermuda market dictated that only one liquefied natural gas import point would be needed.
Castalia experts said the existing oil terminal at Ferry Reach in St George’s appeared to be the best choice, while using the existing Belco power station in Pembroke would probably be cheaper than building a new plant elsewhere.
A new ship of a size suitable for Bermuda and its market, would also have be built, which would cost around $75 million and take around 30 months to construct.
The report considered Ferry Reach and Marginal Wharf in St David’s as potential natural gas import points.
It said: “There is already a jetty in place at the Ferry Reach terminal that could receive LNG carriers with minimal modifications and the fuel storage site is relatively removed from surrounding residential or commercial areas.”
The consultants added that it would cost about $20 million to modify the Ferry Reach terminal for LNG.
The report said: “These changes would be relatively minimal, reducing costs and lessening the environmental and social concerns of an additional dock.
“The jetty is easily accessible by sea for ships of the adequate size, though this may leave ships exposed to extreme weather when docking.”
The report added that a re-gasification and storage plant, costing around $57 million, would also have to be built at the chosen import point.
It said that the Ferry Reach terminal was zoned as industrial land and large enough to build the new plant.
The consultants said: “The terminal is also surrounded by a mound, making it relatively well-protected from the elements and also protecting nearby buildings from the very small possibility of a fire or explosion.” If Ferry Reach and Belco at Pembroke were found to be best option, a new gas pipeline running alongside the existing oil pipeline could be built for around $12 million.
The report added that it would cost in the region of $31 million to convert Belco’s existing power station to use gas, with new plants at the site costing an additional $138 million.
Options for supply are that a single supplier organises and manages the process, a single tender for gas-fired generation and tendering out suitable parts of the LNG supply chain that fit with competitive procurement.
Government could use its powers “requiring access to the Ferry Reach terminal on the grounds of it being a uniquely favourable asset required for the country’s benefit”.
Grant Gibbons, the Minister for Economic Development, told the House of Assembly yesterday that a “Swiss challenge” — where, a process to allow for competition for projects proposed by the private sector — was the most innovative method of procurement.
Dr Gibbons explained: “In a Swiss challenge, the Government first approves of the principle of the proposed project, then an open bidding process is conducted in which the project proponent is also invited to participate.
“This process is used to encourage competition when one bidder controls a uniquely favourable asset and reduces risks associated with other development paths, such as mandatory access.
“A Swiss challenge also ensures transparency, which is critical with a infrastructure developments of this magnitude.”
