Ministerial Statement To The House of Assembly. Dr. The Hon. E. Grant Gibbons, JP, MP Minister of Economic Development

Transcription

1 Ministerial Statement To The House of Assembly By Dr. The Hon. E. Grant Gibbons, JP, MP Minister of Economic Development Viability of LNG as a Fuel for Generating Electricity in Bermuda Monday, March 21 st, 2016 Mr. Speaker, today I tabled in this Honourable House a report titled "Viability of Liquefied Natural Gas (LNG) in Bermuda". This report was prepared by energy consultants at the request of the Ministry of Economic Development. This report is yet another in the series of energy related reports that I will table for the information of Honourable Members in order to consult, to provide information and solicit feedback from stakeholders and the community. Mr. Speaker, significant milestones have been achieved over the past ten months in Bermuda with respect to energy, the most recent of which was the unanimous support given by this Honourable House to the Electricity Act 2016, which has recently received Royal Assent. The Electricity Act followed the National Electricity Policy, which Honourable Members will recall was debated in this House in June of last year.

2 Mr. Speaker, the Electricity Policy states that the Government's objectives for electricity services in Bermuda is to ensure that the provision of these services are, least-cost and high-quality; environmentally sustainable; secure and affordable. Prior to the publication of the Policy and more so after, there have been several parties who have expressed an interest in providing solutions that meets these objectives, with a specific interest in the use of Liquefied Natural Gas, or LNG. 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 the 'perfect storm' of energy generation issues we know that the utility's existing generation assets are at or near the end of their useful lives, and we watch as the world considers the long-term prospects 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 one hundred 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 Mr. Speaker, the potential benefits of a switch to LNG include: Its relatively stable low cost as compared with the prices of heavy fuel oil and diesel; Its abundant availability, particularly to smaller markets like ours; The reduced levels of harmful emissions upon combustion; and The potential for job creation and yet another stimuli to the construction industry in the build-out of the necessary infrastructure.

3 Mr. Speaker, while these potential benefits might seem self-evident with regard to whether LNG should be permitted into Bermuda, there were other considerations and concerns that were raised during the Electricity Act consultations. Some of these included: The manner in which LNG is extracted might not be environmentally sustainable; The continued reliance on an imported fuel; The adoption of LNG and its low pricing would be a disincentive to the adoption of renewable energy technologies; The Infrastructure costs are high; and Bermuda is too small a market for LNG importation. In view of the potential benefits and concerns, it became apparent that we would have to evaluate the trade-offs inherent in adopting one stance or the other with regard to the use of LNG. Mr. Speaker, in order to assess the viability and trade-offs relating to the potential deployment of LNG into Bermuda, the Department of Energy's consultants researched the issues and produced the report that you have before you. The consultants focused on whether LNG could be a part of Bermuda's energy mix, and, if so, what would be the best strategy for its procurement and development, specifically as it relates to the necessary infrastructure development. Mr. Speaker, the consultants met with a wide cross-section of the key stakeholders as part of their consultations, including; the Department of Energy, the Bermuda Energy Working Group, BELCO, the Bermuda Environmental Energy Sustainable Group (BEESG), the Department of Planning, the Department

4 of Environmental Protection, the local fuel importers and non-governmental organizations. They also met with representatives from the BW Group, who have offices in Bermuda and who are one of the world's leading maritime groups in the tanker and gas industry. Mr. Speaker, the original report contains commercially sensitive information relating to several interested third-parties and since this Government made a commitment to publish the report, it was necessary to produce this redacted version for public consumption. This version of the report contains the following: An overview of the LNG supply chain and alternatives for Bermuda; The projected cost of importing LNG into Bermuda; Considerations for the procurement of LNG and gas-fired electric power generation; Recommendations for structuring and managing the deployment of LNG into Bermuda; and Conclusions on the feasibility of deploying LNG into Bermuda. Mr. Speaker, this report reveals that there are two obvious locations that could be considered for creating the facilities for the importation, storage and regasification of LNG. These are the Ferry Reach terminal, and the Marginal Wharf in St. David's. Of the two, there are a number of indications that the Ferry Reach site is the most suitable; but according to the consultants, further research is required to determine the potential environmental and social impacts before a final decision on a precise location can be made.

