The Quoddy Tides

Eastport, Maine

2006 June 23

Study: Impacts of LNG costly, benefit limited

by Edward French

A study of the potential impacts of liquefied natural gas (LNG) terminals in Passamaquoddy Bay concludes that the economic stimulus provided to the region by one or more LNG import terminals would be limited. An LNG terminal would have significant economic consequences throughout the region, with costs for public safety, staffing and infrastructure running into the millions of dollars for host communities, while the loss in property values along the U.S. side is estimated at $3 million to $8 million. Benefits would be less than expected, as the study concludes that each LNG terminal would provide only 27 construction jobs and 8 operations jobs to local people.

The study, by Yellow Wood Associates Inc. of St. Albans, Vt., was commissioned by Save Passamaquoddy Bay, which opposes the siting of LNG terminals in the bay. The report, which cost $50,000, is the first section of a two-part effort and does not address in detail the economic impacts on fisheries, aquaculture or tourism. Because the Canadian government is conducting a study of those issues, which is expected to be released soon, Save Passamaquoddy Bay may not seek to have the second part done by Yellow Wood.

Save Passamaquoddy Bay representatives first met with members of Maine's LNG Technical Working Group on June 22 to discuss the results and then held press conferences in Perry and St. Andrews the next day to release the study. It will be available at libraries in the Passamaquoddy Bay area, on Save Passamaquoddy Bay's website,, and at the group's office in Eastport. In addition, the organization has retained the legal services of Ronald Shems of Burlington, Vt.

Costs and impacts

The study points out that a town's decision to become a host community for an LNG import terminal would have significant economic consequences throughout the region because of shipping routes and piers, pipelines, changes to regional character, and risk factors. It notes that while millions of dollars are being offered in support to host communities, residents should be aware of the trade-offs in accepting such support. Once a single corporation comprises most of the tax base, communities rapidly lose the ability to make independent decisions regarding local services and investments.

The study observes that many local officials and residents are assuming that the developers would pay for all costs associated with LNG development. However, it is noted that there are no signed, enforceable contractual agreements in place, and constructing such an agreement will not be simple. There is no guarantee that any of the municipal, county and state expenditures related to an LNG terminal would be paid by the companies.

A two-mile radius of concern around shipping lanes, because of the hazardous nature of LNG, and piers larger than any that currently exist on Maine's coast that would result in narrowed shipping channels would affect all traffic in Western Passage. Costs of addressing security issues associated with LNG shipping, import terminals and additional pipelines would be spread throughout the region since communities along the entire transit route would need to be able to communicate with each other and respond effectively in the event of an emergency.

The study found that any of the communities that hosts an LNG import terminal would face increased costs of local emergency planning, police protection, fire protection and emergency medical services. The cost of an Emergency Medical Services base for a host community has been estimated at $700,000. The local cost of public safety for LNG tanker arrivals and departures is estimated at $12,500 for every tanker and $1.76 million for 141 ships per year. Communities without police boats would have to invest in them.

At least five schools on the U.S. side and two schools on the Canadian side are within two miles of a potential terminal site or LNG vessel route. Towns would want to consider relocating schools and fire stations to ensure public safety in the event of an accident or attack on LNG facilities or vessels.

A town that hosts an LNG facility would experience a significant increase in both revenues and costs, which would require additional staff to manage. Staffing requirements would likely include a finance director, assessor, emergency planner, police protection and overtime pay for maintaining security during construction and shipping, full-time firefighters and emergency medical technicians trained and equipped to deal with LNG and related substances. Smaller communities that currently lack town managers might need to add this position as well. Previous studies and the experiences of other LNG terminal host communities suggest these costs would run around $3-$5 million. Approximately $1.5 million would be annual recurring staff-related costs. In some communities, these costs alone would more than double annual municipal expenditures.

The study states that generally towns that experience an increase in industrial development also experience an increase in population with a net result of increases in tax rates despite a larger tax base. For example, with the exception of Calais, Pleasant Point, Eastport and Lubec, most Passamaquoddy Bay communities in the U.S. do not have centralized water and sewer systems. These systems might be required to accommodate construction workers who choose to live locally during the construction period.

In Passamaquoddy Bay, an effective local response would depend on well-developed regional resources. Areas that would require substantial additional regional investment include county emergency planning and bi-national emergency planning. A coordinated marine-based firefighting capacity, including equipment and training, would have to be developed, though some of the pieces exist.

The cost of achieving the capacity for secure emergency communications in real time between two countries, two counties and multiple towns' police, fire and emergency services personnel might be in the millions of dollars. The backbone for a network for the State of Maine is expected to cost $50 million with additional spending by counties and localities, and this does not take the international dimension into consideration.

According to the study, police protection would also need to expand during construction when hundreds of additional people arrive. Additional police would be needed to provide protection for ships on land and on water. The annual cost for additional police protection is estimated at $655,200 to $2.6 million. Additional professional firefighters would cost the region an estimated $378,000 to $793,000 a year, while 4-6 new fire trucks would run $900,000 to $1.35 million. Training would cost at least $25,000. This does not include the cost of relocating the seven fire departments currently located near the shore in the path of LNG shipping.

