What is the reality of Natural gas as a heating fuel in Northern New England?

1. Natural
Gas
for
Heat
in
Maine
“Don’t
bet
the
farm
on
it”
A
Realis:c
Assessment
for
the
Commercial
and
Ins:tu:onal
Sector
May
2013
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www.pelletco.com

2. Executive Summary
• Natural Gas is only available in select areas of Maine today
• 90% of current consumption is for Electrical and Industrial use
• NG is unlikely to be available throughout Maine
– Cost $1M/mile to build out
– Usage density insufficient
– Pipeline construction in Maine will be limited leading to limited availability
• Maine competes with New England region for NG
– Prices will not drop below Massachusetts “floor”
– Price will likely remain in $10+/mcf with upward bias
• Transportation of NG to Maine is a limiting factor
– ~1.4B Bcf/day total
– ~ .15 Bcf/day available for other uses
– National prices are quoted based on Henry Hub in Louisiana –a long way away
– Moving the NG adds on average $6.25/MCF to Henry Hub prices
• A number of factors make NG a potentially risky choice
– Limits on supply-pipeline capacity
– Massachusetts demand sets a floor
– History of price spikes-especially in winter months
– Exports provide a more attractive market price
May
13
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3. Three
prerequisites
for
Natural
Gas
(NG)
Availability
The
customer
must
be
able
to
receive
natural
gas.
Supply
Sufficient
natural
gas
when
the
customer
needs
it
Price
The
price
must
be
compe::ve
and
stable
May
13
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4. Current Availability of NG is limited and tied to
Electrical plants and Industrial users
• 75
Billion
cu.T.
of
NG
consumed
annually
in
Maine
• Of
this:
– >
50%
used
for
electricity
– ~40%
used
for
industrial
– Leaving
only
10%
for
other
uses
(Heat)
• Availability
is
closely
:ed
to
electrical
power
and
industrial
usage
May
13
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5. NG pipeline capacity is limited and new pipelines cost
~$1M/mile to build-that means many commercial customers
are required
PNG
Capacity
=600MMcf/day
Mari:mes
Capacity
=800MMcf/day
Maine
annual
consump:on
is
70
Bcf/year
Adding
pipelines
takes
$$$
and
Time
-­‐Economic
Costs
-­‐Regulatory
approvals
-­‐Time
to
trench
and
build
May
13
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6. Commercial Customers are paying over $10/
MMBTU (mcf) for Natural Gas
May
13
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7. Isn’t Natural Gas in the $4 range?
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2
4
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20
Jan-­‐2001
Jul-­‐2001
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Jan-­‐2012
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Jan-­‐2013
Jul-­‐2013
Jan-­‐2014
Jul-­‐2014
Jan-­‐2015
Jul-­‐2015
Jan-­‐2016
Jul-­‐2016
Jan-­‐2017
Henry
Hub
Price
Maine
Commercial
Average
premium
is
$6.25
(consistent
with
today)
Difference
is
availability
in
Maine,
Transporta:o
n,
taxes
and
other
add-­‐ons
$/mcf
May
13
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8. NG travels a long way from storage to Maine
May
13
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Source:EIA
Henry
Hub
price
is
loca:on
specific

9. Prerequisites for Natural Gas (NG)
• New
pipelines
will
focus
on
single
large
users
such
as
Electric
producers
and
Large
mills
• If
you
are
in
an
area
currently
served
or
happen
to
be
near
a
u:lity
or
large
mill,
you
may
get
availability.
• Time,
money
and
regulatory
approval
Availability
The
customer
must
be
able
to
receive
natural
gas.
• Pipeline
capacity
is
limited
into
Maine
and
New
England.
And
so
pipeline
capacity
is
a
scare
resource
• Storage
for
natural
gas
is
far
away
and
the
NG
has
to
be
moved
to
Maine
at
the
right
:me
(limited
local
storage)
Supply
Sufficient
natural
gas
when
the
customer
needs
it
• Massachuseks
sets
a
floor
on
pricing
due
its
proximity
and
large
demand.
• Long
term
NG
becomes
a
valuable
export
commodity.
• Exports
are
at
a
higher
price
than
domes:c
use
Price
The
price
must
be
compe::ve
and
stable
May
13
9
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