Tapping strategies> Making natural gas a fixture in Maine will be a long time in coming

loading...

For once, it seemed, people in northern Maine would not be at the end of a transportation line. The 630-mile route of the Maritimes & Northeast natural-gas pipeline from Goldboro, Nova Scotia, to Dracut, Mass., put Maine in the middle of an energy superhighway. It seemed economic development in northern Maine was assured.

But even though the Maritimes pipeline is the biggest infrastructure project to be built in Maine since four-lane highways, it won’t resurrect the moribund economies of the state’s rural hinterlands overnight. Jim Connors of the State Planning Office estimates a gas-based economy will take five to 10 years to develop.

Because of persistent low oil prices and the high cost of converting boilers from other fuels to gas, few big customers – specifically paper companies – are buying gas in big enough quantities to warrant building lateral pipelines off the main pipeline into rural areas of Maine.

Consequently, Maritimes petitioned the Federal Energy Regulatory Commission to defer building laterals to Woodland, Millinocket, Bucksport, Skowhegan and Yarmouth.

Nevertheless, some laterals will be built. Those will serve the biggest market for natural gas in Maine, gas-fired electric generating plants.

From a connection with the main line in Eddington, a 12-inch lateral pipeline will burrow under the Penobscot River and emerge in Veazie to serve Duke Energy’s Maine Independence Station in Veazie. Another eventually will travel to the Champion paper mill in Bucksport where another gas-fired electric generating plant is being built. A third will serve an 800-megawatt plant in Gorham. A fourth would serve a 540-megawatt plant proposed for Westbrook.

Bangor Gas, one of the state’s three local distribution companies, will tap into the main line in Brewer or Eddington and run a pipe across the Penobscot River in the Veazie area. That pipe will feed the network of pipe the company is installing in 12 towns in the Penobscot Valley.

The Maritimes pipeline has to have big markets to justify and pay for its existence, according to FERC rules, but of its projected 17 industrial customers, only four remain. In Boston, its market is guaranteed by Mobil, the majority owner of the Sable Offshore Energy Project, and subsidiaries of two other Sable owners, Shell and Nova Scotia Resources. Mobil also owns 12.5 percent of the Maritimes & Northeast pipeline. With Duke Energy, it owns a gas marketing company. Mobil is its own best customer.

FERC has granted Maritimes permission to make engineering changes to accommodate the decrease in gas volume the pipeline will carry initially. Construction costs also are higher than expected. That means pipeline customers will pay higher transport fees.

As for Maine, “The state has to rely on entrepreneurship to develop markets,” said Connors, and natural gas continues to evoke optimism.

Alison Catheron of Franklin, an associate of the Downeast Resource Conservation and Development Council for 25 years, compliments the efforts of state Sen. Susan Longley, D-Liberty, on behalf of her political constituents to get Maritimes to pledge to provide free taps to big customers in Washington and Waldo counties, even though those customers have yet to materialize. His group wants to get “taps and laterals in some of the towns along the Down East area.”

Others can celebrate more immediate benefits. Towns along the pipeline route will reap millions in property taxes. Baileyville will add the taxes from a multimillion-dollar gas compressor station to its coffers. Veazie already has planned what it will do with taxes from its $221 million gas-fired power plant.

Engineers at Champion’s Bucksport mill have developed a cogeneration power system that will enable the mill to maintain its competitiveness and work force. Maine’s three local distribution companies, Bangor Gas, CMP Natural Gas, and Northern Utilities, are mapping out long-term strategies to pipe gas into businesses and homes.

“It is a very important infrastructure for economic development,” said John Flumerfelt, spokesman for Portland-based Northern Utilities, “but it’s not going to change the fundamental economy of the state of Maine. Nobody should get their hopes up too high.”

In the meantime, pipeline construction has begun. A flurry of eminent domain actions have secured the last rights of way through private property. Approximately 250 Maine companies are engaged in the project. Local contractors are surveying, blasting, clearing and grading the pipeline route, and digging trenches.

