Setting a model for small-scale importing markets, the Jamaican government and its electric utility monopoly Jamaica Public Services (JPS) have worked closely and effectively with a single private partner, U.S.-based New Fortress Energy (NFE), to rapidly introduce LNG within 1 year of the August 2015 gas-supply agreement. The island offers a case study with several specific lessons for both private developers and governments to succeed with minimal delays in implementing midstream and downstream gas projects.
Deciding on LNG: Until May of 2016, when JPS converted its conventional diesel-fired plant Bogue into the island’s first combined-cycle gas turbine generation (CCGT) plant, Jamaica was 90% dependent on fuel oil for generation. In 2017, after the Bogue conversion, Jamaica’s energy mix for power generation was 80% oil, 10% gas and 10% renewables. However, by 2019, when the green-field construction of the 190MW Old Harbour CCGT plant comes online, the mix is expected to be 45% LNG, 40% oil and 15% renewables.
The rapid shift comes after years of price pain for Jamaican end-users. Due to the volatility of international oil markets and the consequences of inefficient diesel generation, the increased fuel costs were largely passed on to both retail and commercial consumers. Between 2009 - 2013, customers felt the pain of a sharp rise in average rate charges of 70%.
Previously the national government has been unsuccessful in addressing the issue of price instability while both diversifying supply and reducing environmental impact. However, after multiple false starts, it has found the solution in LNG with a commitment to a single project developer for projects across the entire vertical value chain.
Innovative Financing and Deep Downstream Integration: With total installed capacity of approximately 820MW, Jamaica does not fit the typical LNG importer profile, but with innovative financing, aligned stakeholder incentives and fast approvals, New Fortress and JPS were able to start the flow of gas within a year of having signed their first supply contract for Bogue.
Jamaica’s second CCGT plant, a green-field build at Old Harbour, is financed by a syndicate of regional and local banks but unusually, like the Bogue agreement, the critical midstream gas delivery infrastructure is in fact separately financed, built, owned and operated by NFE.
Notably, after the first two agreements, the focus of the partnership has expanded to more than just supplying large-scale generation. Industrial, maritime and even ground-based transport applications are currently being implemented.
It is significant that in 2017, NFE expanded its purview to include green-field power plant construction, ownership and operation, having signed an agreement with bauxite producer Jamalco for a 94MW facility in August of last year. Additionally, Prime Minister Andrew Holness opened Red Stripe’s first LNG train in December, with gas supplied by NFE, saving costs, emissions and expanding production at the facility.
In transport, Jamaica approved a pilot project to retrofit 5 buses to LNG power to be operational in 2018. The country also seeks to position itself as the Caribbean hub for LNG re-export. Marine bunkering for cruise and freight ships is another strategic goal, especially if vessel owners trend towards LNG fuel in response to upcoming International Maritime Organization (IMO) sulfur regulations.
Lessons for Developers in Small Markets: Overall, operators and developers should consider the case study in Jamaica as instructive. New Fortress has thus far been successful because it has acted as a “one-stop-shop”; an operator, financier and even builder and owner for most stages of LNG value chain. Consequently, uncertainty and coordination which delay many infrastructure projects have been reduced significantly. Although often difficult in obscure infrastructure projects, the firm has been publicly visible and has aligned with regulators and politicians, making investments in local employment through training and scholarships and focusing on clear messaging in town halls and public meetings.
Image courtesy of FrozenLNG.com
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