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Dominion: Sierra Club Can't Stop Cove Point Exports

April 30, 2012
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The Sierra Club said last Thursday a legacy agreement between it and a previous owner of the Cove Point LNG terminal site in Maryland will stop current owner Dominion from adding liquefaction and export facilities. However, during an earnings conference call Dominion CEO Thomas Farrell said the project is on track despite what the environmental group claims.

The Sierra Club is battling proposed exports of liquefied natural gas (LNG) on several fronts because it expects them to increase the use of hydraulic fracturing well stimulation in aid of growing gas production from shale plays. The Sierra Club said its 2005 agreement with Dominion precludes an expansion of the facility that would be required to create liquefaction and export capability. The original Sierra Club agreement on the Cove Point site was with Columbia LNG Corp. and dates back to the 1970s. It has been modified more than once over the years, according to the Sierra Club, which said last week it would pursue enforcement of the agreement in the courts if necessary.

"We have reviewed the various regulations, agreements and rulings from various regulatory bodies governing the site and are confident that we will be able to locate, construct and operate a liquefaction facility at Cove Point," Farrell told financial analysts. "Dominion plans to design the facility to minimize environmental impact."

At the end of March Dominion signed binding precedent agreements with two companies, one of which is Japan's Sumitomo Corp. Between the two shippers, the planned project capacity of about 750 MMcf/d on the inlet and about 4.5-5 million metric tons per year on the outlet, is fully subscribed, Dominion said. Construction is expected to begin in 2014 with an in-service date in 2017, pending receipt of necessary approvals, negotiating binding terminal service agreements with the shippers and successful completion of engineering studies.

Sumitomo has interests in the Marcellus Shale. Last week the company said the Marcellus would be the source of gas to be liquefied and exported to Japan under any agreement with Dominion for exports from Cove Point. "Therefore, if the project is finally agreed, Sumitomo Corp. will be able to establish a natural gas and LNG value chain in the United States across natural gas upstream development, through distribution and liquefaction, to LNG export."

However, converting the Cove Point facility to accommodate LNG exports would result in major damage to the Chesapeake Bay, coastal forests and the local economy and tourism, said the Sierra Club, which is challenging LNG export applications at the U.S. Department of Energy and recently lost a bid at the Federal Energy Regulatory Commission to block the Sabine Pass LNG export project in Louisiana (see NGI, April 23).

In a letter sent to Dominion Transmission the Sierra Club wrote, "Dominion's recent proposal to construct facilities to export as much as 1 Bcf/d of LNG from Cove Point, which we understand may include expanding the built area of the site by more than 60 acres and disturbing approximately another 30 acres for construction, is of great concern. Indeed, Dominion's plans would be unacceptable and inconsistent with the settlement agreement even if Dominion confined its new construction to the existing plant site."

Farrell said Dominion has been cooperating with the Sierra Club and hoped to do so in the future. "But we have the right to build it [the liquefaction facilities], and we are going to proceed accordingly."

Dominion received permission last October to export LNG from Cove Point to countries that have free trade agreements (FTA) with the United States. However, it is still awaiting approval to export to non-FTA countries (as are other companies pursuing LNG exports) before it can add liquefaction to Cove Point (see NGI, March 26).

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