River crossings have been completed beneath the Androscoggin and St. Croix rivers. More will follow on the Penobscot and Kennebec. Three pipelaying contractors will build pipeline in three segments from Baileyville to Westbrook.

About 3,000 people are expected to work on the project in the next six months. More than $140 million will line the pockets of Mainers. By November 1999, natural gas is expected to flow through Maine.

Simple economics

Just north of St. Stephen, New Brunswick, the pipeline dives under the St. Croix River. When it emerges in Baileyville, the cost of transporting the gas becomes more expensive.

If you set up business in the industrial park next to Sable’s gas processing plant in Goldboro, Nova Scotia, you’ll pay no transportation charge. If you tap the pipeline elsewhere in Nova Scotia, you’ll receive a 20 percent discount off transportation costs over the next 10 years. In New Brunswick, you’ll receive a 4 percent discount over seven years.

If you tap the pipeline in Maine, you get no discount. You pay the full rate FERC has granted Maritimes.

No gas will be sent to the main pipeline’s only prospective major customer in Washington County. It’s too expensive. With the cost of conversion high and the price of oil low, Georgia-Pacific isn’t buying.

“When push comes to shove, that’s really why we’re not interested at the present time,” said Lee Bingham, vice president of Maine operations for Georgia-Pacific in Woodland.

G-P burns “hog fuel” – wood waste – to power its two building products mills. It adds industrial oil to the fuel mix to power its paper mill. With the cost of hog fuel virtually nil and the price of oil low, converting to gas can’t be justified. Building the lateral line from the Maritimes main line and converting its boilers to burn gas would cost the company millions.

“Any day of the week, you can sit down and get your hog fuel price and price of oil, and you punch the numbers into a program that gives you your projections,” said Bingham.

Included in his calculations are the savings G-P would realize from converting to gas. Once a lateral connecting the main pipeline to the mill is built, burning clean gas would eliminate the need for certain pollution control devices, oil and propane storage tanks and spill control equipment. The stream of tractor-trailers delivering oil to the mill would cease. But the numbers needed to pay off the capital costs of converting the mill and maintaining its competitiveness don’t add up yet.

At G-P facilities in Minnesota and Ontario, Bingham has bargained for gas in Alberta, striking 15- to 20-year deals. Buying Sable gas is different, he says. He’s dealing with only one pipeline. “I don’t think you have the bargaining power that we did in the West,” he said.

Of the nine paper mills that indicated an interest in gas before FERC gave Maritimes the OK to build the pipeline and the laterals, eight, including G-P, have yet to commit to gas.

Bowater, which recently sold its Millinocket area holdings to a Quebec firm, had said converting its operations to gas was not economic. Kimberly-Clark Corp. in Winslow has closed its doors.

Sappi, owner of the S.D. Warren mill in Skowhegan, is interested in gas, but the economics don’t exist yet to convert. Nor do they for Chinet in Waterville. The same is true for Eastern Fine Paper in Brewer and Lincoln Pulp and Paper. Fort James in Old Town has canceled delivery until gas is more competitive with oil.

The Champion mill in Bucksport is the exception. It has staked its future on natural gas.

Advantage Champion

Unlike the other mills, Champion is not considering using gas to fire its boilers. Instead Champion is pursuing an idea that originated with two of its local engineers: Glenn Poole, the mill’s electrical and instrument superintendent, and Dave Harrison, the boiler house superintendent.

The Champion mill will use natural gas to fuel a gas-fired electric generator that General Electric will build on a sliver of land next to the mill’s power complex. The generator will produce up to 174 megawatts of electricity seven days a week. The mill will use approximately 55 megawatts, replacing electricity it now buys from CMP.

