Processing Your Payment

Please do not leave this page until complete. This can take a few moments.

May 24, 2004

Making sense of LNG | Maine's debate over liquefied natural gas reflects regional and global changes in the energy market

The message sent by lights flickering across California back in 2000 is just now reaching Maine. The Gold Coast's deregulated power grid was staggering through a shortage ˆ— not of electrical generating capacity, but of natural gas. State-mandated price caps, scant pipeline capacity and an oligarchy of suppliers conspired to boost gas prices beyond comprehension. The state poured out its treasury to help its young armada of privately owned, gas-fired generation facilities meet costs, but they folded, one by one. Then-Gov. Gray Davis ordered rolling blackouts, a last-ditch effort to conserve faltering energy supplies.

Last fall, when gas prices nationwide suddenly rose 48%, energy officials saw the potential for California-style failures elsewhere. And the Northeast, with its limited pipeline capacity and its newfound dependence upon gas-fired power generation, is a prime candidate. The prospect spurred industry and government officials to redouble their efforts to locate one or more liquefied natural gas facilities somewhere along the northern New England coast.

To many energy officials, the development of such a facility is a clear solution to a looming supply problem. But residents of Harpswell, Searsport, Cumberland and Yarmouth ˆ— each of which has been floated as a potential site for an LNG terminal ˆ— aren't keen on becoming supply depots. In each community, opposition groups have formed and raised funds swiftly. And they've gotten results: Harpswell residents voted down a $350 million LNG proposal by a 55 to 45 margin in March, while in mid-May Gov. John Baldacci responded to the pleas of Searsport residents by removing Sears Island from the state's list of potential LNG terminal locations. Similarly, within days of Cumberland's entry into the fray, its town council canceled a planned referendum on the subject, saying the state needs to pursue a more regional approach to LNG. (Public debate on the Yarmouth facility was scheduled for a town council meeting May 20, after this issue of Mainebiz went to press.)

And Maine isn't the only place grappling with where and how to locate LNG facilities.

Petroleum producers large and small are carefully inspecting towns like Port Pelican, La., Sabine, Texas and Fall River, Mass. Dozens of smaller corporations are forming partnerships, looking into as many as 40 potential sites across the United States and Canada. As a result, the Federal Energy Regulatory Commission, which issues permits for LNG and gas pipeline projects, is experiencing a surge in applications. "In June last year we had about three proposals pending," FERC spokesperson Tamara Young-Allen said. "Now we have 12."

As energy giants scan the coasts seeking a less-than-hostile reaction to their proposals, one thing is clear: The welter of forces pressing Maine to consider LNG isn't going away.

Feeding the region
LNG in itself is something of a marvel: natural gas cooled to minus 260 degrees Fahrenheit so that it contracts 600 times, condensing into a liquid state. It arrives on the Eastern Seaboard via highly specialized tankers, from gas fields in Algeria and Trinidad and Tobago (see "The LNG haul," p. 32).

The first widespread use of LNG in the United States was as a means of delivering peak-use supplies at the ends of gas pipeline systems. New England, at the far end of gas lines running from the South and Midwest, quickly became a steady user of LNG. "We're the most LNG-dependent region in the country," said Thomas Kiley, president of the Needham Heights, Mass.-based Northeast Gas Association. "Our gas supply model for the New England states is predicated upon having a supply and a resupply of liquefied natural gas."

North American supplies of natural gas have been flat or decreasing, but just a few years ago two newly installed pipeline systems promised to flood Maine and markets farther south with fresh gas supplies from western Canada and offshore Nova Scotia.

In the late 1990s, a consortium of six companies led by TransCanada Pipelines Ltd. invested $350 million to build the Portland Natural Gas Transmission System between Montreal and Westbrook. North Carolina-based energy heavyweight Duke Energy formed its own partnership with ExxonMobil and Calgary-based Emera Inc. to build the 670-mile Maritimes & Northeast Pipeline to connect gas reserves near Sable Island, off of Nova Scotia, to Boston markets. The two pipelines, which join at Westbrook, went into service in 1999. (The two groups jointly own the 101-mile section of line from Westbrook to Dracut, Mass., where the pipeline connects to the New England gas delivery grid.)

