Baker Botts LLP
12:20 - 12:45
Thursday, 19 September 2019
S2.8 RESERVE: Paradise Found: History, Challenges & Insights of Island LNG Development
Islands are, in many ways, the perfect hosts for LNG import projects. They are reliant on fuel imports, disconnected from regional electric and gas pipeline grids, require baseload generation and often have aging, inefficient fuel plants burning heavy fuel oils – all facts that support the transition to LNG. Nonetheless, the pace of island LNG project development has not matched its potential. This paper will explore the recent history of island LNG project development, analyze the unique challenges faced by islands trying to import LNG, and consider how islands can lay the foundation for successful LNG infrastructure development.
History. The recent history of island LNG development in the Caribbean and Pacific is full of big promises but modest development. This paper will begin by surveying the current state of island LNG project development, drawing insights from projects that have launched and projects that have failed to materialize. In particular, this paper will analyze the outsized roles that government and regulators play in the success of an island project and the role of the island utility in launching the project.
Challenges. Island LNG projects face a unique set of commercial, legal and political challenges. Perhaps paradoxically, the features that make islands such an attractive source of demand also make infrastructure development difficult. This paper will consider some of the major challenges facing island development, including initial cost barriers, open or restricted access to LNG infrastructure, infrastructure siting restrictions, uncertain regulatory oversight, last-mile transportation hurdles, offtaker credit issues, declining energy demand, environmental and tourism concerns and competing renewable generation requirements.
Insights. Island projects are complex. Nonetheless, a few initial decisions impact all subsequent development. First, the island must determine, with input from its stakeholders, its defensible, long-term LNG demand, which may not match the island’s optimal economic demand. Second, the island must select the right long-term partner(s) for its LNG project. As the local utility typically does not have experience in the international gas trade, this partnership will play an outsized importance on the project’s development, ability to secure financing and ability to persuade the populace and regulators that LNG is a viable long-term solution. Third, the local utility’s role in the project structure must be established. As a practical matter, the local utility typically is better off “renting” LNG knowledge, services and infrastructure from third-party developers rather than becoming a full-service LNG company.