Unless there is a signed contractual agreement with a developer specifying exactly what costs the developer would cover and under what conditions, towns should not assume that developers would "pay for everything." In particular, developers are not likely to pay for any costs associated with pre-existing conditions, such as inadequate roads, water systems or town office space, nor are they likely to pay the full cost of improvements that yield benefits beyond those required by LNG. Even once an agreement is in place, towns would need to set aside sufficient resources for effective enforcement of any agreement.

Cost increases in the host community might be partially offset by an increase in local property tax revenues; cost increases in other communities in the region would not. As costs go up, property tax burdens could rise.

Effect on property values

The study states that the presence of LNG terminals would likely reduce the value of lands within a two-mile radius. In addition, by decreasing perceived safety and real access to the waterfront and waterways, LNG terminals would reduce the value of shoreland along the shipping route. The value of inland properties crossed by natural gas pipelines also might be affected.

There are 186 properties in Calais that would be affected at an estimated reduction in property values between $480,000 and $1.26 million. There are 573 properties in Robbinston that would be affected at an estimated reduction in property values between $1.89 million and $4.86 million. There are 375 properties in Eastport that would be affected at an estimated reduction in property values of between $820,000 and $2.36 million. These figures are based on a 20-35% reduction in the value of properties right next to the site, a 10-25% reduction in the value of properties within a mile of the site, and a 5-15% reduction in the value of properties within two miles of the site.

The value of up to 1,912 U.S. properties would be affected by the shipping route for LNG tankers. That number falls to 1,428 properties if the LNG terminal is located near Eastport instead of farther north. Reductions in property value associated with the shipping route range from $3.9 million to $7.88 million for the northernmost site and from $2.87 million to $5.75 million for the southernmost site. Canadian properties within two miles of the shipping route would also experience similar effects.

Property owners whose property is crossed by a natural gas pipeline typically give up the use of a 50-foot right-of-way after construction. Property owners continue to pay taxes on property crossed by a natural gas pipeline despite restrictions on its use. It's estimated that between 103 and 184 acres would be affected by pipeline-related land use restrictions, depending on the location of the LNG terminal.

Jobs estimates

LNG facilities are generally built by large, highly experienced contractors who specialize in projects in the $500 million range. There is only one firm in Maine listed in the oil and gas pipeline and related structures category of the North American Industrial Classification System (NAICS) construction category that has more than 20 employees. The largest project totals reported by the one heavy and civil engineering construction firm in Maine with dock and oil drilling rig construction experience was in the $70 million to $150 million range. This firm has no LNG terminal construction experience. Similarly, Maine firms experienced in dock and pier construction are mostly small firms with fewer than five workers.

Given these conditions, the study estimates that $92 million would be spent to bring construction workers in from out of state, $24.2 million would be spent on workers within Maine but outside Washington County, $19.1 million on workers within Washington County but outside the study region, and $3.3 million on workers within the study region. The construction jobs most likely to be available to local and regional firms would be in providing non-specialized electricity, heating and plumbing to support buildings and warehouses or in access or interior road construction or site preparation. Assuming local workers earn an average of $40,000 a year, each LNG terminal could provide approximately 27 jobs per year to current residents, the study estimates.

As in construction, the skills required to operate an LNG import terminal are highly specialized. For example, an LNG tank engineer requires 15 years of experience as a mechanical engineer with tank design experience in the LNG industry and commands $110,000 plus a 50% bonus. Most of the approximately 40 permanent staff positions estimated for operation of a generic LNG import terminal with a $500 million construction budget would go to people who do not currently live in the Passamaquoddy Bay region. The study estimates there would be approximately 8 jobs in administration, personnel, security and maintenance available for local residents at pay levels ranging from $30,000 to $40,000 a year. In addition, there might be some jobs for local tugboat operators.

The estimate of 27 construction and 8 operations jobs likely to be available to local people does not take into account jobs lost in fisheries, tourism and real estate.

Effect on other economic options

Experts on both sides of the international border identify the natural resource base of the Passamaquoddy Bay region as its greatest asset, according to the study. Strategies to build on this asset include encouraging tourism, retirees and second home owners; small to medium scale manufacturers that add value to local resources, particularly fish and forest products; local businesses to support the local population; and developing indigenous energy resources.

The infrastructure and operations of an LNG terminal could undermine assets identified as keys to strengthening the local economy, the study states. For example, safety and security is one of the key attractions for retirees and second home owners. Because of the safety risks associated with [liquified] natural gas and natural gas pipelines, an LNG terminal in the region would reduce the perceived safety of the area, and make it more difficult to attract retiree/second home owners.

It has been estimated that increased tourism could bring an additional $4.9 million annually into the Downeast region. An LNG terminal is a large-scale industrial facility that would change the perceived rural character of the region. In addition, any degradation of the environment would undermine the region's appeal to tourists. Shipping associated with an LNG import terminal would interfere with access to fishing grounds and aquaculture sites.

Natural gas is already available to industry through the Maritimes and Northeast pipeline. Thus far, the economics of its use have not proved favorable for local businesses, including the Domtar mill in Baileyville. An LNG terminal would not, by itself, change that equation, the study states.


© 2006 The Quoddy Tides
Eastport, Maine
Article republished on Save Passamaquoddy Bay website with permission.