Blue Dolphin Energy Co. and WBI Pipeline & Storage Group Inc. announced that they have sold the New Avoca gas storage project, which was expected to revive the canceled Avoca storage facility in Avoca, NY, to Tulsa-based SemGas LP, a business segment of SemGroup for about $3.5 million. SemGas said it hopes to put the storage project in operation by 2006.

“It has some assets on the ground, and the FERC permit and other permits are the first order of business to get back into shape,” said SemGas’ Tim Purcell, director of commercial development. “We also have had some conversations with customers in the region. And we think we have some solutions [to the brine disposal problem]. There is more than one solution and we are kind of in the middle of looking at which would be the better alternative to pursue.”

In May 1997, Avoca, which was owned by Dynegy, Equitable Resources, Bechtel and the former U.S. Generating Co., filed for bankruptcy because its financing dried up after it encountered brine disposal problems. The original partners and banks had sunk a total of $80 million into the project by the time Avoca filed for Chapter 11. At the time, the company listed $56 million in liabilities.

Then in July 1999, Northeastern Gas Caverns LLC, a New York company, purchased all the salt cavern drilling rights, licenses and equipment for $8 million, promising to revive the project. The revival never occurred and in November of 1999, Blue Dolphin purchased the rights to the project, from Northeastern Gas, stating that it had found a solution to the brining issues. The leaching phase, however, was never accomplished.

SemGroup believes the timing is now right for this project to move forward. Purcell pointed to the volatile commodity market and the need for storage capacity in the Northeast. He also said SemGas believes it can move quickly. “The FERC permit at one time was an active permit so we’re hoping that the permitting process won’t take as long as if we were starting from scratch,” he said.

Purcell said the company expects to develop a storage facility with 5.5 Bcf of working gas capacity, 300-500 MMcf/d of deliverability and 250-300 MMcf/d of injection capacity. It is expected to have an interconnection with Tennessee Gas Pipeline and potentially several other major interstate pipeline in the area.

SemGas paid about $1.3 million for Blue Dolphin’s 25% stake in the project, including a $0.4 million future payment that is conditioned on the project beginning operations prior to Oct. 29, 2011.

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