Oil, propane expected to remain stalwarts as Mainers try new energy sources

201409_CURRENTEDITION_309049987_AR_0_0 — **Robert Moore**, CEO of **Dead River Co.**, with the propane trucks at a depot in Scarborough. PHOTO / TIM GREENWAY

When natural gas installations went on a tear last year, potential industrial and residential users looked forward to saving lots of money on what was perceived to be a less expensive, cleaner fuel to replace oil or propane. But as the winter season peaked, regional pipeline constraints caused natural gas scarcities, which led to price […]

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When natural gas installations went on a tear last year, potential industrial and residential users looked forward to saving lots of money on what was perceived to be a less expensive, cleaner fuel to replace oil or propane. But as the winter season peaked, regional pipeline constraints caused natural gas scarcities, which led to price hikes.

Access to cheaper energy is critical for Maine companies. Wood pulp manufacturer Old Town Fuel and Fiber recently suspended operations indefinitely and laid off 180 of its 195 employees, citing, among other things, high energy costs. Such industrial companies consume 31% of Maine's energy, followed closely by transportation, according to a July 2014 report from the Governor's Energy Office. And just recently, a proposed natural gas line from Jay to Farmington and Livermore Falls was delayed two years until at least 2016.

The burden of energy costs is a story told again and again in Maine. For example, when Katahdin Paper Co. closed its Millinocket mill in 2008, it cited record oil prices that had doubled the mill's fuel costs. Even companies that have had success converting from oil to natural gas, like UPM Madison, are hedging their bets by keeping dual-burner systems: if prices of natural gas spike again, as is expected by many experts until the pipeline capacity is expanded, businesses can switch back to oil, Russ Drechsel, general manager of the UPM Madison paper mill, told Mainebiz in an earlier interview.

And that underscores the point Robert Moore, CEO and chairman of Dead River Company in South Portland, makes about the fuel of the future in Maine: it won't be just natural gas, oil or biomass. Even 10 years down the road, he foresees residential and industrial customers alike having a choice of a variety of fuels, including fossil fuels like oil and propane, because they are easy to deliver. The difference is, new technology will enable fuels to burn more efficiently.

Gas won't totally replace oil

Because of Maine's broad geography, Moore doesn't see natural gas dominating in the state, even if the regional pipeline expands significantly. “In 20 years, propane will continue to grow in residential use in Maine. And 60% of the state will never get pipelined for gas,” he predicts. “So I see growth in propane and in biofuels. And at the end of the day there will be demand for liquid fuels.”

That includes oil — his company delivers oil and propane, which is a byproduct of wet natural gas. He adds that if someone hadn't discovered oil, someone would have invented it because of its energy density, ease of storing and transporting, and it produces no waste.

The choice of fuels and improved efficiency means a more stable energy future for the country and Maine, he says.

“The United States is a lot more energy independent. There will be more security for a lot of people in 10 years,” he says.

His company is putting its money where its mouth is. With more than 300 delivery trucks and between 300 and 400 service vans, it is starting to use Ford Motor Co.'s Roush propane technology in its own vehicles.

“We are just getting into propane for vehicles, and we just put the special propane engine in our fleets in Waterville and Biddeford. It can lower our fuel costs by 30% to 40% compared to gas, and there's less maintenance over time,” says Moore.

“My dream is to have all propane, due to the reliability of the supply, service on the vehicles themselves and the prices staying competitive,” he adds. “This is part of the future of transportation.”

Foggy crystal ball

In the 1980s, there was a big push in Maine to predict what the markets would do, an effort that failed, notes Lisa Smith, a senior energy planner in the Governor's Energy Office in Augusta.There is new demand for natural gas, but she, like others, sees price volatility continuing. “The price [of natural gas] shot up past the price of generating electricity from oil last winter,” she notes. “The [pricing and availability] crises all have to do with infrastructure in New England.”

Moore remembers that oil was about $20 per barrel in the mid-1980s into the 1990s, but by the early 2000s it approached $100 per barrel and in 2008 it rose to $140 per barrel. “It's a reminder of how volatile things got. That's what happens with energy,” he says.

He adds that while natural gas use exploded in the late 1990s, “we haven't been able to reap the benefits because the infrastructure isn't in place. Huge natural gas spikes still happen in Maine.”

Electricity demand peaks in the summer — in June, July and August — and then again in the winter months, he says. “It's one of the ironies of natural gas. People using it for heat should be careful.”

He says the state needs more industrial, year-round users for natural gas. Right now, he says it's better for colleges, hospitals, shopping centers and other businesses to stay on propane during the natural gas spikes.

“We're probably two to three years from having the infrastructure improvements [in the region] to avoid price spikes,” he says, though he does expect customers to use propane or oil as a backup until then.

Moore says the state in the last few years has started to focus on efficiency and conservation. Thirty years ago, customers used around 1,400 gallons of oil per season, and now it's about 750 gallons. Better equipment helps save 30% to 50% of the cost for heating. That amounts to upwards of $3,000 for oil for the year.

And while natural gas can yield cost savings, the initial conversion costs, for example of an oil to a natural gas furnace and all the associated pipes, can run $6,000, he says.

He figures that the energy market will change in the next 10 years, when oil and natural gas will be very competitive because both will become globally priced products, and global demand will even them out on a British thermal unit basis.

Buffering against volatility

His company also needed to even out the impacts of the price volatility. From 1994 to 2014, it started to offer full service and price-protection plans.

He also makes a pitch for stability in that Dead River is a local family-owned company, founded in 1909, and is the largest retailer of home heating oil in New England, covering Maine, New Hampshire, Vermont and part of Northern Massachusetts.

“At the end of the day, do you want to depend on a monopoly, out-of-state company owned by a venture capital company, or a family-owned, Maine-based company?” he says. “When you have a problem, we'll be there in an hour.”

But the best first step to decreasing energy consumption and saving money is simple. “Tightening the home is the first thing to do,” he says. “The home should be insulated or well weatherized.”

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