The promise of gas from both western and eastern Canada seemed secure enough that San Jose, Calif.-based Calpine invested tens of millions of dollars to build three new gas-fired power plants in Maine, in Jay, Rumford and Westbrook. (Duke built a 520 megawatt power plant of its own in Veazie.) After the plants went online in 2000 and 2001, gas suddenly accounted for almost 60% of the Maine's generating capacity, and production capacity suddenly far outstripped demand.

But yields at the Sable Island fields have thus far been disappointing. In addition, growing demand and flat production in western Canada have cut TransCanada's deliveries to eastern Canada and the PNGTS line by 16% in the last four years.

That leaves both pipelines through Maine operating well below capacity, even as demand and gas prices are increasing. With no new reserves on the horizon and the cost to process and deliver LNG on the decline, the incentives to add an LNG terminal into the mix in Maine, Massachusetts or eastern Canada are becoming overwhelming.

The closest existing tanker-fed LNG terminal to Maine is the Distrigas plant in Everett, Mass., which has evolved into a primary supplier of natural gas to large corporate and industrial customers. Keyspan Energy, which accepts tractor-trailer shipments of LNG at its facility on the harbor in Providence, R.I., has filed an application with FERC to begin accepting LNG by ship. A holding company owned by New York-based project brokers Poten & Co. proposed a third facility at Weaver's Cove in Fall River, Mass.; in March, the city council voted to reject the facility.

To the north, Irving Oil and Access Northeast are racing to receive permits for separate facilities at St. John, New Brunswick and Bear Head, Nova Scotia, respectively. And depending on who makes the case, a new LNG plant in the Maritimes may or may not undercut the incentives for one in Maine.

John Flumerfelt, spokesman for Maine's largest gas consumer, Calpine, said either case would be an improvement. Calpine and other power generators in Maine can make more power than they can sell to their own customers, but transmission bottlenecks and stiff fees thwart delivery of the excess to the southern New England grid. Additional gas supply from a reliable source could reduce initial power production costs and help to balance the cost equation. "We'd obviously like to make up for the fact that we operate at a competitive disadvantage by having access to a more robust and hopefully less expensive gas supply," Flumerfelt said. "That would, from our perspective, tend to level the playing field."

Jack Cashman, commissioner of Maine's Department of Economic and Community Development and an advocate of an LNG facility in the state, sees it somewhat differently. "You can build a paper company in St. John and still get reasonably priced toilet paper in Bangor," he said. "But we'd still rather have the paper company in Bangor."

Safety concerns
The potential danger from an LNG facility, whether through mechanical failure, human error or terrorist attack, is a subject of broad debate. In Maine, the man responsible for winnowing public safety fact from myth is Art Cleaves, director of the Maine Emergency Management Agency. In the past year, Cleaves and his staff have pored over the range of contradictory reports available on LNG-related risks.

They concluded the double-hull tankers used to transport super-chilled LNG are literally bulletproof, and more bombproof than a warship such as the USS Cole. They find credible the research showing LNG in its liquid form is, for all intents and purposes, not ignitable.

However, there are complicating factors. Liquid LNG begins to gasify the minute it is released from refrigerated containers. A worst-case scenario occurred in Cleveland in 1944, when an early, poorly built tank ruptured. Thousands of gallons of LNG poured into a sewer system. The trapped, evaporating gas erupted, speeding the gasification of the remaining liquid. The subsequent fire killed 129 people and devastated 30 acres of the city. It also shut down the LNG industry for 20 years.

Today, there are four marine-based LNG facilities in the United States (see "On the waterfront," this page). The rest, like the Keyspan facility in Providence, receive gas transported over the highways in refrigerated, dual-wall tanker trucks. Such trucks travel I-95 in Maine 80 times each year, supplying the Northern Utilities regasification facility in Lewiston. The nondescript tankers travel with no protective escorts and no exclusion zone.

