Saturday, March 8, 2014
Some Maine paper companies limited production or shut down parts of their operations last weekend after extreme cold prompted a spike in wholesale prices for natural gas and electricity.
Mike Hamel stacks paper products during his shift at Huhtamaki in Waterville on Wednesday.
Michael G. Seamans/Morning Sentinel
Huhtamaki Inc.’s molded-fiber mill in Waterville said it will likely idle machines and send workers home again this winter if power prices continue to make production unprofitable. Another workplace, the UPM paper mill in Madison, said it took unspecified steps to adjust its output. Such measures are harbingers of what Maine’s manufacturing sector may face in the next few months, highlighting just how vulnerable the state has become to New England’s shortage of natural gas, the source of about half the region’s electricity.
Although the United States is awash with cheap natural gas, a lack of pipeline capacity north of New York is pinching the supply in New England, where there is growing demand for use in power production, home heating and manufacturing. Officials in the six states are working on a plan to bring more capacity into the region, but that won’t help this winter.
“To have this problem starting already in December is an indication of how much gas is being used, and how constrained the bottlenecks really are,” said Tony Buxton, a lawyer who represents Huhtamaki and other members of the Augusta-based Industrial Energy Consumer Group.
Homeowners don’t feel the immediate effects of shifting natural gas prices because their supply comes from long-term contracts. Some big industries, though, buy gas on a spot market where prices can change every hour.
The late-autumn cold snap pushed wholesale natural gas prices in New England four times higher on Dec. 14 than they were a week earlier. For instance, the average price of gas delivered Saturday in the Boston area hit nearly $33 per million BTUs.
Meanwhile, in places as close as New York City, prices were around $7 per million BTUs. In Pennsylvania, near where gas is extracted from the Marcellus shale deposits, the price was less than $3 per million BTUs.
One BTU is the energy needed to raise the temperature of a pound of water by one degree Fahrenheit. One million BTUs is the energy produced by about seven gallons of heating oil.
“This is precisely the effect we feared,” said Tom Welch, chairman of the Maine Public Utilities Commission. “If the winter is mild, we’ll suffer less. If it’s colder, we’ll suffer more. And that’s what it will look like until we get some relief on constraints.”
PRICE LEVEL CAN TRIGGER SHUTDOWN
Surging demand in New England during the frigid weather, and the lack of pipeline capacity, raised the hour-to-hour electricity rates for some businesses last weekend to a peak of 10 times the normal cost. Rates are typically around 5 to 10 cents per kilowatt hour, but at one point, Huhtamaki was facing 50 cents per kilowatt hour.
The mill uses more than 100 million kilowatt hours a year. By comparison, an average Maine home uses about 6,000 kilowatt hours a year.
“We recognize there are times that, if we run, we’ll lose money,” said Ray McMullin, the plant manager. “It’s better to shut down.”
Huhtamaki is a historic anchor of central Maine’s pulp and paper industry, with 480 employees. It’s known for making Chinet brand plates, as well as rough-finish products such as egg cartons. Falling electricity costs over the past two years, thanks to cheap natural gas, helped the mill increase production and bring on new workers.
But conditions shifted last year, when power prices began to rise. A midwinter price spike cost the mill an additional $2 million for electricity over two weeks last winter, McMullin said, and made managers realize that production is unprofitable above a certain rate, which he would not specify.
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