Customers of Bangor Gas Co. who use natural gas to heat their homes or businesses can expect to see higher fuel bills in the coming months as cold weather, inadequate infrastructure and market conditions overtax the state’s available supply of natural gas.
Compared with last winter, customers of Bangor Gas Co. have seen a roughly 47 percent increase in the cost of natural gas — from $0.89 per therm charged in December 2011 to $1.30 per therm in December 2012. A “therm” is equivalent to 100,000 British thermal units and is a unit of measurement for natural gas consumption.
Bangor Gas is a subsidiary of Energy West and has 2,000 customers in Bangor, Brewer, Old Town, Orono and Veazie. It buys its gas on the monthly spot market, meaning when the price of natural gas on the market goes up, a customer’s monthly bill also will rise.
Historically, natural gas prices have been low, especially since the domestic natural gas supplies from the Marcellus Shale, a formation in the Appalachian Basin, began flowing north. However, basic supply and demand this winter is “causing an uptick in price,” said Jerry Livengood, general manager of Bangor Gas.
Natural gas is still not a widespread fuel to heat Maine homes, with only about 21,000, or 5 percent, of residences using it, according to census data. (For comparison, 70 percent use heating oil, according to the census.) Not all will see a spike this winter, however.
Unitil, the largest natural gas distributor in the state with roughly 28,000 customers in southern Maine, including Greater Portland, Kittery, Sanford, Lewiston and Auburn, hedges its bets by buying gas in bulk and locking customers into a seasonal rate that lasts for six months, according to Alec O’Meara, a company spokesman.
Customers of Maine Natural Gas have the option to fix in their price for six months, as well, or they can choose an index orice option, in which case they also will experience increases this winter. Maine Natural Gas, a subsidiary of Iberdrola USA, has approximately 3,000 customers in Gorham, Westbrook, Windham, Brunswick, Topsham, Freeport and Pownal.
The gas utilities in Maine are regulated by the Maine Public Utilities Commission, which approves the transportation rate the companies can charge, but does not regulate the price of the fuel itself, according to Tom Welch, the PUC’s chairman.
Wayne Jortner, senior counsel in Maine’s Office of the Public Advocate, which represents the state’s utility customers, said the price of natural gas can fluctuate in the markets, and is a pass-through cost for companies such as Bangor Gas.
Livengood agreed, saying, “We’re not unduly enriching ourselves with this uptick in natural gas prices.”
While the state tracks the average cost of a gallon of heating oil in Maine, no comparable data are available to easily follow the average cost of natural gas in the state. This makes it hard to show trends over time and to draw comparisons to other heating sources. Patrick Woodcock, director of Maine’s Energy Office, said his office is working with natural gas companies to find a way to track such data that would be helpful to consumers.
Since November, New England has had the highest natural gas spot prices — prices paid outside long-term contracts — in the nation, according to the U.S. Energy Information Administration.
The average price of natural gas coming through the Algonquin Citygate trading point, a widely used index for New England natural gas buyers, was $6.40 per million British thermal units, or MMBtu, in November and December. That’s more than $3 per MMBtu higher than the average price for natural gas coming into Louisiana at Henry Hub, another well-known index, and more than $2 per MMBtu higher than that coming through the terminal that serves New York City, the EIA reported.
So why do Maine and New England have to pay more for their natural gas?
Inadequate infrastructure is the prime reason. Natural gas flows into Maine through pipelines from New Brunswick and the natural gas extracted from the Sable Offshore Energy Project in Nova Scotia and the Canaport LNG terminal; from the western part of Canada; and from southern New England, which carries the natural gas coming from the Marcellus Shale.
The pipelines bringing natural gas from Marcellus Shale into New England are “full or nearly full,” according to a short-term energy outlook published last week by the EIA. As a result, they’re not able to increase the supply to meet demand during the winter months. As Maine is the end of the line of already at-capacity pipelines coming from the South, the state’s residents pay more for that gas, said Welch.
“When you’re on the wrong side of the pinch point, you pay more money,” he said.
Besides the capacity of pipelines, there are three other reasons natural gas prices are on the rise this winter.
• The most obvious is the cold weather, which increases demand from customers using natural gas, and, therefore, increases prices. While the winter of 2011-2012 was one of the warmest in 60 years, the current season is expected to be much colder.
• LNG — liquified natural gas — has historically supplied a major portion of New England’s natural gas supply. The EIA estimates that LNG meets about 25 percent of New England’s daily natural gas demand, but that on a peak demand day during the winter its share could increase to 60 percent of New England’s total natural gas supply needs. But while natural gas prices have increased in New England, they’re still higher in Europe, so suppliers are diverting more LNG away from the United States to deliver it where they can receive a premium, according to the EIA. One result of the changing dynamics of natural gas prices in the United States is that two LNG import terminals in Massachusetts have sat idle for two years, according to The Boston Globe.
• Natural gas production at the Sable Offshore Energy Project in Nova Scotia is dropping. “It still supplies a key resource, but it has been reduced by about 30 percent,” according to Woodcock. The pipeline coming into Maine from New Brunswick is not above capacity like the ones in southern New England, there’s just not enough gas coming from Sable and the Canaport LNG terminal, Welch said. “It was sort of disappointing because the feeling at one point is it would be bigger and longer-lasting than it turned out to be,” he said, referring to the Sable project.
“As a result of these market conditions, New England natural gas and electric power prices this winter could be volatile at times,” the EIA concludes in its short-term outlook.
While inadequate pipeline infrastructure from the domestic natural gas resources to New England is a big reason why Mainers are paying a premium on the natural gas used to heat their homes and businesses, it is also a primary reason why residential natural gas usage in Maine is still only 5 percent, according to Woodcock.
Woodcock told the Energy, Utilities, and Technology Committee last week that the infrastructure that brings natural gas into Maine “severely limited” and that it’s a priority for Gov. Paul LePage’s administration to promote expansion of it.
“It’s a dynamic market right now and people are rushing to adapt to the changing situation in the United States,” Woodcock said. “We need to understand what our limitations are in New England and help make key investments so we’re not paying a premium over the rest of country.”
Livengood agreed: “Maine could certainly benefit from more infrastructure,” he said. “More infrastructure will create more supply, which will offset demand and keep the price down.”
Gas Natural Inc., the owner of Energy West and, therefore, Bangor Gas, said in a November announcement that its “strategy for growth” is to expand throughput in the Maine and North Carolina markets.
Unitil is undergoing a $60 million upgrade, spread over the next 14 years, to its natural gas infrastructure in the greater Portland area, O’Meara said.
When asked whether expanding the state’s natural gas infrastructure is the job of the state or private industry, Livengood said it would be a combination of the two.
“It’s a regulated environment, so the state will always have a role in it,” he said. “I think it’s a partnership. The pipeline companies and the state need to work together to expand the current infrastructure. Maine is about 20 years behind on infrastructure, compared to the rest of nation.”
As for the price of natural gas, Livengood said he expects it to drop after the winter. “I personally think it will go down,” he said. “Can I guarantee it? No.”
Even with the current spike, natural gas is still cheaper than heating oil, which has increased in price from $1.40 a gallon in 2003 to $3.56 per gallon today (a gallon of heating oil is 139,000 BTUs).