Soaring electricity bills are pushing officials to consider a major shift in Hawaii’s energy infrastructure that could replace costly fuel oil with less expensive natural gas as a source for some of the state’s power generation.

The prospect of shipping liquefied natural gas, or LNG, to Hawaii has been discussed at various times over the past 10 years, but plans never advanced largely because of the high costs.

Now, with natural gas trading at decade-low prices on the mainland and fuel oil in Hawaii at historic highs, LNG is back on the table as a potential energy source.

"Liquefied natural gas is a real option for us and we’re looking at it very seriously," said Lt. Gov. Brian Schatz. "It burns a lot cheaper and cleaner than coal or oil so it’s attractive on a number of levels."

The reliance on expensive oil is the main reason Hawaii’s electricity rates have soared in the past few years, taking an ever bigger bite out of household balance sheets and driving up operating costs for businesses. The residential rate for electricity in Hawaii averaged a record 34.7 cents a kilowatt hour in 2011 compared with the national average of 11.8 cents a kilowatt-hour.

"High utility costs are crippling a lot of people," said Bob Stout, president of Times Supermarkets. The electric bill at Times’ 18 stores statewide is about $1 million a month, up roughly 25 percent from a year ago, Stout said. "If there is something that can be done to lower our cost of energy, it should be pursued," he said.

Hawaii utility customers spent $3.15 billion on electricity in 2011, or 5.3 percent of the state’s gross domestic product, according to state data. That was up from $1.17 billion, or 2.4 percent of the state’s GDP in 1997.

Falling natural gas prices, meanwhile, are lowering electricity costs on the mainland. Wholesale electricity prices nationwide have fallen by more than 50 percent since 2008, and about 10 percent during the fourth quarter of 2011, according to a recent research report by Standard & Poors Financial Services LLC.

Natural gas is the second largest source of electricity generation in the U.S. after coal, and hundreds of new natural gas-fired power plants are on the drawing board. Hawaii is the only state with no power plants fueled by natural gas.

Hawaiian Electric Co., the state’s largest electric utility, would not say whether the company is studying the option of using natural gas.

"The use of natural gas for a fuel is a state policy decision," HECO spokesman Peter Rosegg said in an emailed response to questions from the Star-Advertiser.

Rosegg said all costs should be considered when looking at using LNG in Hawaii. "The cost to modify equipment and build out additional infrastructure would need to be weighed against the potential fuel price advantages for customers," he said.

Rosegg also emphasized the utility’s commitment to renewable energy. "We believe the best long-term goal for Hawaii is a 100 percent clean energy future, with as little fossil fuel dependence as possible and we should not lose that focus," he said.

Hermina Morita, chairwoman of the state Public Utilities Commission, said it was her understanding that HECO is studying the feasibility of LNG as part of its integrated resource planning process.

The PUC has not given HECO or Kauai Island Utility Cooperative any "formal directive" to study natural gas, Morita said. "However, electric utilities do have a responsibility and duty as managers to fully investigate all alternatives to help lower ratepayer impacts. It would be imprudent of them otherwise not to address the impacts of rising fuel costs or fuel supply issues," she said.

State Energy Administrator Mark Glick said the potential to bring down the cost of power generation makes LNG worth pursuing, but he declined to offer specifics on what the state is doing to vet natural gas as a possible fuel source for Hawaii.

"It needs to be looked at seriously. Where it goes from here is hard to say. There are certainly a lot of stakeholders who would have to be involved in making the transition," Glick said. "A lot of it needs to be driven by the private sector to come up with ideas on how it would be done."

He said a major consideration is to avoid doing anything that would diminish efforts to develop alternative energy sources and reduce Hawaii’s dependence on fossil fuels. "We are totally dedicated to that and we don’t want to give anybody the impression that we’re not."

