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This is the second part of The Globe and Mail's series on the decline of the paper industry. You can read the first part here.

When Mary Murphy and hundreds of other workers finished their final shifts in 2010 at the Eurocan pulp and paper mill in the northwestern B.C. town of Kitimat, it marked a harsh ending to their jobs at the 40-year-old plant.

She estimates that more than 200 of the plant's 535 workers moved away from Kitimat within a year of the closing to seek employment in places such as the natural gas fields of northeastern B.C. or northern Alberta's oil sands.

"The closing was devastating. This town went into a hole. People who left couldn't even sell their homes. It was horrible," says Ms. Murphy, who spent 33 years working at the mill, including five years as the union local president for 360 employees.

Kitimat's population had already tumbled after methanol maker Methanex Corp. closed its local operation in 2006, throwing almost 130 people out of work. The community's population, which reached nearly 10,300 residents in 2001, was just 8,335 people by 2011.

Now, Kitimat is pinning its hopes on new ways to revive its battered economic base. Rio Tinto Alcan is spending $4.8-billion (U.S.) to modernize its aluminum smelter, and there's the prospect of a whole new and prosperous industry – liquefied natural gas – coming to town.

Years after the mill closed, the Chevron Corp.-led Kitimat LNG project is using part of the former Eurocan site as temporary housing for up to 400 people. Chevron could begin putting the entire property to bigger use as early as 2017 – as the accommodation camp to house up to 5,000 workers needed to construct the proposed LNG terminal at nearby Bish Cove. Another proposal, by the Shell-led LNG Canada joint venture, intends to use Eurocan's old wharf.

Kitimat's challenge is one familiar in shuttered paper mill towns across the country – how to create new industries from the ashes of an old one. Communities are racing to attract investors to put their closed mills, often in choice industrial locations with ready-made infrastructure, to uses that give new hope to their local economies.

In the case of Kitimat and several other former mill towns in B.C. – such as Campbell River, Prince Rupert and Squamish – investors are proposing LNG facilities using some of the choice industrial and shipping sites left behind by the pulp and paper industry.

But other mill towns elsewhere in Canada don't have such opportunities. They are looking for new ways to put their forests to use, as technology has made traditional paper products increasingly obsolete.

"It's not easy to just bring a new industry in," says Bruce McIntyre, the head of PricewaterhouseCoopers LLP's Canadian forestry group in Vancouver. "You've got to go with the resources you've got."

And the resource Canada still has in abundance is forest – 348 million hectares of it, according to Natural Resources Canada. The industry is increasingly looking for ways to convert the wood fibre into a wide range of other products.

"Innovation is the engine of the future – maximizing the value of the fibre," says Catherine Cobden, executive vice-president at the Forest Products Association of Canada.

Certain kinds of pulp are being used to manufacture absorbent materials for things like incontinence products (a growth industry due to aging demographics), to make synthetic fabrics and even as binders in medicines. Lignin (essentially the "glue" that holds wood fibres together) is used in adhesives and animal feed. Sugars from the trees are being converted into biofuels. Sawdust and other waste materials are being compressed into wood pellets, which are increasingly popular in Europe and South Korea as a green source of fuel.

"Applications are far-ranging, from make-up to food to pharmaceutical needs," says Mark Martinez, director of the Pulp and Paper Centre at the University of British Columbia in Vancouver.

An asset that former mill communities have going for them is a relatively skilled labour force, left over from a forest-product manufacturing process that has become highly technology-intensive over the years, though as Kitimat illustrates, many people with skilled trades moved away years ago.

Frank Dottori, the 75-year-old founder of Quebec forest products heavyweight Tembec Inc., ran into that problem when he recently decided to purchase and restart an idled lumber mill in White River, Ont. In the six years since the mill had closed, "a lot of people had moved on elsewhere." Now he's carrying about 20 per cent more staff than the mill would normally need, because he has a lot of workers in training, and he's struggling to find capable millwrights. "I'm carrying extra people. It takes time."

In Miramichi, N.B., a once-thriving forest products centre whose pulp and paper mill closed in 2007, the town has embraced a novel approach to keep workers connected to the community while it awaits some new investment in its forest sector, notably a wood pellet facility proposed for its old mill site. Many skilled workers are commuting to and from Alberta's oil sands – working two or three weeks straight and then flying back to Miramichi for a week off.

The municipality even expanded its airport so that direct flights could come in. It keeps families together and brings money into the community.

"It's not ideal," says Jeff MacTavish, director of Economic Development for the City of Miramichi. "But the alternative was that they just pack up and leave."

Even if a new alternative business can be established, the jobs often pale in comparison to what the mills brought in. Where Miramichi's pulp and paper mill once employed more than 1,000 people, the proposed wood pellet plant that would occupy the same site would employ only about 100. In Brooklyn, N.S., a former pulp and newsprint facility that once had nearly 450 workers is now being used by a pilot project for making diesel fuel out of wood fibre, which, if it's successful, would have about 30 staff.

The Forest Products Association of Canada's Ms. Cobden also points out that the markets for these new alternative forest products "are quite competitive," with a much narrower customer base in many cases than the traditional forest products. It will be a race to capture market share in some of these innovative products. There's no guarantee that the Canadian industry will have a strong position. "We need to be first," she says.

The LNG hopefuls, in Kitimat and other former mill towns, are keenly aware of the pressures. Out of the 18 proposed B.C. LNG facilities, only three or four might ever get built. Meanwhile, British Columbia has fallen behind in the global race to get LNG terminals up and running.

"It's a very important time in our history. There is so much speculation, but we're hoping LNG does go through and everything works out," says Kitimat Mayor Phil Germuth.

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