The mill already is equipped with two steam generators that run off four boilers, three fueled by oil and the fourth by a combination of coal, mill sludge, bark, wood and tire chips. The hot exhaust from the gas-fired turbine will be used to produce steam that will run the two steam generators, enabling the mill to shut down its three oil-fired boilers and eliminate coal from the fuel mix in the fourth boiler. It’s estimated mill air pollution emissions will drop by 50 percent.

“This is the only proposed [gas-fired] generator in the state of Maine that will actually reduce air emissions,” said mill spokesman Keith Cunningham.

The advent of electric deregulation in March 2000, which will enable independent electric generators to market wholesale power, solved the problem of what to do with the excess electricity produced in the process. “You had to have a place for that 120 megawatts,” said Poole, the project director, “and being able to sell it on the open market was a key.”

Considering the age of the mill, which was built in the 1920s, and some of its equipment – two of its paper machines are vintage 1930s models – Cunningham said the conversion to gas would make it more competitive. “Our costs per ton of paper will drop,” he said.

An estimated $40 million in wages, subcontracting and purchases will benefit the local economy during construction of the $107 million project.

Champion signed a deal with Bucksport Energy L.L.C., a partnership between MEG International and Hydro Quebec’s American subsidiary, to manage the electric generating system and market the electricity it produces. Hydro Quebec also will supply the natural gas to the plant through a lateral that will tap the Maritimes pipeline at Orrington.

While Maritimes has deferred building the Bucksport lateral for now, it faces competition from Bangor Gas and CMP Natural Gas, which are both interested in building the lateral.

If Maritimes builds a lateral, it is added to the budget for building the main line and is figured into the cost of transporting the gas, which all mainline customers pay. If a local distribution company does it, then the buyer will have to pay for the gas, the cost of transporting it along the Maritimes pipeline and then transporting it along the local distribution company’s pipeline.

On the other hand, there could be local benefits.

“We’d rather see somebody build it who’s going to do more than just build a pipeline to the mill, said Cunningham. “[Bangor Gas and CMP NG are] interested in the local area. They want to sell gas in Bucksport more than just to us. We’re trying to do a deal that will allow them to go beyond the mill.”

The rules of the game

As Maritimes & Northeast defers building laterals, more opportunities arise for Bangor Gas, CMP Natural Gas, and Northern Utilities. The competition among them becomes that much more fierce as they consider landing a paper company as a customer along with their long-term strategies to pipe gas into businesses and homes from Kittery to Caribou.

Utilities, whether gas, electric or water, are traditionally monopolies. Regulation is supposed to make transactions between them and their customers in a designated geographic area fair.

“What we’ve done in gas is break that mold,” said Carol MacLennan, staff attorney with the Maine Public Utilities Commission.

Instead of the PUC determining which is the best company to serve a specific area, a contentious process that can take years, This commission opted instead to allow competition to sort things out, MacLennan said.

In order to compete in the state, companies must be certified. That means they must meet threshold standards of technical competence and financial capability, charge rates that are just and reasonable, and provide services that are safe and adequate.

MacLennan noted, We’re still in the testing phase to see how this works.

With competition, some people feared two or more sets of pipe would be laid down the same streets, but the commission was assured in testimony that because it would be uneconomic, no entrepreneur would seek to do that, said MacLennan. So it’s very likely to be a race to the customer rather than a race to the trench to get pipe in.

Still, she said, all kinds of permutations are possible, from two companies laying pipe in the same town, if the load is great enough to support the investment, to the possibility that local distribution companies would share the pipe.

The PUC has set no limit on the number of local distribution companies that may compete, but the three that have staked out territory so far have Maine roots – and multinational partners.

For the past 30 years, Northern Utilities of Portland has been the established gas provider in the Portland and Lewiston-Auburn areas. Northern and its parent company, Bay State Gas, have merged with NIPSCO Industries, the parent of Northern Indiana Public Service Co.

