JPS leaves natural gas partner hanging - FTI consortium awaits supply agreement, puts engineering studies on hold
McPherse Thompson, Assistant Editor - Business
Fueling Tech Incorporated (FTI), leader of a consortium that is assessing the feasibility of supplying compressed natural gas to Jamaica Public Service Company (JPS), is refusing to move ahead with the engineering design studies until the power utility signals its intent to carry out the project.
The FTI consortium inked an agreement with JPS last year to assess the feasibility of converting its 120MW Bogue plant in Montego Bay from diesel fuel to natural gas.
The power utility has the option of walking away from the contract if the price of the gas to be delivered exceeds the originally proposed price by more than 10 per cent.
But FTI now says JPS is refusing to say whether it will push ahead with the plan.
The next step would have been the front end engineering design or FEED study, initially set for January 2014, to be backed fully by the consortium.
But: "The FEED study has not started because JPS does not want
to commit to the project," Tony Gardner, vice-president of business development for the FTI consortium, told the Financial Gleaner.
"There is a cost to the FEED study," he said, without specifying how much it would take to do the job.
"The cost of the FEED study would become a liability to JPS if the FEED study validated our proposal ... and JPS refused to execute the project," he added.
JPS has not responded to questions submitted since Monday.
However, on Wednesday, Dr Vincent Lawrence, head of Electricity Sector Enterprise Team (ESET), disclosed that the Jamaican power utility has now formally proposed to initially convert the Bogue plant from automotive diesel oil to propane. The power company plans to complete the conversion by the fourth quarter of 2015, from which it estimates a 40 per cent reduction in fuel price.
In the preliminary agreement with FTI of Canada, Virtual Solutions Inc of Dubai and Red Rock Power Partners LLC out of the United States in July 2013, the parties agreed to a FEED study, which would determine the final design of the CNG infrastructure along with the price to deliver the gas to JPS' turbines.
JPS currently has no skin in the game. It will be an off-taker or purchaser of the gas, while the FTI group will be responsible for sourcing and shipping the gas and providing the infrastructure, the utility said last year.
"We are ready, willing and able to implement the Bogue project," said Gardner. "The real question is why has JPS not move forward with the implementation of the project as agreed in the development agreement?" he said.
Gardner explained that two main elements were required to successfully execute the project - financing and technology. "We are fully funded and we have ensured that there is no financial exposure or capital requirement from JPS. To bring relief to Jamaica's energy consumers, we offered to assume all potential financial risk. JPS' only obligation is to commit to the implementation of the project."
Gardner said the last meaningful discussion with JPS and the consortium was in April. Later on May 29, he said, he met with John Kistle, senior vice-president for generation and project development, in Kingston.
"I was told that JPS is embarking on another fuel analysis to determine which fuel JPS is going to accept and utilise going forward. That made no sense, and is simply a delaying tactic by JPS. Jamaica has already determined that natural gas and renewables are the way forward," Gardner said last Friday.
However, it's now clear from the ESET press conference that JPS is seriously considering propane as an interim solution.
In recent telephone conversations, Gardner said that Kistle asked that the consortium submit a proposal
for gas to a power plant at Old Harbour, St Catherine, which the group delivered on August 26.
"Working with limited information, we submitted a very aggressive yet realistic and achievable proposal. The new submission entailed a comprehensive proposal for both Old Harbour and Bogue project," he said.
JPS' other proposal to ESET was to replace the existing 292MW heavy fuel oil plants Old Harbour and Hunts Bay with a 190MW gas turbine power plant fuelled by LNG by June 2017.
Gardner said that earlier this year, JPS asked that negotiations on the gas-supply agreement be suspended for 90 days. The three months having expired, FTI President Peter Wressell wrote to JPS President and CEO Kelly Tomblin, asking for a resumption of negotiations.
"It has been over three months and she is yet to respond," Gardner said.
Were the consortium to proceed with the FEED study, it would be "reckless with its resources," he said. "We cannot incur significant costs when JPS refuses to commit to the project."
The group says it has secured the requisite financing for the Bogue project, with Export Development Canada among its backers. They have also approached the World Bank, which "is willing to provide adequate insurance to secure the project," Gardner said.
"The only thing that is required to start the FEED study is JPS' initialisation of the gas-supply agreement (GSA). The consortium has been waiting since November 2013 for JPS to initial the GSA and get the project started."
The FEED study would take about three months to complete, he said, and the consortium estimates that the buildout of infrastructure for the project would take another 12 months, while delivery of the natural gas could commence in early 2016.
Gardner said conversion to natural gas at the Bogue plant would result in a minimum 30 per cent reduction in the cost of energy to consumers.
Overall, the FTI group's natural gas ambitions for Jamaica would require US$850 million of investment, he said. That spend would include the Bogue plant conversion - which Gardner refers to as the anchor project; conversion of JUTC buses and other government-owned fleet to operate on compressed natural gas, and partnering with local entrepreneurs to acquire Petroleum Company of Jamaica and expanding the PETCOM network of gas stations to 84, all with the capacity to dispense compressed natural gas.
"There is too much business at stake for the other distributors of fuel not to follow PETCOM's lead. This means that private-sector transportation would realise a minimum 30 per cent reduction in the cost of fuel," Gardner said.
He said JUTC would realise annual savings of $1.58 billion, while a private 10-seater Noah bus operator from Port Maria or May Pen could save about $514,000.
It envisages the development of CNG infrastructure along all major transportation corridors, routes and hubs across Jamaica, and could create more than 4,000 jobs, he said.