Dominion wins right to export liquefied natural gas

A Calvert County judge brushed aside Friday a potential legal hurdle to exporting liquefied natural gas via the Chesapeake Bay, ruling that Dominion, the Richmond, Va.-based energy company, does not need the Sierra Club's permission to convert its LNG import terminal at Cove Point.

Circuit Judge James P. Salmon said Dominion has the right to export LNG from Cove Point, despite an agreement the company has had for decades giving the Sierra Club and another environmental group a say over the company's expansion of the little-used shipping facility near the Calvert Cliffs nuclear power plant in Southern Maryland.

The Sierra Club had sought to block Dominion's plans, contending that export was prohibited because it was not specifically mentioned in the compact.

The rare deal between environmental groups and the energy company dates to 1978, when the original developer of the Cove Point terminal, Columbia Gas System, offered the groups a say in how the 1,000-acre tract surrounding the terminal would be managed to overcome their opposition to the facility. The agreement has been renegotiated at least twice over the years, most recently in 2005 after Dominion acquired the property, to encompass new operations there.

The arrangement has been a mostly amicable one, with even environmentalists praising Dominion's stewardship of the site, until the company declared its intention to use the terminal for exporting LNG. The facility has been used fitfully, with tankers rarely calling there in recent years as domestic gas production boomed and the fuel's price dropped.

Dominion hopes to cash in on higher prices being paid for liquefied natural gas in Asia, Europe and elsewhere. But the Sierra Club objected because the gas to be shipped from Cove Point likely would come from wells in neighboring states where hydraulic fracturing was used to extract it. Many environmentalists contend that "fracking" has resulted in contaminated wells, polluted streams and releases of climate-warming methane into the air. The gas industry says numerous reviews have upheld the safety of the technique.

The other environmental group party to the Cove Point agreement, the Maryland Conservation Council, did not object to Dominion's plans. The company filed a pre-emptive suit last year against the Sierra Club seeking a court ruling upholding its interpretation of the deal that allows it to proceed.

The judge ruled in a 10-page opinion that the latest version of the compact does not specifically prohibit export from the terminal, so the Sierra Club has no say over the project. The agreement requires Dominion to get the groups' approval only if the company wishes to expand beyond the fence line of its existing 131-acre complex near Lusby, he said.

Dominion originally sought the groups' permission to expand, but has since said it can convert the terminal within its existing area.

The company welcomed the ruling, issuing a statement saying it will move forward with engineering, marketing and regulatory review work for the terminal project. It has said it plans to spend $2.5 billion to $3.5 billion to build a gas liquefaction plant and other improvements, which it says would support nearly 3,000 construction jobs and 70 full-time jobs. The company said exporting LNG will be good for local and national economies, generating $40 million a year in tax revenue for Calvert County while helping ease the nation's trade imbalance.

"We have received support from business, labor, government, community and environmental groups for a major construction project that would bring great benefits to many people," said Thomas F. Farrell II, Dominion's president, CEO and chairman.

Craig Segall, the Sierra Club's attorney, said the environmental group is considering an appeal of the decision. He said the 2005 agreement did not specifically mention exporting gas because neither the club nor the company thought it a possibility then.

"We'll look at our options, but we don't think it's right," Segall said. "And we still don't think lots more fracking to benefit Dominion that will lead to more pollution ... is a good idea."

The company has approval from the U.S. Department of Energy to export LNG to countries with which the United States has free-trade relations, but is seeking permission to ship it virtually anywhere in the world. It is in the process of filing an application seeking approval of the Federal Energy Regulatory Commission. Dominion has identified one of its potential customers for the gas to be shipped through Cove Point as Sumitomo Corp., a large Japanese trading company.

tim.wheeler@baltsun.com

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