Al Hadji, Contributor
FINALLY we are hearing about the real gas and not the political hot air we have become so accustomed to. The Prime Minister of Trinidad and Tobago (T&T), Mr. Manning, last week announced that T&T is considering supplying its Caribbean partners with natural gas as a substitute for expensive petroleum fuel.
To realise this, a pipeline may be built in the Eastern Caribbean. On the home front, introduction of natural gas to achieve sustainable development is at the top of Minister Hylton's energy sector 'do list'. For Jamaica, it is just a matter of time before natural gas must become the fuel that will propel growth. It is also time that the readers of this column get their first primer on 'natural gas' (NG) and 'liquefied natural gas' (LNG).
Trinidad and Tobago (T&T) is fortunate to have large natural gas reserves, in fact over 22 trillion standard cubic feet (tcf) of it, sufficient to last for over 35 years at current production rate. Natural gas is either produced as associated gas (along with oil) or as free gas from gas fields. The economic value of the associated gas is zero or negative as it must either be flared or re-injected into the oil fields. For a country like T&T the market for gas is limited unless it can either be converted to petrochemicals (urea or methanol) or can be piped to a neighbouring market. Unfortunately neighbouring markets are either small or have their own supplies. The only large potential markets are in the first world - notably Europe. Both these markets are at great distances and piping gas to these markets under ocean depths is not economic.
The technology was developed to move natural gas over large distances in liquid form by super cooling it. This allows the gas volume to be reduced by 600 times and transported like oil in specialised tankers safely and reliably over long distances. This product is known as liquefied natural gas or LNG. Today the world trade in LNG is about 110 million tonnes per annum (mtpa). More than 60 per cent of LNG is bought by Japan and Korea, where it accounts for 13 per cent and 10 per cent respectively of their national primary energy supply mix. Imports of LNG into the United States market are marginal. As the world's proved gas reserves continue to increase, the gas producing countries are keen to monazite this natural source. Hence there is a major emphasis to move gas across continents either by trans-continental pipelines or by specialised thermos type tankers in liquid form. Today, world's proved gas reserves will last much longer than the proved petroleum reserves.
Why so much interest in natural gas? First, large reserves and associated production mean, that the production cost of gas is far below the production cost of oil. Second, the natural gas is methane and when burnt, produces less carbon gases that lead to global warming. Gas being a clean fuel, it does not result in acid rains that eat away the marbles from the wonders of the likes of Taj Mahal. Fourth natural gas is an ideal fuel for generating electricity by using co-generation or combined cycle systems (utilising both direct and exhaust heat).
The capital cost of combined cycle systems is half the cost of oil fired systems and their efficiency is 50 per cent higher than the traditional systems. In other words, we can have more electricity for same volume of fuel input or same amount of electricity with less fuel. Finally, the supply and price of natural gas is not vulnerable to political upheavals that continuously threaten OPEC and Middle Eastern oil producers. Natural gas is purchased under bilateral arrangements through negotiated long-term contracts, which assure supply security and price stability.
Why now?
There are a number of factors that favour Jamaica to enter the buyer's market now. First, the introduction of a new fiscal regime for the bauxite and alumina sector makes it economic sense to take a national approach to the energy diversification strategy. This translates into supplying substitute fuel to the two major economic sectors, namely bauxite/alumina and power generations, which account for over 60 per cent of Jamaica's commercial energy consumption and for over US$200 million annual foreign exchange cost for fuel. Their combined demand makes the construction of an LNG terminal economically attractive. Second, T&T's Atlantic LNG (ALNG) Plant at present produces about 3 mtpa of LNG. Two new plants or Train 2 and Train 3 (as they are called) with an additional capacity of 6.6 mtpa at a cost of US$1.1 billion will be completed this year and next year respectively. The Train 4, with a 4.8 mtpa capacity, is scheduled for completion by 2005. This will be a lot of LNG in our own backyard. Venezuela, with fifth largest proved gas reserves in the world and second in this hemisphere (over 146 tcf), is expected to complete Mariscal Sucre LNG (MSLNG) Plant by 2006-7.
This plant will have an initial capacity of 4.7 mtpa. Add to this the completion of two new trains in Nigeria where the current capacity at the Nigerian LNG Corporation (NLNG) Plant stands at 5.9 mtpa. With all this new LNG on the market, the producers are hunting around for the potential buyers and they will not be in the North. Jamaica is in an advantageous position in a buyers market. It is therefore critical that Jamaica's energy diversification program is implemented in time to take advantage of these new developments.
At what cost?
The LNG industry is now mature industry and technological developments have brought down the cost of specialised ships, storage terminals, and regasification plants. If Jamaica were to import about 1.5 to 2 mtpa of LNG, in the past a receiving terminal would have cost US$350 to US$400 million. Today it will cost no more than US$100 million. The total cost of jetty, terminal and pipelines are guesstimated at US$250 million. As far the delivered price of gas is concerned, it must not only compete with the high sulphur fuel oil which it will replace, but must also provide incentive to retrofit the existing facilities to convert to natural gas. This is where the challenge for the government lies.
The Government must ensure that the price at which Jamaica will buy the gas will be attractive enough for the diversification to succeed. One plus factor is that with regard to T&T, Jamaica is part of the emerging Caribbean Single Market Economy (CSME). The price of gas sold to customers in T&T is very low. Within the principles of CSME, the similar price must apply to the gas customers in Jamaica (plus transport and storage and distribution costs). Mr. Manning's statement implied that the gas would be about 30 per cent cheaper than other fuel seems to be a good starting point towards this direction.
What T&T must do is establish an energy policy for the CSME partners and Jamaica must play a key role in the formulation of this policy. I am sure Minister Hylton, having steered Jamaica's trade policy, is well suited for this task. Will it impact the Petrojam refinery? Jamaica at present consumes about 25 million barrels of petroleum a year. The petrojam refinery was built in the early 60s and has a current capacity of 31 thousand barrels per day (KBD). As the refinery is old and simple both its service factor as well as utilisation are low. For this refinery to survive in the changing environment it must be modernised, upgraded or closed down as the economics or financial viability dictates. This fully complements the initiative of bringing the natural gas to Jamaica.
If this national initiative proceeds as indicated by the Government, Jamaica must prepare itself for a pleasant change in the economic scene, better environment, lower energy cost and long awaited integrated industrial complex.
Until next time, Al Hadji logs off.
