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Waiver Likely to Widen Gazprom, Statoil Access to U.S. LNG Markets

FERC last Thursday approved a request by the U.S. affiliates of Norway's Statoil ASA and Russia's Gazprom for a waiver of the agency's prohibition on tying capacity releases to "extraneous conditions" -- which could help to expand the companies' liquefied natural gas (LNG) footprint in the United States.

The waiver would allow Gazprom Marketing & Trading USA (GM&T USA) to use Statoil Natural Gas LLC's storage capacity at the Dominion Cove Point LNG import terminal on the Maryland coast, and to release Statoil's capacity on two downstream pipelines to GM&T USA. The Gazprom affiliate, which began commercial operations in October 2009, is currently marketing and trading natural gas at a number of locations in the U.S.

Statoil is a large holder of storage capacity at the Cove Point terminal and capacity on the associated Cove Point pipeline, which delivers regasified LNG to several interstate pipelines in Loudon County, VA, including Dominion Transmission. As a result of a major expansion, which was substantially underwritten by Statoil, the Cove Point facility now has a sendout capacity of 1.8 Bcf/d and storage capacity of 14.6 Bcf.

Under the buy-sell arrangements, GM&T USA would sell the LNG to Statoil at the interconnection between an LNG tanker and the docks at the Cove Point terminal pier. Statoil would take title to the LNG at the inlet of the terminal, enabling it to store and regasify the LNG. Statoil would then sell the regasified gas back to GM&T USA at the outlet of the Cove Point terminal for delivery to markets.

Statoil proposes to release to GM&T USA 250,000 Dth/d of capacity on the Cove Point pipeline under mid-term agreements, and 145,000 Dth/d of Dominion Transmission pipeline capacity under the long-term agreements. The mid-term agreements have terms of seven years beginning April 1, and the long-term agreements have terms of 18-20 years, depending on the start of commercial operations of Gazprom's Shtokman LNG Project in Norway (estimated to be in the 2014-2025 time frame).

Both Statoil and GM&T USA called on the Commission to rule on their waiver petition this month so that Gazprom can make certain critical financial decisions about its Shtokman LNG Project.

The Federal Energy Regulatory Commission (FERC) waiver comes nearly three months after GM&T USA and Statoil said they were finalizing agreements to allow Gazprom to import LNG at the Cove Point terminal. The companies said they expected to finalize the agreements by the first quarter (see NGI, Dec. 7, 2009).

FERC said "there is nothing in the record to indicate that granting the waiver in this situation will adversely impact open-access competition on the interstate grid and no party filed to object to the waiver. Moreover, it does not appear that existing shippers on the Cove Point and Dominion pipeline systems will be disadvantaged related to LNG importers," the FERC order said [RP10-197].

"The replacement shipper Gazprom wants to use both the terminal and pipeline capacity in order to import LNG, and is in effect stepping into Statoil's shoes relative to the commercial commitment to enable new LNG import capacity," it noted.

"The significant benefits of the proposed transaction outweigh any potential anticompetitive concerns related to use by others of the capacity to be release on Dominion, particularly because the rate for the released capacity will be the maximum tariff rate for the expansion capacity, which is greater than the rate for pre-existing capacity on both the Cove Point pipeline and Dominion systems.

"Further it appears that granting the waiver requests for both the mid-term and long-term agreements will provide significant benefits in terms of bringing new supplies to the United States," the order said.

FERC denied Washington Gas Light's (WGL) request for conditions to be set on the waiver. WGL has been a long-time critic of regasified LNG flowing from the Cove Point terminal, saying that it has been responsible for leaks on its distribution system (see related story).

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