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Dominion Files Lawsuit in Sierra Club Cove Point Liquefaction Clash

Taking on the Sierra Club over the organization's claims that it has the authority to block the construction of a natural gas liquefaction project at the Cove Point liquefied natural gas (LNG) terminal in Lusby, MD, Dominion on Friday filed a lawsuit with the Circuit Court of Calvert County, MD, for declaratory judgment to confirm its right to build the project.

Dominion said the plain language of a 2005 agreement between Dominion and the Sierra Club specifically permits all the activities related to the planned liquefaction project, which would take advantage of the boom in natural gas production from the Marcellus and Utica shales.

"This project is of immense value to Calvert County, the state of Maryland and the United States," said Gary L. Sypolt, CEO of the company's Dominion Energy business unit. "We have a long history of working with our environmental partners at Cove Point. Although the Sierra Club has chosen not to work with us in this instance, we are confident we are right and believe the best time to resolve this issue is now."

Late last month, the Sierra Club said a legacy agreement with a previous owner of the Cove Point LNG terminal site in Maryland would prevent Dominion from adding liquefaction and export facilities. However, during an earnings conference call last month Dominion CEO Thomas Farrell said the project is on track despite the environmental group's claims (see Daily GPI, April 27).

In contrast to previous projects at Cove Point, including a 2005 expansion of the facility, the Sierra Club declined Dominion's offer to discuss how to undertake the project in the most ecologically sound manner. Instead, the group and its Maryland chapter last month delivered a letter demanding that the company abandon the project, Dominion said.

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; it recently lost its bid at the Federal Energy Regulatory Commission to block the Sabine Pass LNG export project in Louisiana (see related story; Daily GPI, April 23; April 18).

"The Sierra Club and the Maryland chapter's opposition to the project has virtually nothing to do with any environmental impact at Cove Point," Dominion said in its filings. "Instead, their opposition to the project is motivated by their nationwide 'Beyond Gas' campaign against natural gas as an energy source and their concern that the liquefaction project will lead to increased U.S. natural gas production in areas hundreds of miles from Cove Point."

Dominion said there is nothing in the 2005 agreement that prohibits expansion of liquefaction capabilities at Cove Point or the export of LNG. The company cited several sections of the 2005 agreement as expressly allowing the liquefaction project and loading LNG onto tanker ships for export:

Dominion said the liquefaction project is expected to handle gas exports that would reduce the U.S. trade deficit by more than $2.8 billion a year, while also generating directly and indirectly about $1 billion annually in additional federal, state and local government revenues. In Calvert County alone, the project could produce additional property tax revenue of up to $40 million a year and would make Dominion the county's largest taxpayer. Over the life of the project, it would have an estimated economic impact on Calvert County of $1.3 billion, the company added.

Construction of the liquefaction project 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.

At the end of March, Dominion signed binding precedent agreements with two companies, including Sumitomo Corp., a major Japanese corporation with significant global energy operations. Between the two shippers, the planned project capacity of about 750 MMcf/d on the inlet and about 4.5-5 million metric tons a year once it is fully fully subscribed, Dominion stated.

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