Published On:Wednesday, March 17, 2010

By LARRY SMITH

ENERGY security is not just a concern for America, which now gets 70 per cent of its oil from unstable or even hostile countries. It's also something we Bahamians must deal with.

Currently, we import all of the fossil fuel (heavy fuel oil, diesel, aviation gas and gasoline) we use to generate electricity and power our cars, boats and planes.

This makes us highly vulnerable to supply shortages and price shocks - things we have no control over.

Electricity demand in the Bahamas is growing by some five per cent a year, BEC says.

And that figure is based on the assumption that projected energy conservation measures such as lighting and appliance efficiency improvements along with a major expansion of solar water heating are put in place to curb demand.

That five per cent growth represents some 13 megawatts at a cost of $1.5 million per megawatt installed - about $20 million a year, or $200 million over 10 years. But several government ministers have admitted that BECs financial condition is grave.

In fact, when oil prices spiked in 2008, the government was forced to exempt BEC from paying duty on hundreds of millions of dollars in fuel imports to stem losses.

And it's a safe bet that rate increases are on the way, whether oil prices rise or not.

BEC uses heavy fuel oil to produce electricity on New Providence and diesel for its smaller out island generating plants. It is currently spending well over a hundred million dollars to build new plants on Abaco, Eleuthera and Bimini, and is about to spend millions more to upgrade Nassau's Clifton plant.

Meanwhile, efforts over the past three years - supported by the Inter-American Development Bank - to identify and introduce utility-scale renewable energy supplies have yet to show any results. And even if some projects are eventually implemented, they will account for only a few percentage points of demand, meaning we can look forward to another energy price spiral as the world economy recovers.

Liquid

What can we do about this? Well, efficiency measures alone could save up to 30 per cent on energy costs, experts say. But there is also new interest in using natural gas to produce electricity in the Bahamas. We would still have to import gas as we do oil - either in liquid or compressed form - but new technologies are opening up vast gas reserves around the world that will have a significant impact on price and availability.

This story has been gathering momentum for the past year or so, and now the international press is heralding natural gas as a game changer for the world's energy and emissions quandry. Preliminary estimates suggest that shale gas resources around the world (shale is a sedimentary rock) could be equivalent to, or even greater, than current proven natural gas reserves. Perhaps much greater.

The Financial Times recently described enthusiasm for shale deposits as "part of a wider revival for a fuel that could cut carbon emissions and transform global politics ... Within three years the world has gone from running out of natural gas to being drowned in it (and) the implications are profound."

North American natural gas resources have risen to a level that could supply current consumption for well over 100 years, according to the respected Massachusetts-based Cambridge Energy Research Associates.

And more importantly, development of this expanded resource may be able to meet significantly increased levels of demand without significant increases in prices.

"The unconventional natural gas revolution has lowered the natural gas price outlook and made gas more competitive while encouraging higher expectations for security of supply--a dramatic shift from just half a decade ago," according to a recent report by CERA. This is dramatically changing the global energy outlook and transforming the debate over generating electricity."

Gas is the cleanest of all fossil fuels, producing about 30 per cent less carbon than oil and 50 per cent less than coal - and if spilled it simply evaporates with no harm to the environment.

In the face of new regulations to control carbon emissions, increased gas supply will likely lead to more gas consumption by electric utilities because of the relatively lower carbon emissions. And gas-fired power plants can also be built more quickly and at less cost than coal-fired or nuclear plants.

Here at home, BEC and Grand Bahama Power can, with minor modifications, burn gas in their combustion turbines. BEC could also burn gas in their Family Island medium and high speed diesel engines, and even in their slow-speed diesels, some say, producing economies of scale in tankage costs and more efficient fuel handling at all its sites.

So what impact does all this have on the liquified natural gas terminals that have been proposed for Freeport and Ocean Cay over the past several years to transship gas from Trinidad to the United States? Well, just last month Alan Kelley, the CEO of Grand Bahama Power, said he was still pursuing such a terminal at Freeport in conjunction with the government and Hutchinson Whampoa, Freeport's top corporate partner.

Terminals

Successive governments have balked at approving the construction of multi-million-dollar LNG terminals in the Bahamas in the face of safety and environmental concerns. The outlook is now further clouded by the improved supply of natural gas in the US. Since the minimum economic size for LNG facilities can handle much larger volumes of gas than the Bahamas could possibly use, this means that a good portion of what we import would need to be re-exported - with Florida as the obvious market.

