May 26, 2013

Maine poised for historic transition to natural gas

Amid the state's rush to convert from oil to natural gas, however, it's possible that some issues important to Mainers are not being fully examined.

By Tux Turkel tturkel@pressherald.com
Staff Writer

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Bruce Madore, director of engineering and construction, looks over natural gas pipes Friday in the Summit Natural Gas of Maine yard in Augusta. Summit is poised to undertake major multimillion-dollar pipeline construction projects in both central and southern Maine.

Joe Phelan / Kennebec Journal

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The simple solution is to build more pipeline capacity, but who will pay for it?

The existing pipelines came into being because revenue could be raised through the rates charged by local gas utilities. Today, the fastest-growing demand is coming from power plants. But in New England's deregulated energy market, utilities don't own power plants, so ratepayers can't help foot the bill. Also, power plants don't want to sign long-term contracts for large volumes of gas they might not need, if, for example, the winter is warmer than normal and people use less electricity.

"The traditional mechanism for funding pipelines doesn't exist anymore," Silkman said.

Worse yet, the supply shortage is jacking up the price Mainers pay for electricity. Although overall wholesale electricity prices fell last year in line with gas costs, the region still paid much more for gas than other parts of the country. That difference is costing New England roughly $3.5 billion a year in added costs for heat, electricity and manufacturing, according to estimates from Silkman's company. Maine's burden is $200 million a year.

NEW ENGLAND PRICES HIGH

That's why two proposed expansions of existing pipelines are welcomed in New England. One involves the Portland Natural Gas Transmission System, or PNGTS, which connects lines in western Canada with the Maritimes line in Westbrook. PNGTS currently is seeking bids for new volumes of gas, with the aim of nearly doubling the capacity of its line, from 168,000 dekatherm per day to 300,000 in three years. One dekatherm equals roughly seven gallons of heating oil, so 300,000 dekatherm is the equivalent of 2.2 million gallons a day.

PNGTS offers the possibility of moving gas from Pennsylvania and New York over a line that runs through New York state into Ontario, bypassing the congestion in southern New England. But the expansion is dependent on a similar bidding process under way on the TransCanada Pipeline.

"Pipelines don't build on spec," said Cynthia Armstrong, director of marketing and business development at PNGTS. "We have to respond to firm commitments from the market."

Also pending is an upgrade to the Algonquin Gas Pipeline, which runs 1,120 miles through New Jersey to Beverly, Mass., where it meets the Maritimes line. The Algonquin Incremental Market project will expand capacity up to 542,000 deckatherm/day in 2016, to serve local gas companies and power plants in New England.

Algonquin is owned by Spectra Energy Transmission, which is the lead owner of the Maritimes line. It is possible that the Maritimes line, which now pumps gas south through Maine, could be reversed to send plentiful Marcellus and Utica gas north for customers in Maine and eastern Canada.

"That's something we'd have to look at," said Marylee Hanley, a Spectra Energy spokeswoman. "At this point, we don't have a request to do that, although the line is capable of doing that."

Underlying these decisions is the cost of delivering gas. Although overall natural gas prices fell last winter by double digits, wholesale delivery prices in New England were the highest in the country. At the same time, the Northeast saw an expansion of pipeline capacity that ranked as the second highest since 1997, but none of it happened in New England.

The price difference between New England and other areas of the country will get worse before it gets better, according to Richard Levitan, president of Levitan & Associates in Boston, a wholesale power consultant. A new pipeline being completed into New York City this year by a Spectra Energy division, Texas Eastern, will provide heat for 2 million homes and save residents an estimated $700 million a year.

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