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Appeals Court Sides With Dominion on Cove Point Exports

The Maryland Court of Special Appeals last Friday handed backers of the Dominion Cove Point liquefied natural gas (LNG) export project another victory in their battle with environmentalists.

The Sierra Club has sought to block exports from the existing LNG import terminal on the Chesapeake Bay in Calvert County, MD, on the grounds that exports would violate terms of a conservation easement surrounding the terminal. Previously, a lower court said the conservation agreement between the Sierra Club and Dominion did not preclude development of an export facility, and Friday the Court of Special Appeals agreed.

The Sierra Club has been battling proposed exports of liquefied natural gas (LNG) on several fronts because it expects them to increase the use of hydraulic fracturing well stimulation and the growth of gas production from shale plays.

The group had 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.

The Sierra Club argued that the agreement with Dominion did not authorize LNG exports at the site. Dominion countered that the agreement "authorizes it to take each individual step needed for exportation, even if the word itself is not explicitly mentioned in the agreement," the Special Appeals Court said. "It challenges the Sierra Club's conclusion that because the word export is not listed in the recitals of the agreement, it is therefore prohibited."

The three judge panel went to the library and looked up a number of contract dispute cases for guidance and apparently pored over nearly every word of the agreement between Sierra Club and Dominion.

"The Sierra Club contends that 'the receipt by tanker' means that LNG may only be imported," the court wrote. "However, it fails to consider the very next phrase [of the agreement] 'and the receipt or delivery by pipeline of LNG.' This clearly means that natural gas may be sent both ways -- to and from the terminal operation site."

The judges wrote that Sierra Club interprets the "receipt or delivery by pipeline" phrase to mean sending gas to customers and receiving gas for peaking purposes only, "...yet not for exportation even though none of these uses are explicitly stated in the clause. In fact, the word peaking is not mentioned in the 2005 agreement, although Sierra Club does not dispute that [it] is authorized under the agreement. We decline to accept one implied meaning and reject another."

Approvals for the export project are still needed from the Federal Energy Regulatory Commission and the Maryland Public Service Commission before construction can begin (see Daily GPISept. 19, 2013).

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