Despite current plans to reactivate LNG imports and expand theCove Point LNG plant, Columbia Energy Group has decided the Lusby,MD-based facility does not fit into its core group of assets. Thecompany announced plans yesterday to sell the LNG facility andrelated pipeline to Williams Gas Pipeline for $150 million. Thesale is subject to clearance under the Hart-Scott-Rodino Act butshould be completed by July 2000, the companies said.

“In our ongoing evaluation of the LNG business, it has becomeclear that the business, although attractive, is not at the core ofColumbia’s long-term strategy, and that we could achieve more valuefor our shareholders by selling this asset than by continuing tooperate it,” said Columbia CEO Oliver G. Richard III. “Thetransaction announced today will achieve this objective.”

Constructed in the mid-1970’s at a cost of $400 million, theCove Point facility has operated as an LNG peak shaving facility,serving customers in the Mid-Atlantic and Southeast, since 1995. Ithas an LNG storage capacity of 5 Bcf and a liquefaction capacity of15 MMcf/d. The import terminal, which is expected to be reactivatednext year, has a send-out capacity of 1 Bcf/d. The facility alsoincludes an 87-mile, 36-inch diameter gas pipeline that connectswith 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 gasdemand for power generation in the U.S. increases, holding spot pricesto a level that will maintain the economics of the LNG trade (seeDaily GPI, April 27). Projections onincreased LNG use and favorable economics have prompted Southern LNGto recommission its LNG import terminal in Elba Island, GA, and CMSEnergy and Distrigas of Massachusetts to significantly increase LNGimport traffic to their facilities in Louisiana and Boston,respectively (see Daily GPI, March 16,April 20, Jan. 25).

Cove Point held an open season Feb. 16 through March 16 to test themarket for firm LNG tanker discharging service and a facilitiesexpansion (see Daily GPI, Feb. 17). Theresults of the open season have not been announced but, according toWilliams, were very favorable. Pending approval by the Federal EnergyRegulatory Commission, Cove Point LNG plans to begin the LNG tankerdischarging service by late 2001 or early 2002 (see Daily GPI, Jan. 13).

“We are bullish on LNG as being a necessary supply source tomeet the expected demand growth over the next 10 to 15 years,” saidWilliams Gas Pipeline CEO Cuba Wadlington. “In order for thecountry to move to the 30 plus Tcf market and serve the rapidlyincreasing power generating requirements, LNG is going to have toplay a very big part in the supply side of the equation. That’s theclear reason we believe the Cove Point facility will be a goodasset to help provide the supply that the country requires to meetits demands.”

Wadlington said favorable results from the recent Cove Pointopen season “supported our perspective that this was a keyfacility…” He said market contracts still have to be executed.Wadlington added that Williams intends to stick with Cove Point’spreviously announced expansion plans, which included increasingstorage capacity to about 7.5 Bcf. The expansion should becompleted in 2004.

“Given that we own and operate three LNG facilities on ourpipeline systems, we have a lot of experience in the operation andmaintenance of these facilities and we were quite pleased with howthe Cove Point facility looked from a conditioning perspective,”Wadlington added, noting that Williams also operates the PineNeedle LNG facility in North Carolina, an LNG plant in theMeadowlands, NJ, and an LNG facility on Northwest Pipeline. “Webelieve we can operate Cove Point with increased efficiencies,” hesaid.

The facility also has substantial untapped synergies withWilliams’ Transco pipeline system as well, Wadlington added. “CovePoint’s 87-mile pipeline crosses our Transco system, but is notcurrently connected. By adding a new interconnection, the CovePoint facility will even further enhance Transco’s renowned systemflexibility and reliability and will create future expansionopportunities.”

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