With cheaper energy critical to its survival, the recently reopened Great Northern Paper mill in East Millinocket will begin burning natural gas in April – not from a hoped-for pipeline along the Penobscot River valley, but from a fleet of special tanker trucks.
The trucks, operated by Boston-based Xpress Natural Gas, will fill up at a compressor station being built inside a former lumber mill in the Washington County town of Baileyville. The station is alongside the Maritimes & Northeast Pipeline, which moves natural gas between Nova Scotia and Massachusetts.
The $20 million investment by Xpress Natural Gas could represent a game-changing development for Maine’s large energy users, especially papermakers, which operate in a very competitive market and are desperate to cut costs.
New technologies and the discovery of vast gas fields in the Northeast have driven down natural gas prices, making gas at least 30 percent cheaper than heating oil. That savings translates into millions of dollars a year for big manufacturers, which is why companies such as Great Northern Paper are scrambling to convert to gas.
At Great Northern, the $1.5 million conversion will lower steam costs enough to run a second paper machine as much as needed to fill new orders for newsprint and book stock. The company continues to hope that a pipeline will be built to Millinocket, but it can’t wait for that to happen.
“It’s about costs, but it’s also about increasing capacity and being able to compete in the market by producing more paper,” said Scott Tranchemontagne, a spokesman for Cate Street Capital, which owns the mill. “That’s an important thing for us right now.”
The Great Northern mills in East Millinocket and Millinocket have been the economic anchors of northern Penobscot County. Both were sold in escrow in 2011. Today, the East Millinocket mill has 257 workers. Increasing production is crucial to stability and growth, but doing it with oil is “cost prohibitive,” Tranchemontagne said.
Four of Maine’s 11 paper mills are on gas pipelines. But new lines are very expensive to build, and it’s uncertain when they will reach far-flung rural areas.
The Legislature is expected this session to consider how Maine can participate in plans to boost the capacity of pipelines in southern New England, with a goal of lowering winter gas prices here. But that’s a longer-term ambition.
In the interim, some big energy users are signing up for a virtual pipeline of tanker trucks that promises reliable, round-the-clock service within months – not years.
Replacing oil with natural gas is a priority for all paper mills not on a gas pipeline, said John Williams, president of the Maine Pulp & Paper Association.
Buying wood fiber and paying workers, who earn an average of $61,000 a year, are the top two expenses in papermaking. Energy is third, and with slim profit margins, saving 30 percent on energy can make or break a mill, Williams said.
“Converting to gas is probably the biggest thing happening with the Maine paper industry right now,” he said. “It’s the biggest thing we can do something about.” For example:
n The Madison Paper Industries mill is receiving six tanker trucks a day of liquefied natural gas from the LNG terminal in Boston Harbor. LNG has displaced 8 million gallons of oil, and saved an estimated $5 million.
n Every 36 hours, Xpress Natural Gas trucks filled with LNG make a 300-mile trip from Boston Harbor to Lincoln Paper & Tissue. LNG is due to offset 2 million gallons of oil this year, and the $2 million investment to convert the mill will pay for itself in less than a year.
n This winter, Xpress Natural Gas will begin hauling compressed natural gas from Baileyville to The Aroostook Medical Center in Presque Isle. Heating with CNG, as it’s known, will save the hospital up to $500,000 a year.
Xpress Natural Gas is negotiating with both Madison Paper and Lincoln Paper about switching from LNG to CNG when Baileyville opens. Compressed gas is less costly to handle than LNG, and Baileyville is closer than Boston to the mills, cutting transportation costs.
Both mills say they are considering their options. They’re weighing the savings of CNG by truck versus the potential of a pipeline that might offer lower costs.
“For us, we’re still evaluating and gathering data,” said Keith Van Scotter, CEO at Lincoln Paper. “A pipeline may make sense in the long haul, but the guys at Xpress Natural Gas are clever. They recognize a need and they’re filling it.”
Xpress Natural Gas has signed contracts for CNG with a half-dozen other large energy users in Maine, said Matt Smith, the company’s executive vice president for sales and marketing. Names are being withheld for now, but they include a potato processor and a textile plant, he said, and discussions are under way with one or more colleges.
The company is considering setting up a second station in central Maine later this year, perhaps in the Augusta area.
“In many applications, our service is less expensive than a pipeline,” Smith said. “That’s very important. A pipeline is a terrific way to get gas, but we can be a more affordable option.”
The principals in Xpress Natural Gas include part of the investment team that launched the massive Backyard Farms greenhouse tomato operation in Madison, which is heated with LNG. The company has purchased 20 of the special gas tankers, which are certified to safely contain their cargo in a 60-mph rollover.
Xpress Natural Gas is building the Baileyville compressor station inside the former Louisiana-Pacific strandboard mill, so tankers can be filled regardless of weather conditions. Each tanker can hold the equivalent of 4,000 gallons of oil.
The company put the station in Baileyville in order to tap a connecting gas pipeline built for the Woodland Pulp mill. That mill formerly burned more than 10 million gallons of oil a year. Its $12 million conversion to gas had a payback of one year.
The business model being pursued by Xpress Natural Gas mirrors a similar operation starting in Vermont. NG Advantage LLC is building a compressor station in Milton, Vt. It’s first two customers are Pike Industries Inc. and Putney Paper Co.
Staff Writer Tux Turkel can be contacted at 791-6462 or at: