Major import customers at the Dominion Cove Point (DCP) liquefied natural gas (LNG) terminal in Maryland contend that the company’s proposed tariff changes would degrade existing service, while potentially benefiting a future class of customers — exporters.

Statoil Natural Gas LLC “is concerned that Cove Point’s proposed reduction in existing flexibility paid for by the existing [firm] LTD-1 shippers is motivated by Cove Point’s desire to attract customers to use its soon-to-be-proposed LNG reexporting service,” the company said in comments filed at the Federal Energy Regulatory Commission (FERC) recently [RP11-2136, RP11-2137].

FERC policy is clear, according to Statoil — “a pipeline cannot degrade firm services paid for by existing shippers in order to provide a new service — whether that service is interruptible or a new reexport service.”

DCP earlier this month filed an application with the Department of Energy (DOE) to reexport foreign-sourced LNG from its terminal beginning Dec. 1 (see NGI, Aug. 15). The proposal will require the approval of both DOE and FERC.

“Cove Point’s stated reasons for wishing to make its proposed tariff changes simply do not stand up under scrutiny. Cove Point offers no evidence that its proposed changes would, in fact, resolve the stated operational problem of keeping its terminal cool,” said BP Energy Co. Given the dearth of LNG shipments this year to its terminal, Cove Point feared that its cryogenic operations would be damaged. FERC approved a settlement in July for Shell NA LNG LLC to make a one-time shipment of LNG to the terminal, which arrived last Thursday, thus resolving the immediate cooling crisis (see NGI, Aug. 1).

Regular arrival of cargoes — approximately one every four months — is critical to keep the DCP terminal’s cryogenic facilities cooled to a temperature of about minus 260 degrees F. This allows the terminal to be fully operational and able to receive LNG imports. However, the most recent arrival of an LNG cargo at DCP was the first since early this year.

Cove Point doesn’t require any changes to its tariff to keep its facility cooled, BP Energy said. “Cove Point already has a provision in its tariff that allows it to completely address the stated operational problem, i.e., the ability to buy LNG cargoes if required to keep the terminal cool. This leads to the conclusion that Cove Point is in fact seeking the tariff changes for other purposes, most likely to allow it to facilitate the implementation of its new proposed reexport service.”

Meanwhile, “Cove Point’s proposed tariff changes would degrade [existing firm] LTD-1 services while doing nothing to resolve the problem they were allegedly intended to address, for the potential benefit of a future class of customers that will have access to the terminal through the reexporting service broadly described” in the application filed at DOE on Aug. 8.

Shell agreed with the other Cove Point import customers. “Contrary to DCP’s argument, the tariff changes it proposes are not necessary to keep DCP’s terminal cool…LNG for cooling purposes can be brought into the terminal by the firm import shippers (if market conditions support an import) or by DCP itself. One reason behind DCP’s proposed tariff changes may be DCP’s desire to use the terminal to facilitate LNG exports,” it said.

“It is one thing for DCP to use its LNG terminal for exports when the terminal is not being used by the firm import shippers. It is another thing altogether for DCP to use the instant tariff proceedings to diminish the rights of DCP’s firm import shippers, for which they are being asked by DCP to pay dearly, so that DCP can attempt to attract imports of LNG which can then be exported,” Shell said.

Both DCP’s tariff change proposal and its LNG export proposal “raise significant issues which will need to be carefully considered by the Commission and the DOE. Unlike the other operators of LNG terminals where LNG exports have been authorized , DCP performs its LTD-1 terminal services under an open access tariff and DCP’s costs are reimbursed by its customers,” Shell said.

The claims of Cove Point’s firm import shippers “have no basis in fact,” countered Cove Point. “DCP’s proposed tariff modifications are necessary to help attract LNG cargo deliveries to the Cove Point terminal due to the underutilization of the facility by the import shippers,” it said.

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