Due to "significant decline in usage" at its facility on the Maryland shore as a resulting of expanding shale gas supplies, Dominion Cove Point LNG LP (DCP) Friday called on FERC to clarify that under its tariff it has the authority to require shippers to deliver liquefied natural gas (LNG) by tanker to its import terminal to keep the cryogenic portions of the terminal cooled or face penalties.
The "decline in usage of the Cove Point LNG terminal and related facilities...is largely driven by the development of the Marcellus and other shale gas, and the wide disparity in the price of LNG between the United States and other world markets. These factors have led to a plentiful and inexpensive supply of natural gas in the U.S., and higher demand and prices for LNG elsewhere in the world.
"Other recent world events like the damage to the nuclear power plants in Japan are expected to exacerbate the problem...The resulting lack of LNG cargoes delivered to the Cove Point terminal cause significant operating concerns because the Cove Point terminal was not designed to operate for sustained periods without the arrival of LNG cargoes. In fact, recent DCP [expansion] projects, undertaken at the behest of the import shippers, contemplated a high level of LNG tanker traffic," wrote Daniel Verdun, manager of regulation for Dominion Transmission Inc., which delivers gas from the terminal.
"Regular arrival of cargoes -- approximately one every four months -- is critical because the cryogenic facilities at the Cove Point terminal must remain cooled to a temperature of approximately minus 260 degrees Fahrenheit in order to be fully operational and able to receive LNG imports," he said. However, DCP, a subsidiary of Richmond, VA-based Dominion Resources, has not received a cargo since February.
Verdun said DCP issued an April 28 notice to firm import shippers to voluntarily bring LNG cargoes to Cove Point terminal "so that DCP is receiving at least one ship every four months for the remainder of calendar year 2011...The firm import shippers all responded negatively."
If DCP does not receive LNG in the near future, it will issue an operational flow order (OFO) that would require its firm import shippers to deliver LNG to the terminal, as required under DCP's tariff, Verdun said.
"While DCP has the authority to issue this OFO, DCP believes certain customers may disagree. Because of the declining LNG inventory, DCP and its customers' interests would be best served to eliminate any doubt about DCP's right to issue such an OFO and clarify the consequences of a failure to comply before the DCP facilities are in danger of an immediate warning.
"DCP proposes tariff language...to make clear that it has the ability to issue an OFO requiring shippers to deliver a specified amount of LNG by bringing in one or more LNG tankers(s) to the Cove Point terminal. DCP expects to issue an OFO of this type only when LNG inventory is substantially depleted and no LNG cargoes are anticipated in the foreseeable future," Verdun said.
He noted that shippers who fail to comply with an OFO will face penalties.