Bangor Gas, a joint venture of Bangor Hydro-Electric Co. and Sempra Energy, an energy giant from California, and CMP NG, a partnership between Central Maine Power and New York State Electric and Gas, are fledglings. Natural gas is a revitalizing opportunity for the two electric utilities, which are dealing with stagnation, the divestiture of their generating facilities and the restructuring brought on by deregulation.

Bangor native Jim Tyler, who heads Bangor Gas, considers the Maritimes & Northeast pipeline a once-in-a-lifetime event. You don’t get to start new utilities every day, he said.

For Chad Clarke, a consulting engineer for CMP NG, this is “the last frontier in the development of natural-gas infrastructure. Distribution gives you that opportunity to grow.”

The imminent arrival of Sable gas and the recent completion of its own pipeline, the Portland Natural Gas Transmission System that stretches from Montreal to Westbrook, where it hooks into the Maritimes line, represents a restart for Northern Utilities.

“We grew so fast throughout the 1980s and early ’90s that we had to stop growing until our new pipeline got built,” said John Flumerfelt, Northern’s director of market expansion.

Different strategies

Backed by Sempra capital, Bangor Gas is pursuing an aggressive $40 million pipes-in-the-ground-first policy. Last summer, the company laid pipe from Mary Snow School to Grand View Avenue along Broadway in Bangor. In the fall, the company’s subcontractor had four crews laying pipe in Brewer neighborhoods off Parkway North and plans to have 12 crews working this summer.

While recognizing that cost-effectiveness is dependent upon securing larger customers such as hospitals, educational institutions, shopping malls and manufacturers, Tyler and Bangor Gas are also intent on servicing residences.

“The residential load is very significant to us in terms of earning an adequate rate of return on our investment,” he said. The Bangor company has been certified to serve Bangor, Brewer, Veazie, Orono, Old Town, Milford, Bradley, Eddington, Orrington, Bucksport, Hermon and Hampden.

CMP NG is pursuing a different course.

“Our philosophy is to get customers and then build pipe to those customers, usually anchor or larger customers,” said Darrel Quimby, vice president of CMP NG. We’re taking the more conservative financial tack.

Certified to serve 35 towns in the Bethel, Windham-Standish, Augusta-Waterville, Bath-Brunswick and Bangor areas and studying the possibility of adding 22 more, including several along the Maine-New Brunswick border, CMP NG is not conceding any territory to Bangor Gas, nor is it backing down from Northern Utilities.

We’re as competitive in Bangor as we will be in Windham or the coastal area or Augusta-Waterville, said Quimby.

CMP NG’s efforts include cross-border forays into New Brunswick from St. Stephen, where the Maritimes pipeline runs, to Woodstock, Perth-Andover and Edmundston in the northwest corner, a stretch of border the New Brunswick government would like to see serviced.

On the Maine side, CMP NG sees potential in Calais, Baileyville, Houlton, Presque Isle and Caribou. The company is investigating the possibility of converting the jet fuel line that runs from Searsport to Limestone to a gas pipeline.

“We think the gas load’s there,” said Quimby. “It’s can we get the gas there economically.”

Hoping to hit their targets within five years and then expand, CMP NG is building pipeline in Windham, one of the fastest-growing areas in the state, and up the coast from Falmouth to Bath this spring.

Northern Utilities, which is certified to serve every community in the state, already has 23,000 customers, 16,000 residential, 6,000 commercial and about 1,000 industrial. The company’s growth rate of 6-9 percent a year compares favorably to the national rate for all gas utilities of under 2 percent per year.

The Portland-based utility is interested in expanding its current markets in Lewiston and Portland and in building pipeline to Sanford, Springvale, Eliot and Kittery. But Northern needs big volume customers.

“You can’t, in our view, expand into a new service territory only depending on residential and small commercial loads because residential loads convert very slowly,” he said. Nevertheless, “We’ll take them as they come.”

However long it takes to develop natural gas infrastructure in Maine, it’s destined to last a long time. Jim Tyler of Bangor Gas said the pipes themselves are good for 50 to 100 years.