LNG right move for Bahamas: Fuel upgrade needed

The government last week signed deals to bring liquefied natural gas (LNG) to New Providence as a key fuel source. One of the agreements oversees the development of an LNG terminal and regasification facility and its pipelines. The other is with Shell to provide New Providence power producers with LNG.

The agreement for the development of the terminal and other facilities is a partnership between FOCOL Ltd. and Shell. The LNG supply is an agreement with Shell alone.

The Progressive Liberal Party (PLP) promised in its 2021 Blueprint manifesto to bring LNG on board as a fuel source if it were elected.

“We see the integration of LNG into our fuel mix as a major step in the right direction as we move away from ‘dirtier’ fossil fuels, such as diesel and oil, significantly lowering our carbon emissions,” said Prime Minister Philip Davis at the LNG contracts signing ceremony. “LNG is also typically cheaper and has less price volatility compared to diesel and oil.

“Because we are building a new industry, we can also anticipate significant economic impact, including the creation of new jobs.

“In short, this agreement represents an essential component in our energy reform and economic development plans.”

Electricity is expensive in The Bahamas. Switching to LNG is expected to lead to significant cost savings.

Attorney General Ryan Pinder said the first LNG delivery will be in November. The start of development of the terminal is scheduled for before the end of the year.

Pinder added that the LNG deal will save Bahamians $50 million per year in phase one of the project.

“By the time we get to phase four, which will be a robust floating storage unit that is still in design, we are looking at $180 million a year over an annual savings to the consumer. Just on fuel pass through pricing,” he said.

The cost of expensive electricity affects the cost of all goods and services in the country. Beginning the journey to less expensive electricity will put more money in the pockets of residential consumers and businesses.

“Just imagine the economic opportunities of an extra $180 million a year in this economy in Nassau being invested and being able to create additional opportunities,” Pinder said.

“Small businesses [will be] able to have extra disposable income to grow. The economic impact builds on the savings [and] we will see a certainly dramatic benefit to both the personal consumer and the business consumer in the country.”

As a cleaner fuel, LNG use is increasing. According to Shell, global demand for LNG is forecast to rise by around 60 percent by 2040. More that 170 million tons of new LNG supply are set to be available by 2030 to help meet stronger gas demand.

The Bahamas is late to the switch to natural gas from the use of diesel and heavy fuels. The sensible policy is to use LNG as the core of our fuel mix for now while building out renewables for our future.

The government recently signed a deal for a solar farm in New Providence. The government is also planning solar deals for the Family Islands with partners.

Chairman of FOCOL Sir Franklyn Wilson said at the signing ceremony that this LNG deal is one of the most important things to happen for the country in a long time.

Sir Franklyn said the introduction of LNG will mean cheaper and more reliable energy for the country.

“This initiative will positively and meaningfully foster greater and sustainable economic growth in a way that dramatically increases opportunity for all,” he said.

The Davis administration is in the process of widespread energy reform. Last June it announced a partnership with Pike Corporation to take control of the Bahamas Power and Light (BPL) transmission and distribution system in New Providence.

The government entered into a 25-year agreement with Pike through its Bahamian management company Island Grid Solutions for the upgrade and management of the transmission and distribution network.

Under a joint venture partnership, the government will own 40 percent of the shares in a special purpose vehicle called Bahamas Grid Company, and Island Grid Solutions will own 60 percent.

The government is working to finalize the deal with Pike.

Consensus on overall change

There were discussions in the country for decades on the shift to LNG. The Minnis administration engaged in talks with Shell about a natural gas deal. No deal emerged, however.

Hurricane Dorian and the pandemic, as the two worst crises in the country’s history, hitting back to back, derailed many initiatives during the Minnis administration.

That the Free National Movement (FNM) nearly made a LNG deal with Shell, and the PLP did, suggests there is political consensus on natural gas as a major part of the way forward for The Bahamas.

FNM Leader Michael Pintard did not criticize the move to LNG. He instead raised concerns about the privatization of parts of the deal, arguing that the FNM model included more state participation. He also asked questions as to who will benefit financially from various aspects of the deal.

The FNM is arguing that there should be broader shareholder participation in the society from any BPL liberalization process. To the FNM, the PLP’s policies are benefiting too few.

Despite the debate on how ownership should work with liberalization, both parties are essentially on board with the same overall energy policy. This includes natural gas and growing renewables to 30 percent of supply by 2030.

This broad consensus provides an element of certainty for investors and partners.

Pike, Shell and the government’s other energy partners would be wise to finalize all their deals and to bring their projects online in the shortest possible time. Once the deals are in action and energy prices decrease, and service reliability improves, there will not be much of an appetite for changing the terms.

No government has won reelection in The Bahamas in nearly 30 years. If the FNM wins and certain aspects of these deals are still in talks, the FNM might tinker with aspects of the relationships, while supporting the overall vision of bringing LNG in as a fuel source.

The Bahamian people support energy reform. BPL is broke. Its service is unreliable. And, that bad service is expensive. All right-thinking residents want the government of the day to usher in change.

The PLP has had a problem with making big promises that do not come to fruition in the timelines set out. If the prime minister can conclude his energy deals in actuality, he would have as part of his legacy having transformed the sector for this generation.

The determination of whether or not he did good for the country will come down to costs and reliability. If prices substantially drop and service significantly improves, the Davis PLP would have done good for the country.

But in doing good for the country, the FNM’s criticisms about ownership are still valid. The best liberalization models provide for, as much as possible, the widest cross section of society being able to buy in to the deal. In that manner, along with getting better service and lower prices, more people benefit from the wealth of ownership.

• Brent Dean is a communications consultant. He is a former editor and general manager of The Nassau Guardian. He can be reached at brentdean1980@gmail.com.