5 Mr. Speaker, in addition to investigating various supply chain options, this report highlights several specific factors that figure into the feasibility of LNG. These factors are explained in detail in Section 6.1 of the report and are summarized as follows: Bermuda does not have the demand to support more than one LNG import facility, therefore only one location should be developed; The Ferry Reach Terminal and Jetty may be uniquely well-suited to receive LNG Generating electricity with natural gas at the BELCO Pembroke plant is likely cheaper than other options; SOL (Bermuda) owns the existing oil pipeline, which is built on Government land; and A combination of the Government and the Regulatory Authority must approve LNG and its use for electricity generation. Mr. Speaker, in Bermuda, the potential demand for natural gas is expected to be determined primarily by its use for electricity generation, for two main reasons: Electricity generation is the largest potential market for natural gas; and An electricity generator, whether an independent power producer or the Electric Utility, represents a large potential off taker for natural gas, and will have the demand to justify large capital investments in natural gas import infrastructure without partnering with other energy users, such as domestic cooking or institutional heating. If LNG is imported for electricity generation, further investment to adopt natural gas in other sectors, such as transport, could become viable. More simply put,

6 LNG's primary use would be for the generation of electricity, and then other uses in other sectors such as transportation, heating, and cooking, would supplement that primary use. This noted, if LNG were not imported for electricity generation, it would not be feasible to use for those secondary sectors. Mr. Speaker, the LNG report identifies five options for procuring LNG and gas fired generation, based on the individual parts of that supply chain, the options are: Liquefaction at the point of export to Bermuda; Shipping to Bermuda on a custom-built LNG ship; Storage and re-gasification at a terminal in Bermuda; and Generation of electricity using LNG. Each option is explained in detail with an analysis of the advantages and disadvantages of each. In short, they are: A single supplier organizes and manages the entire supply chain; A single tender for gas-fired generation; Tender those parts of the LNG supply chain that lend themselves to competitive procurement; Requiring access to the Ferry Reach Terminal on the grounds of it being a uniquely favourable asset required for the country's benefit; or A Swiss challenge. Mr. Speaker, it is likely that a combination of these options may be employed in order to achieve the best solution for Bermuda. Of all the potential procurement methods, the most innovative is the Swiss challenge. This is a process by which a

7 government ensures a level of competition for projects proposed by the private sector. 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 infrastructure developments of this magnitude. Mr. Speaker, regardless of which supply chain option and procurement strategy is adopted, it is important to recall that the Integrated Resource Plan (IRP), central to the Electricity Act 2016, creates the mechanism by which the Regulatory Authority will implement and manage the electricity policies of the Government, including the introduction of alternate fuels and new electricity generation technologies. This approach imposes a high level of transparency in the planning process by soliciting public comment with the added ability to challenge and propose alternatives in order to ensure the best energy solutions are considered for Bermuda. Mr. Speaker, the consultants conclude, based upon their investigations and analysis thus far, that the deployment of LNG into Bermuda is feasible, and could be desirable, but with the caveat that only if the pricing differences between natural gas and oil are sufficiently disparate, and provided that LNG is available for our market. It is also worth noting however, that LNG has not yet been developed in any similar sized jurisdiction in the Caribbean region and that this report is based upon reasonable assumptions and emerging market conditions.

8 Mr. Speaker, 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. In order that residents and businesses are assured that any development of LNG is in their best interest, the importation and use of LNG in Bermuda would first need to be approved by the Legislature, after which the generation of electricity using LNG would have to be approved by the Regulatory Authority in compliance with the Integrated Resource Plan. To ensure that there is a robust framework around any development of LNG, and in order to better regulate the fuels already in use in Bermuda, the Government will develop relevant fuels policy and legislation later this calendar year (2016). Mr. Speaker, it is our goal to ensure that all fuels, not just LNG, will be regulated to ensure they are safe, secure, and affordable. Thank you, Mr. Speaker.