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AGL's Storage Expansion Gets Past Long-Term Roadblock

Clearing a three-and-a-half-year hurdle that has been blocking the company from expanding its natural gas storage capacity below the surface of Lake Peigneur in Iberia Parish, LA, AGL Resources subsidiary Jefferson Island Storage & Hub LLC (JISH) said last week that the Louisiana Mineral and Energy Board has approved by a 8-0 vote an operating agreement between JISH and the state of Louisiana.

JISH said the new agreement enables it to resume its efforts to gain the environmental, safety and other regulatory approvals needed to proceed with its plan to create two new storage caverns. JISH currently operates two caverns in the Jefferson Island salt dome approximately 3,000 feet below the surface of Lake Peigneur.

"The operating agreement allows us the opportunity to engage in the regulatory process and seek to expand our facility, which will enable JISH to better serve our customers and the public," said Dana Grams, president of JISH. "The agreement also benefits the local community because it facilitates a proposed infrastructure development project that is expected to produce more than $90 million in economic impact -- including the creation of more than 350 direct and indirect construction jobs and additional full-time jobs at the facility."

In September 2006 JISH filed a lawsuit against the state of Louisiana for canceling a lease at Lake Peigneur that would have allowed the company to expand its facility (see NGI, Sept. 11, 2006). Louisiana's then-Gov. Kathleen Blanco pulled the company's lease and halted the expansion following several missed royalty payments to the state and local concerns about possible contamination of the lake and the aquifer that provides water to the local community (see NGI, Aug. 14, 2006). In August of this year JISH reached a tentative agreement with the state (see NGI, Aug. 31).

Approval of the operating agreement resolves a pending lawsuit between the parties over a disputed mineral lease. At issue was JISH's right to proceed with its plans to create new storage caverns below its existing surface lease. The new operating agreement incorporates several benefits specifically for local residents, including:

Locals were also concerned about safety. On Nov. 21, 1980, the 1,300-acre lake collapsed after a drilling rig operated by Texaco punctured a salt dome that was being used for salt mining by Diamond Crystal Salt Mine. Once the salt dome was penetrated, lake water began to drain into the salt dome, forming a giant whirlpool that sucked down the drilling rig, 11 barges, 1.5 billion gallons of lake water, 70 acres of a nearby botanical garden and a parking lot, and reversed the flow of the Delcambre canal, temporarily creating the biggest waterfall in Louisiana.

At the time Blanco told AGL in a letter that the mineral lease obtained for mining salt at the lake in 1994 was no longer valid, and therefore there could be no additional mining of salt to create additional caverns for natural gas storage. In its lawsuit, which was filed in the 19th Judicial District Court in Baton Rouge, JISH acknowledged that payments were missed in 2005 by the previous owner of the property, American Electric Power, and again in 2006 by AGL. However, the company said it eventually paid the overdue amounts in April 2006 and the state accepted them.

Located near the Henry Hub, JISH currently consists of two salt dome storage caverns with 7.5 Bcf of working gas capacity, along with capacities of 720,000 MMbtu/d for withdrawal and 360,000 MMbtu/d for injection. JISH provides storage and hub services through direct connection to the Henry Hub via Sabine Pipe Line and eight other pipelines: Texas Gas Transmission, Columbia Gulf Transmission, Sea Robin Pipeline, Tennessee Gas Pipeline, Trunkline Gas Company, Gulf South Pipeline, NGPL and CrossTex Energy Pipeline. The two existing JISH caverns have operated since 1994.

The addition of two new storage caverns would expand the total working gas capacity of JISH to approximately 19.5 Bcf. Grams said that in addition to the potential economic benefits, "an expanded storage facility at JISH would strengthen Louisiana's position as the centerpiece of an increasingly important natural gas industry."

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