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Power-sector planning and the cost of energy

The popular concept is that coal is a dirty fuel, especially with regard to particulates, sulphur and carbon-dioxide emissions. With natural gas, the level of particulates would be lower than with coal, but in the latter instance, the particulate emissions with modern coal-burning boilers equipped with effective particulate-removal equipment would be substantially lower than are currently being experienced with the oil-burning boilers.

Sulphur emissions with either fuel will be dependent on the source of the fuel. Low-sulphur coal (less than one per cent by weight) is available relatively close to Jamaica, for example, Colombia and Venezuela.

However, even at the current relatively high sulphur emissions, complaints from persons in the areas adjacent to the power stations are rare.

Carbon-dioxide emissions are typically the main focus of concern for the contribution of power generation to global warming. Combined-cycle generating plant burning natural gas, sourced directly from the wells, is typically estimated to produce about 60 per cent of the carbon dioxide expelled by a steam-plant burning coal. However, if the combined-cycle plant is burning regasified LNG the difference in carbon-dioxide emissions is significantly reduced.

A study undertaken by the Carnegie Mellon University in 2007 compared the carbon dioxide emissions of different fuels used in power generation in the eastern United States and concluded that there was very little difference in aggregate carbon-dioxide emissions between LNG and coal. The report observed that: “It is important to re-evaluate whether investing billions of dollars in LNG infrastructure will lock us into an undesirable energy path that could make future energy decisions costlier and increase the environmental burden from energy infrastructure.”

Environmental considerations

Environmental considerations are important and it is incumbent on the responsible authorities to ensure that all industrial operations comply with the statutory standards. It is unlikely that commitment to LNG for power generation can be justified on environmental considerations alone.

New coal-burning plant will have a smaller environmental footprint than that typically experienced with the oil-burning units currently. As Caribbean Cement Company switched from burning heavy oil to coal, the visual effects of the thermal processes became less obvious than they had been before, and there were few, if any, outcries of environmental degradation, despite the location of the plant close to residential neighbourhoods. It is probable that that plant would have closed by now as being uneconomic had the fuel change not been undertaken. Caribbean Cement Company is now the most efficient of Trinidad Cement Limited’s subsidiaries.

That LNG can be a cheaper fuel for Jamaica than coal is questionable. New gas-drilling technologies have resulted in dramatic increases in natural gas production and reserves in the US, and consequent reduction in US demands for imported natural gas.

However, stabilisation of natural gas prices in the US will not necessarily result in lower LNG prices in other jurisdictions. LNG competes in a different market than that being supplied by gas transferred by pipeline from well to user. The costs incurred in liquefaction of the natural gas, transportation in specialised vessels, regasification at the port of destination and subsequent storage of the relatively high volumes of the fuel after regasification, all substantially increase the cost of LNG above that of gas supplied directly from the source.

Supply, demand issues

Lower gas prices in regions close to gas fields will, therefore, not necessarily be reflected in lower LNG prices internationally. In addition to the increased cost factors mentioned above, supply and demand issues must be considered. Qatar, currently the world’s largest exporter of LNG, is approaching the limit of its export capacity. In order to meet its international commitment to carbon reduction internationally, the United Kingdom will retire all its coal-burning plant by 2016, which represents 35 per cent of its current generating capacity. That capacity will have to be replaced by gas-fuelled generators and the UK is currently a net gas importer. Germany is also committed to closing all of its brown-coal generating stations by 2018. China consumed 22 per cent more natural gas in the first half of 2010 when compared to a year earlier, and its rapid economic expansion continues. Despite the indications that demand for LNG will increase sharply, some uncertainty exists as to whether the gasification capacity will be able to satisfy the mid-term demand. Natural gas shortages have grown more serious in the Middle East over the past two to three years and can be expected to impact on the Asia-Pacific LNG trade. More capacity for LNG regasification is being constructed than that for liquefaction. The Trinidad gasifica-tion plant remains the only one on the west coast of the Atlantic and, although there are plans for a number of others, none is currently under construction and the regional LNG supply sources are unlikely to be increased before 2014. If Jamaica is to be an LNG consumer by that date, its supplies will probably have to come from the mid- or far-east, with consequent higher transportation costs.

Some tightening of the LNG demand/supply ratio is therefore expected with consequent price increases. Merrill Lynch estimates that global demand for LNG will increase by 22 percent during the year 2010, while Shell projects that world demand will double by 2020. In the near to medium term, LNG suppliers will be seeking to secure long-term contracts and not invest on the basis of spot-market speculations. Some instability in LNG pricing could be observed in the recent past, occasioned in major part by increasing production of shale-gas in the US and consequent reduction in US demand for imported LNG. There was even some re-export of LNG from the US, at prices well below those at which the commodity was imported. However, as LNG importation into the US becomes more predictable LNG prices internationally have become more stable.

The MEM has not provided any statistics to support its projections of a US$300-million reduction in the country’s balance of payments under the proposed LNG programme. However, the OUR’s generation expansion plan is based on LNG prices of US$8.5 per million British Thermal Units (BTU) for LNG and US$13.8 per million BTU for heavy fuel oil (Bunker C).

Illogical pricing

In all probability, the OUR would have applied the same cost indices as the MEM, but the assumed LNG/Bunker C price ratio does not appear to be logical. It is difficult to visualise any real-life situation in which Bunker C could be sold at a 60 per cent higher price than that of LNG, delivered at the point of consumption in both instances. The assumed price of at least one of the two fuels is illogical, and initial review of the prevailing relevant circumstances internationally suggests that the price of LNG is underestimated, especially in view of the fact that the LNG would probably have to be imported from Africa, the Middle East or the Far East. The Nextant/World Bank Caribbean fuel-pricing study referred to earlier estimated LNG to be more than twice as expensive as coal when compared on the basis of heat released on combustion.

It may be useful to compare Jamaica’s power-expansion plans with those of other Caribbean countries. The Dominican Republic is one of only two regional territories in which LNG is now used for power production – Puerto Rico is the other. Currently, LNG-fuelled units provide about 500 MW of the Dominican Republic’s generating capacity, but two 600-MW units now under construction there and which will represent the largest capacity of any single unit, will be fuelled by coal.

MEM’s plans for investment in the power sector need to be revisited and ventilated by liberal information dissemination and open discussion. No significant benefit would be sacrificed if that approach were adopted.

The silence of the prospective consumers of LNG – JPS and the alumina companies, in particular, on the issue is deafening. It is known that JPS and at least one of the alumina companies had developed detailed plans for coal as the primary source of power generation. The original deadline of 2012 for commissioning of the new generating plant is unrealistic, and even the 2014 date sometimes mentioned will be difficult to achieve. As JPS will not necessarily be successful in its proposals for the new generating units, the successful bidder may need to secure access to power station sites as well as transmission-line routes for interconnection with the JPS grid. Mobilising human and equipment resources to undertake construction of five or more large generating units simultaneously may prove to be problematic. The most recent contract negotiations between JPS and an independent power producer for 60 MW of diesel-generating power extended over almost two years.

The national interests demand that the veils of secrecy be lifted.



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