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Soaring price of natural gas shutters GPT mill when temps plunge

December 23, 2013
GORHAM — Well over 100 hourly Gorham Paper & Tissue LLC workers were temporarily laid off and not paid for three days — Saturday, Dec. 14, to Monday, Dec. 16 — because the price of natural gas supplied by the Portland Natural Gas Transmission System on the open market has soared.

This is likely to happen again this winter whenever the temperatures plunge in the New England market where prices are driven by the Boston, Mass., market explained, GPT CEO Mike Cummings who has been on the job nearly six months.

The price is now $33 per dekatherm. (A dekatherm is a unit of heat equal to 100,000 British thermal unit or BTU.)

For the last three years the price in December has averaged $7 per dekatherm, Cummings said.

Two machines were brought back on line on Tuesday.

Some maintenance workers were kept on the job during the shutdown period. The mill has approximately 170 hourly workers.

The problems caused by high natural gas prices are compounded by because no landfill gas (LFG) is flowing from Mt. Carberry, a facility of the Androscoggin Valley Regional Refuse Disposal District located in Success, Cummings said. A trouble-shooting construction project, expected to cost some $25,000, is the works in an effort to identify the problem.

When asked to predict what the paper company would experience in the next months, Cummings replied, "We expect a tough winter," Cummings said. "New England has not expanded its natural gas carrying capacity for five to 10 years. New York City, in contrast, is awash in shale gas, but in New England the price rapidly climbs when the temperatures fall.

"GPT's overall strategy is to test the profitability of running four paper machines," Cummings said. But, he added, that can just be for nine months; the machines must essentially be able to run 24/7/365.

The CEO highly recommended a recent "Forbes on Line" article, written by contributor William Pentland for the Internet: "The Horrible Lack of Planning that Could Force New England Into A Serious Energy Crisis This Winter." Pentland points out that the natural gas futures price is lower in New York City than in Louisiana.

"Natural gas flows into New England from the south via the Tennessee Gas Pipeline and the Algonquin Gas Transmission," he writes. "Last winter, these pipelines were operating at near or full capacity nearly every day. Unlike New York and New Jersey, the pipelines transporting gas into New England have not expanded in years and are not scheduled to expand until 2016 at the earliest.

"The result is an escalating energy crisis in New England.

"Although the Northeast has become the largest natural gas producing region in the U. S., New England currently has the nation's highest natural gas prices.

"Pipeline congestion is the culprit. Natural gas pipeline capacity in New England costs significantly more than the natural gas commodity.

"Last winter, the price of natural gas in New England spiked above $32 per MMBtu on several occasions, compared to about $4 per MMBtu in other regions. These spikes pushed the average price for wholesale electric power in New England during the month of February higher than any prior month on record $121 per megawatt hour (MWh).

(One MMBtu equals one million British Thermal Units.)

"Given the close relationship between natural gas and electricity prices, winter electricity peak futures prices in New England increased by 52 percent from last winter, to $100 per MWh.

"If the last winter is any indication of what will happen this winter, those futures prices may prove be too conservative," Pentland writes. "We'll know if they are in a few weeks."

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