AGL Resources subsidiary Jefferson Island Storage & Hub LLC has filed a lawsuit against the state of Louisiana for canceling a lease at Lake Peigneur that would have allowed Jefferson Island to complete an expansion of its salt dome gas storage project located near the Henry Hub.

Louisiana 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 Daily GPI, Aug. 9).

Locals also are 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, a parking lot, and reversed the flow of the Delcambre canal temporarily creating the biggest waterfall in Louisiana (see Despite the disaster, no one was killed, but it’s hard for locals to forget such an incident. For years many property owners in the area have been pushing for an end to drilling around the lake (see

The governor told AGL in a letter that the mineral lease obtained for mining salt at the lake in 1994 is no longer valid, and therefore there can be no additional mining of salt to create additional caverns for natural gas storage. An earlier letter to the company from the state Department of Natural Resources (DNR) said the lease was being canceled because AGL had failed to pay lease rental last year in a timely manner, and because it didn’t do any mining there for more than six months.

In its lawsuit, which was filed in the 19th Judicial District Court in Baton Rouge, AGL acknowledged that payments were missed last year by the previous owner of the property, American Electric Power, and again this year by AGL. However, the company said it eventually paid the overdue amounts in April, and the state accepted them.

The company also said its expansion would pose no danger to the lake or the public. “We have a much smaller footprint” than the salt mining operations in the ’80s, said AGL spokeswoman Susan L. Meyers. “They were drilling in a much larger area and the technology is much different today. It is very unlikely that this would happen again.” She noted that there currently are two working salt dome caverns adjacent to the lease site with 10 Bcf of total capacity and 7 Bcf of working gas capacity. They have been in operation for about 10 years. The proposed third salt dome, which would increase the total capacity to 13.2 Bcf, was scheduled for service in 2009, and the fourth, which would bring total capacity to 19.2 Bcf, was targeted for service in 2011.

AGL seeks a declaratory judgment and a preliminary and permanent injunction against the state.

“We regret having to take this to court, but we want to make it clear that we have every right under Louisiana law to proceed with our project and protect our interests,” said AGL CEO John W. Somerhalder. “We still hope we can reach an acceptable agreement with the state so we can proceed with this energy project that is vital to the Louisiana and local economies.”

AGL said a study conducted by researchers at Louisiana State University at Shreveport found the project would generate millions of dollars in jobs and tax revenue for the local economies of Iberia and Vermilion parishes and the state of Louisiana. Each has suffered since hurricanes Katrina and Rita hit the state a year ago. AGL already has spent $100 million to purchase the storage operation from American Electric Power and continue the expansion project, and it estimates that the state and local community stand to lose $20 million if the expansion is halted.

Jefferson Island is an intrastate natural gas storage facility that serves Louisiana production companies, pipelines, distribution companies, manufacturers, businesses and industries. AGL Resources serves 2.2 million utility customers in six states through subsidiaries Atlanta Gas Light, Elizabethtown Gas in New Jersey, Virginia Natural Gas, Florida City Gas, Chattanooga Gas, and Elkton Gas in Maryland.

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