Sudden, fundamental changes in the U.S. petroleum market are raising questions about the need for a 22 million-gallon liquid propane storage tank in Searsport, and whether the planned marine terminal could be used for exporting domestic fuel overseas, rather than for importing propane to Maine.

Those questions are in the background this week as the Searsport Planning Board holds four days of public hearings to determine whether the $40 million project would meet local land-use rules. But they are critical to the terminal’s fate, and the answers will have a statewide impact.

The Northeast suddenly is awash in low-cost, domestic propane, and Maine homeowners and businesses are embracing it as a cheaper alternative to heating oil.

Anticipated demand set the stage three years ago for Denver-based DCP Midstream to propose an import terminal at the Mack Point cargo port in Searsport.

The plan made perfect sense. Maine nearly ran out of propane in 2007, because of a Canadian rail strike and severe winter weather. The incident revealed that Maine didn’t have enough storage, and was too dependent on an unreliable means of transportation.

Since then, much has changed.

The Northeast shale gas boom has flooded the market with propane. That has helped make domestic prices the lowest in the world.

The low prices have made shipping propane to the United States from Europe and the Middle East a money loser. Only one vessel has called at each of New England’s two operating marine terminals — in Providence, R.I., and Newington, N.H. — this year.

Some terminals that imported propane from overseas — in Texas and Philadelphia, for instance — now export U.S. fuel.

In New England, the surging domestic supply has sparked an unprecedented upgrading and construction of rail terminals and small storage tanks. CHS Inc., an agribusiness co-op in the Midwest, just opened a terminal in Biddeford that can store 180,000 gallons and move 20 million gallons a year.

Such developments have critics of the Searsport project questioning whether it might become an export terminal. Interest groups and some communities along the midcoast already oppose the tank, citing fears including increased truck traffic, the scale of the 14-story tank and the risk of explosion on the six ships that would be expected to call each year at Mack Point.

And exporting propane, they say, could require even more trucks and tankers.

“I think the business case for this import terminal evaporated a couple of years ago,” said Steve Hinchman, a lawyer who represents the Thanks But No Tank citizens group. “We wonder if this a bait-and-switch tactic. Get it permitted, then say the market has changed.”

Hinchman likens the project to a decade of failed efforts to develop terminals along Maine’s coast to import liquefied natural gas. Similar market forces have cut imports at LNG terminals, including the new Canaport plant in Saint John, New Brunswick, which has been operating at roughly 30 percent capacity.

In the United States, owners of the terminals are seeking to export liquefied natural gas.

John Pratt, DCP Midstream’s director of Northeast sales, said it would take two years to build the propane project, after approvals. Prices could change by then, he said, and again favor imports.

“In the current market environment, I can see why those questions would be asked,” he said. “But that’s not what we’re trying to do now. We’re trying to get a permit to bring import here.”

DCP Midstream is jointly owned by Spectra Energy and ConocoPhillips. It operates small storage and distribution terminals along rail lines in Auburn and Hermon. Searsport would be the first storage tank in Maine large enough to hold more than a week’s worth of winter capacity.

Propane is transported in refrigerated vessels and kept in a liquid state. The tank in Searsport could hold the contents of a cargo ship, typically 15 million gallons. Ships would likely come from Europe, loaded with North Sea gas.

Maine now burns more than 115 million gallons of propane a year. Most of it arrives by rail from western Canada, a two-week trip. Some comes from a pipeline near Albany, N.Y., and is trucked north. In the past, southern Maine’s supply also came by ship, to a 25 million-gallon tank farm in Newington, N.H.

But Paul Bogan, vice president of the Sea-3 propane terminal in Newington, said he received only one ship this year and has none scheduled so far for 2013. For now, the terminal is unloading propane from rail cars into tank trucks.

“We’re hoping the market reverses itself next year,” Bogan said.

But the region is likely to have an oversupply of domestic propane until at least 2014, and perhaps beyond 2015, according to a new study done for the Propane Gas Association of New England.

“Right now, bringing it across the sea doesn’t make economic sense,” said Joe Rose, the group’s president.

The study shows that propane imports from Canada and overseas fell 60 percent in the past seven years.

The region’s reliance on domestic propane, delivered by rail, has downsides, the study notes.

The import terminals in Providence and Newington have served as primary storage facilities, offering a supply cushion during winter cold snaps, or when severe storms threaten to disrupt or delay rail deliveries. Marine terminals have been part of the industry’s “three-legged stool,” along with railroads and the New York pipeline.

“Now, the stool is down to two legs,” Rose said. “Terminal storage was a comfort. But that’s not going to be there this winter.”

Seeing opportunity in the new market conditions, propane dealers are building and expanding bulk storage. The study counted more than 40 projects with capacity of more than 30,000 gallons under way this year in New England and New York. In Maine, NGL Energy Partners, the new owner of Downeast Energy, is upgrading a 210,000-gallon rail storage facility in Portland.

“A good start,” the study says. “But we need to have a minimum of 40-plus projects each year over the next five years to add more bulk-storage capacity.”

Staff Writer Tux Turkel can be contacted at 791-6462 or at:

[email protected]

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