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WGL Attributes Widespread Gas Leaks to LNG from Cove Point

Dominion Resources is disputing Washington Gas Light's (WGL) interpretation of a study of widespread gas leaks on the WGL distribution system in Maryland. Dominion says WGL's aging distribution system was to blame for gas leaks, which began to increase in 2003, but WGL said the "key contributing factor" identified by the study was the presence of a large amount of imported LNG from Dominion's Cove Point terminal in Lusby, MD.

Washington Gas has discovered more than 1,400 leaks concentrated in Prince George's County, MD, an area primarily supplied by revaporized LNG from Cove Point. In April, the company announced plans to repair all the leaks in the affected area within six months of identification. To date, it has completed two-thirds of the repairs. It expects to complete the repairs by December 2007 and estimates the total cost to be $144 million. It is still unclear how the repairs will impact customer rates.

WGL held a press conference Thursday announcing the findings of an investigation into the cause of the leaks by Groton, MA-based ENVIRON International Corp. WGL engaged ENVIRON, Polymer Solutions Inc., and Akron Rubber Development Laboratory earlier this year to identify the root cause and possible solutions.

The consultants isolated three leading contributors to the leaks: winter ground temperatures, aging seals, and gas composition. Based on the findings, WGL said it concluded that the chemical composition of the gas that supplies the affected areas of Prince George's County is the key contributing factor that precipitated the deterioration of rubber seals in mechanical couplings that join sections of distribution mains to service lines on its system. The couplings are located outside of homes in underground pipelines.

CEO James H. DeGraffenreidt Jr. said the study found that the low level of heavy hydrocarbons in regasified LNG from Cove Point led to the widespread failure of the rubber seals. The process of changing natural gas into a liquid requires the removal of the heavier hydrocarbons from the gas to prevent the formation of solids. The low level of hydrocarbon's hexane and pentane "caused the seals to shrink and lose their ability to adhere tightly" to the couplings, he said.

"The heavy hydrocarbon impact on seals did come as a surprise to us" because Washington Gas Light, like most other local distribution companies, was more focused on the potential impact of the higher BTU content of LNG on end user appliances, said DeGraffenreidt.

Although the study also said that the age of the seals and winter ground temperatures were factors in the leaks, it noted that those two factors affected other areas of the WGL system where no increased leaks occurred.

WGL receives gas from three interstate pipelines and the Cove Point LNG pipeline system. In most areas of its system, regasified LNG is blended in with gas from the other lines. LNG makes up about 8% of Washington Gas' annual supply. However, in the Prince George's County area, a gate station began serving as the primary transfer point for Cove Point gas in the region starting in August 2003.

Dominion spokesman Dan Donovan said WGL is "misrepresenting the conclusions of the report" in order to deflect the blame to Dominion and the LNG terminal. "If you carefully read the report, it says that the aging infrastructure, particularly the 40- to 50-year-old seals, is the real cause of the problem," he said. "That's what's really bothering us in this whole thing."

Dominion sent a letter to WGL Thursday to protest WGL's characterization of the findings. "We believe your statements to be an inaccurate description of the contents of the report and the likely causes of your system failures," Dominion told WGL.

"There's absolutely nothing wrong with the natural gas from Cove Point," said Donovan. "That gas meets the stringent standards set by FERC and agreed to by Washington Gas and any other companies that receive [LNG]. Washington Gas specifies the quality level and the chemical composition of the natural gas before purchasing it."

Donovan said the regasified LNG from Cove Point is "interchangeable with the gas streams around the Northeast, in the Mid Atlantic, and has had no impact on other natural gas systems." He also said that the low hexane content cited in the report is common in domestic gas streams at other locations.

However, if Washington Gas is correct, the findings could have national implications because of the expected sharp increase in imported LNG nationwide. The seals that were affected apparently are widely used. Other seals and equipment also might suffer similar problems.

Washington Gas said the findings of the report show that the resulting drying effects of regasified LNG on its rubber seals can be reversed by adding hexane and pentane to the gas stream or possibly by mixing the regasified LNG with domestic supply. It plans to determine whether such remedies might be employed on its system to prevent new leaks from occurring. It did not say how much such a plan would cost or what the long-term implications would be.

"We are assessing several manageable approaches to supplement our existing rehabilitation program and prevent similar conditions from emerging elsewhere," said DeGraffenreidt.

"We believe that we can reverse seal deterioration by conditioning the Cove Point gas entering the system to prevent future drying of rubber seals," said Adrian Chapman, Washington Gas' vice president of energy acquisition and regulatory affairs.

Despite the conclusions of the study, Washington Gas said it intends to increase its reliance on the Cove Point LNG terminal. "We fully support the introduction of additional natural gas supplies in the Mid Atlantic region to meet the needs of natural gas customers," DeGraffenreidt added.

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