A few years ago there were 40 applicants clamouring to obtain permits to build new LNG receiving terminals in the US, but now analysts are saying that the newly accessible reserves of shale gas will allow the US to effectively close its doors to LNG imports.

This means that AES and Tractebel, the two companies that were seeking to build LNG terminals here should probably buy the government a round of drinks for its seven-year stall.

For long-distance movement, natural gas is condensed into a liquid at the source of supply by cooling to 260 degrees below zero.

It can then be shipped in specially built tankers to other locations, where it is converted back into a gas for use as a fuel.

A re-gasification facility costs several hundred million dollars to develop.

Meanwhile, Utilities Minister Phenton Neymour has acknowledged that oil companies are increasingly reluctant to supply the Family Islands with diesel due to high shipping costs, environmental risks, small volumes and burdensome scheduling requirements. And recently, retired Nassau-based shipping consultant Bill Bardelmeier suggested that we consider using new compressed natural gas (CNG) tankers to supply BEC facilities around the country.

"There has been a new wave of interest in transporting natural gas under pressure. The objective is simply to pack a lot of molecules of gas into a small space for economic transport to the marketplace. As I see it now, Abaco would likely use a couple CNG shuttles to run from the big LNG terminal at Savannah, or from a Gulf of Mexico export terminal. CNG deserves a close look in any event," he said.

In my view, the often hysterical controversy that has swirled around the Bahamian LNG proposals was never rooted in reality. There are certainly risks. But are they any greater than the risks we currently face with heavy fuel oil and diesel transport and storage, where the environmental dangers are well known?

The fact is that all existing large-scale energy technologies (from nuclear to coal, oil and gas) present substantial safety hazards - both natural and man-made.

Several companies have drilled for oil in Bahamian waters over the past 50 years.

And there is no doubt that oil exploration and production will have a huge impact on our marine environment because a significant percentage of any oil produced offshore spills into the sea.

A recent Saudi report estimated that a million barrels of oil and waste products are dumped or spilled into the Persian Gulf every year by shipping alone, for example.

On the other hand, using gas to fuel our power plants will certainly eliminate the prospect of catastrophic oil spills - something that many Abaconians are worried about with the Wilson City power plant now under construction.

A gas-based solution, on its own, does not provide a long-term path to a low-carbon future, but it can be part of a portfolio of options - including renewables - that will eventually get us there.

According to BEC chairman Michael Moss, "I do believe we need to seriously look at gas to improve our fuel supply security and reduce our exposure to oil price fluctuations through diversification. We need to pursue renewables for the same reason. Also, in spite of all the naysayers, natural gas is less offensive to the atmosphere than other fossil fuels we presently use.

"It's all a question of price, with environmental issues being a plus."

Currently, the benchmark price of gas in America is the equivalent of less than half the cost of a barrel of oil - about $30.

As the world economy recovers and utilities build more gas-fired plants, prices are expected to pick up again. "But rising US production is likely to put a ceiling on how far they can rise," the Financial Times says.

"The vision of a gas-based energy system, cheap, clean and secure, is a seductive one."

Stephen Chu, the US energy secretary, recently said gas could be "a key enabler of renewable energy" by acting as a bridge or transition fuel as the world shifts toward renewable energy and a lower-carbon environment. Others feel it is part of the long-term energy solution.

Power companies, including BEC, are facing big questions about fuel choice and new generating capacity.

And today's investment decisions will determine the outcome 20 or 30 years from now.

For example, US power demand could grow by a third over the next two decades, requiring 270 gigawatts of new capacity--equivalent to 540 new gas-fired or coal-fired units or more than 200 nuclear units. BEC's maximum demand last year was some 240 megawatts while GB Power's peak was about 70 megawatts.

Expansion

Renewables are not yet a solution at utility scale. Assuming a demand growth rate of 5 per cent per annum the output from a proposed 20-megawatt waste-to-energy plant at the Harrold Road dump will be consumed in less than two years. Expansion of conventional plant is therefore critical even as alternative options are pursued, BEC chiefs say. And switching to gas may be the best we can hope for at this time.

It's all about balance between conservation and energy. What good is it to have a wonderful natural environment if the economy is so bad people can't enjoy it?

And what good is it to have a wonderful economy if nature has been destroyed, and we live with polluted skies and seas.