If LNG is eventually added to Hawaii’s energy mix it would have to be done "strictly as a replacement fuel" for oil, Glick said. "It’s something that should be considered … only if it can be done in such a way that it is a firm power source that could support greater renewable energy penetration."

Hawaii’s electric utilities have for decades relied primarily on petroleum-based fuel for power generation. Nearly 80 percent of the electricity consumed in Hawaii today is produced by burning oil, by far the highest percentage of any state. Alaska is second with 13.9 percent of its electricity coming from oil.

Liquefied natural gas is natural gas in liquid form. Natural gas is converted into LNG to make it easier to store and ship over long distances.

Substituting LNG for fuel oil at some of Hawaii’s power plants has the potential to significantly lower the state’s electricity costs, which are roughly three times the national average.

However, it’s unclear what such a shift would mean for Hawaii’s two oil refineries, which rely on fuel oil sales to electric utilities for a significant share of their business, Schatz said. The refineries, operated by Chevron and Tesoro, have struggled in the past, and Tesoro put its local facility up for sale in January.

"It (using LNG) is not the kind of thing you do abruptly. But it’s got some potential for the state of Hawaii and it’s something that deserves serious consideration," said Schatz, the Abercrombie administration’s point man on energy.

Meanwhile, officials at Hawaii’s only gas utility said they are "actively investigating" bringing in LNG for their residential and commercial customers to take advantage of low mainland natural gas prices. The Gas Co. serves 68,000 customers statewide with synthetic natural gas and propane, which are made locally from derivatives of crude oil.

Even with the handling and shipping costs associated with LNG, The Gas Co, could deliver it to customers at a lower cost than synthetic natural gas or propane made from oil, said Jeffrey Kissel, president and chief executive officer of The Gas Co.

The company’s commercial customers include restaurants, hotels, manufacturers and laundry companies that use gas mainly for heat energy. The Gas Co. would be open to supplying gas to Hawaii’s two electric utilities — Hawaiian Electric Co. and Kauai Island Utility Cooperative — if they were interested, Kissel said. "Potential new customers include the military, other utilities and heavy industries," according to Kissel.

The Gas Co. would start by bringing LNG to Hawaii in shipping containers, Kissel said. If things went well the company would invest in an import terminal to bring in larger quantities of LNG in custom-made tankers sized to fit Hawaii’s ports, he said. "Subject to regulatory approval, we think we are talking less than a year to begin and certainly less than five years to scale it up," Kissel said.

At the Kauai Island Utility Cooperative, a member-owned utility, executives are excited about the possibility of replacing some of their fuel oil with cheaper LNG.

"It makes a lot of sense. I don’t think the general public understands the true scale of the problem (with fuel oil)," said Brad Rockwell, KIUC power supply manager. "We are going to pursue renewables on a large scale. But in terms of cost, renewables will either keep rates where they are or have only a small impact," he said.

"With LNG we really have an opportunity to affect the rate."

If KIUC could get a supply of LNG, the utility would first convert a 27-megawatt power plant that currently burns petroleum-based naptha, which costs the utility around $108 a barrel. The plant supplies about 45 percent of the island’s electricity. KIUC’s other plants burn more expensive diesel.

By switching to natural gas, Rockwell estimates, the utility could cut its cost of producing electricity at the plant to 12 cents a kilowatt-hour from the average 20 cents it costs to burn naptha and diesel. For ratepayers that would translate into an average decrease in electric rates to about 40 cents a kilowatt-hour from 45 cents, the rate charged in April, he said.

Natural gas supply has increased recently, and prices have fallen. Natural gas futures fell last week to a 10-year low on the New York Mercantile Exchange, capping a fourth straight week of declines, on speculation that a supply glut will not ease during a seasonal lull in demand. Natural gas accounts for about a quarter of all energy consumed in the U.S. and is used mainly to power factories, heat homes and generate electricity.

Natural gas is priced in British thermal units, or Btu. Natural gas futures contracts fell below $2 per million Btu last week for the first time since 2002.