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Columbia Sells Cove Point LNG to Williams
Despite current plans to reactivate LNG imports and expand the Cove Point LNG plant, Columbia Energy Group has decided the Lusby, MD-based facility does not fit into its core group of assets. The company announced plans last week to sell Cove Point and a related pipeline to Williams Gas Pipeline for $150 million. The sale is subject to clearance under the Hart-Scott-Rodino Act but should be completed by July 2000, the companies said.
"In our ongoing evaluation of the LNG business, it has become clear that the business, although attractive, is not at the core of Columbia's long-term strategy, and that we could achieve more value for our shareholders by selling this asset than by continuing to operate it," said Columbia CEO Oliver G. Richard III. "The transaction announced today will achieve this objective." A Columbia spokesman said the company's proposed $6 billion merger with NiSource was not a factor in the decision.
Constructed in the mid-1970's at a cost of $400 million, the Cove Point facility has operated as an LNG peak shaving facility, serving customers in the Mid-Atlantic and Southeast, since 1995. It has an LNG storage capacity of 5 Bcf and a liquefaction capacity of 15 MMcf/d. The import terminal, which is expected to be reactivated next year, has a send-out capacity of 1 Bcf/d. The facility also includes an 87-mile, 36-inch diameter gas pipeline that connects with pipelines owned by Columbia Gas, Consolidated Natural Gas (CNG), and Washington Gas Light.
LNG demand is expected to grow rapidly over the next decade as gas demand for power generation in the U.S. increases, holding spot prices to a level that will maintain the economics of the LNG trade (see NGI, May 1). Projections on increased LNG use and favorable economics have prompted Southern LNG to recommission its LNG import terminal in Elba Island, GA, and CMS Energy and Distrigas of Massachusetts to significantly increase LNG import traffic to their facilities in Louisiana and Boston, respectively (see NGI, March 20, April 24, Jan. 31).
Cove Point held an open season Feb. 16 through March 16 to test the market for firm LNG tanker discharging service and a facilities expansion (see NGI, Feb. 21). The results of the open season have not been announced but, according to Williams, were very favorable. Pending approval by the Federal Energy Regulatory Commission, Cove Point LNG plans to begin the LNG tanker discharging service by late 2001 or early 2002 (see Daily GPI, Jan. 17).
"We are bullish on LNG as being a necessary supply source to meet the expected demand growth over the next 10 to 15 years," said Williams Gas Pipeline CEO Cuba Wadlington. "In order for the country to move to the 30 plus Tcf market and serve the rapidly increasing power generating requirements, LNG is going to have to play a very big part in the supply side of the equation. That's the clear reason we believe the Cove Point facility will be a good asset to help provide the supply that the country requires to meet its demands."
Wadlington said favorable results from the recent Cove Point open season "supported our perspective that this was a key facility..." He said market contracts still have to be executed. Wadlington added that Williams intends to stick with Cove Point's previously announced expansion plans, which included increasing storage capacity to about 7.5 Bcf. The expansion should be completed in 2004.
"Given that we own and operate three LNG facilities on our pipeline systems, we have a lot of experience in the operation and maintenance of these facilities and we were quite pleased with how the Cove Point facility looked from a conditioning perspective," Wadlington added, noting that Williams also operates the Pine Needle LNG facility in North Carolina, an LNG plant in the Meadowlands, NJ, and an LNG facility on Northwest Pipeline. "We believe we can operate Cove Point with increased efficiencies," he said.
The facility also has substantial untapped synergies with Williams' Transco pipeline system as well, Wadlington added. "Cove Point's 87-mile pipeline crosses our Transco system, but is not currently connected. By adding a new interconnection, the Cove Point facility will even further enhance Transco's renowned system flexibility and reliability and will create future expansion opportunities."
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