What does that say about the wide Coast Guard exclusion zones around LNG tankers, a measure not required for ships bearing petroleum products or even chlorine gas? "In my mind ˆ— far, far overreacting," Cleaves said.

The MEMA tracks all dangerous compounds transported in the state. When it comes to LNG, Cleaves said, "There are other [substances] that are much more concerning to me."

He wouldn't say what those were. He did say he could find no environmental or safety reasons to prevent LNG tankers from sailing in and out of any port community in the state that chooses to host such a facility, including Portland Harbor.

Cleaves' findings have done little to comfort many residents facing the prospect of a neighborhood LNG terminal. Take Harpswell, the only Maine town to engage in a lengthy LNG debate thus far. Energy conglomerate ConocoPhilips Co. and Calgary-based TransCanada Corp. last September formally acknowledged their discussions with local officials regarding a $350 million facility. In October, a group of 40 fishermen went public with their concerns: the 1,000-foot tankers delivering LNG to the plant would tear up wide swaths of their equipment, the planned pipeline across the bay floor would block lobster migration and Coast Guard-enforced security zones around the ships would continually disrupt the fishing and lobstering workday.

The Maine debate
The companies worked to address the issues, and the town's selectmen carefully crafted a lease agreement that would protect the town's financial and community interests. The 30-year agreement included an $8 million account to compensate fisherman for lost time and damages, plus annual lease payments beginning at more than $9 million.

In March, 72% of eligible voters turned out and defeated the proposal, known as Fairwinds, by a 55 to 45 percent margin.

"I was as shocked as anyone that it didn't pass," said John E. Sylvester, an eighth-generation Harpswell resident who operates a nationwide real estate assessing business. He's mounted a campaign for a second LNG vote in Harpswell and argues that prior to lobsters and tourists and retirement communities, shipping was an integral part of Maine's heritage. "The coming and going of some 1,000-foot vessel is a very romantic thing," he said. "I predict there would be people lined up to buy the houses along the coast. It would be an event every time it came."

Earlier this month, TransCanada moved on ˆ— without, at least publicly, ConocoPhilips ˆ— to consider other potential sites, including Hope Island in Cumberland and Cousins Island in Yarmouth. As this issue of Mainebiz went to press, the only one of those locations still in play was Cousins Island.

And though some have suggested that a Washington County LNG facility would lend some balance to the state's bottom-heavy economy, TransCanada sees clear advantages in southern Maine due to proximity to its pipeline there. Somewhat surprisingly, Aaron Frederick, program director at Rippleffect, a nonprofit wilderness experience school based in Portland, agrees with TransCanada's business strategists about the utility of locating an LNG facility in southern Maine, though he feels strongly that the terminal should be located in Portland Harbor.

Frederick and his partner, Ted Regan, are nearing completion of the $1.5 million purchase of Cow Island on the outer rim of Casco Bay, where they run their youth education programs. But Frederick's concern is less that the apparently defunct concept of building an LNG plant on nearby Hope Island would have threatened the Rippleffect experience. An industrial facility on Hope, he said, would have cut into the ineffable change people experience in the transition from the inner bay to the open sea.

The impact upon Portland's already paved and lit industrial landscape, he argued, would be negligible. "Portland Harbor speaks to me as the sacrificial anode," he said. "It is the industrial hub right now, and I can't imagine [state, local and company officials] couldn't work with the facilities that are there to adapt them."

But Frederick's voice is just one of many along the state's coast, each seemingly with his or her own take on the best location for an LNG facility in Maine. However, as the debate reached new heights in early May, Mainers increasingly began calling for a regional or statewide approach to the LNG issue.

A letter from the Maine chapter of the Conservation Law Foundation on May 5 asked FERC officials to take the lead in the effort. "Perhaps it's a little ambitious," said Conservation Law attorney Roger Fleming. "But we think it's something that needs to be done, because what is going on right now is not very productive from any side of the issue."

Sign up for Enews


Order a PDF