Natural gas offers modest gains, big risks for Hawaiʻi energy costs: UHERO report

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Switching Hawaiʻi's power plants from oil to liquefied natural gas (LNG) may not deliver the dramatic drop in electricity prices that some proposals promise, according to a new analysis by the University of Hawaiʻi Economic Research Organization (UHERO), released April 14.

Hawaiʻi has the highest electricity rates in the nation, largely because it relies on imported oil. But a 2024 fuel contract renegotiation by Hawaiian Electric has already begun easing some of that burden by reducing how strongly global oil price spikes translate into local costs, saving tens of millions of dollars each month compared to the previous agreement.

The report finds that while natural gas is often far cheaper than oil on the continental U.S., Hawaiʻi faces higher costs because the fuel must be cooled, shipped across the ocean and converted back into gas. Those steps significantly narrow the price gap and expose the state to volatile global LNG markets, where prices can surge during supply disruptions.

At current prices, LNG still holds a modest cost advantage over oil. However, much of the projected savings comes not from the fuel itself but from newer, more efficient power plants that use less energy to generate electricity. Similar efficiency gains could be achieved without switching fuels.

Long-term investment concerns

The analysis also raises concerns about long-term investments in LNG infrastructure. Under scenarios where Hawaiʻi continues expanding renewable energy, such as solar paired with battery storage, LNG facilities could be underused while ratepayers remain responsible for their costs. Solar and battery systems are already competitive with fossil fuels and avoid the risks tied to global fuel markets.

The findings suggest that while LNG could offer short-term benefits under certain conditions, its long-term value is uncertain compared to continued investment in renewable energy and recent improvements to oil supply contracts.

"The upside is modest and front-loaded; the downside arrives when things go wrong-and in energy markets, they eventually do," wrote UHERO Research Fellow and UH Mānoa Economics Professor Michael J. Roberts.

Visit UHERO's website for the insights post and entire report.

UHERO is housed in UH Mānoa's College of Social Sciences.