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,"
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."