LNG terminal's revival is timed right-- Cove Point hopes to take advantage of shortfall in natural gas supplies
<a href=www.sunspot.net>SunSpotBy A Sun Staff Writer Originally published June 22, 2003
Four hundred workers on the banks of Chesapeake Bay at Cove Point were laboring furiously in the rain last week, pouring concrete, laying fiber optics and welding steel to renovate a liquefied natural gas terminal mothballed since 1980.
There was little time to spare.
The first tanker loaded with the liquid form of natural gas, called LNG, is expected at the Calvert County terminal at the end of July. It will pull up to Cove Point's pier a mile offshore and pump millions of gallons of the frigid fuel through submerged insulated steel pipes and into four giant storage tanks on land.
The ship will be the first of several dozen LNG vessels expected to make that same trip to Southern Maryland this summer from natural gas fields around the world.
Cove Point LNG, which will be the largest operating in the country, is being resurrected as the nation grapples with rising natural gas prices and the tightest supply in a quarter century.
The supply crunch has gotten attention in Washington. This month, Federal Reserve Chairman Alan Greenspan warned a congressional panel that rising prices and dwindling supplies could further damage the weakened economy and urged the country to expand its ability to import LNG.
"He all but named Cove Point," said Daniel Donovan, spokesman for Dominion Resources Inc., which purchased the LNG terminal in September from financially strained Williams Cos. for $217 million.
With gas prices up more than 70 percent in a year, it's no wonder that Dominion is spending another $180 million to upgrade the Cove Point terminal, build a fifth storage tank and refurbish the aging pier that seagulls had claimed as home.
LNG is profitable when natural gas prices reach $2.50 to $3.50 per million British thermal units, according to study by the Institute for Energy Law & Enterprise at the University of Houston. Prices now are well above $6 per million Btu.
"This is the furthest the plant has come," said Chris Buffalini, a control room operator who has worked at Cove Point for five years. "I'm really looking forward to the ships coming in."
A number of those who live near the terminal - about three miles from Constellation Energy Group's Calvert Cliffs nuclear plant - have been less eager about the LGN plant's revival.
Some said it would ruin one of the best fishing spots on the bay. Others worried that a spill would create a vapor cloud that would cause a horrific explosion if ignited. Still others expressed concern that the terminal could become another target for terrorists.
"A few years ago, they started talking about reopening the terminal," said James Oneyear, 64, a retired electrician who has lived in Cove Point since 1966. "There were a lot of people who were really disturbed about it. I went to all three of the meetings that they had and they just told us they were going to do it whether we wanted them to do it or not."
Others in the area said they have come to accept it.
"When you live on the bay, you also live with all the things that could happen ... floods, tornadoes, Calvert Cliffs Nuclear Plant," said Barbara Moyers, 64, a Rockville resident who has lived part time in Southern Maryland since the 1970s. "This is just another thing to add to the list. If you were in bed worrying about all the things that could transpire, you'd have to shoot yourself."
To be inspected
Company officials point out that federal regulators must approve the plant's facilities before the first ship arrives.
Once it is operational, the terminal will be monitored by a number of agencies. The Federal Energy Regulatory Commission, which approved the reopening, will continue to inspect the site once a month. Cove Point's underground pipelines will be regulated by the federal Office of Pipeline Safety and its underwater pipes and pier monitored by the Coast Guard.
Analysts say Dominion's move, at a time when LNG imports account for 1 percent of the nation's natural gas consumption, is astute. The federal Energy Information Administration expects LNG to reach 3 percent of consumption by 2020.
"Dominion is one of the largest companies in the nation," said Shelby Tucker, an analyst with Banc of America Securities. "They do exploration of oil and gas, so they have a sense of overall demand and supply in the country. They're smart people. Acquiring Cove Point was the right move at the right time."
By the time Cove Point is fully operational, which is expected to be in August, the plant will be able to store 5 billion cubic feet of LNG, chilled to 260 below zero to convert it to liquid. Cove Point can pump out enough energy a day through three pipelines to run about 3.4 million homes.
A single ship can carry enough LNG to meet the daily energy needs of more than 10 million homes. Dominion is expecting about 60 ships a year bearing fuel from places that include Nigeria, Trinidad and Tobago, Algeria, Venezuela and Norway.
The company and energy analysts say there is little chance that Cove Point will fall victim to the industry conditions that cut short its use more than two decades ago.
Production in domestic gas fields won't be able to meet demand, which is expected to keep growing, especially because new electricity generating plants mostly use clean-burning natural gas as fuel, they say.
Built in the 1970s, Cove Point imported LNG from 1978 to 1980, until a pricing dispute with suppliers in Algeria shut it down.
The terminal remained dormant as natural gas prices dropped and domestic production increased, supplying 83 percent of the nation's needs. An additional 16 percent was supplied by Canada, so there was no need to import LNG.
Reopened in 1995
Then, in 1995, the original owner, Columbia Gas, reopened Cove Point to serve mainly as a storage site for energy companies in peak winter months, when natural gas prices on the spot market are higher.
Columbia never got far with its reactivation plan before selling it three years ago to Texas-based Williams, which moved ahead with plans to reopen Cove Point. In December 2001, the Federal Energy Regulatory Commission gave its approval. But Williams was derailed by the turmoil racking the energy industry and sold out to Dominion, which is based in Richmond, Va.
Dominion is rushing to get ready for the first load of LNG, which will chill the pipes and tanks to prepare them for regular shipments. The utility also is preparing its operational plan, including security and emergency procedures, which must be approved by the Coast Guard before the first tanker docks.
Regardless of who owns the terminal, Oneyear said, the damage done to the Chesapeake Bay and its surroundings will be the same.
"Those ships, when they come in here, are as large as three football fields," said the retired electrician. "That's a lot of ship. They've got big propellers so there will only be a 4-foot difference between the bottom of the ship and the bottom of the bay. It's just going to churn the heck out of the bay."
LNG has had a fairly good safety record compared with those of refineries and other petrochemical plants, according to the U.S. Department of Energy. In the 40 years that LNG has been delivered across the ocean, eight marine incidents worldwide have resulted in LNG spills.
Fatalities occurred at several onshore facilities in earlier years, but industry experts say more stringent operational and safety regulations have been implemented since then.
Cove Point fatality
One of those fatalities occurred at Cove Point in 1979, when LNG leaked through an inadequately tightened LNG pump seal. The liquid vaporized, passed through 200 feet of underground electrical conduit and entered an electrical substation.
The explosion killed an operator in the building, seriously injured a second and caused about $3 million in damage.
Since then, industry analysts and experts say, the technology involved in producing, storing and processing liquid natural gas has improved greatly.
"One of the demonstrations we like to put on for people is putting out a cigarette in a thermos of LNG," Donovan said. "It's not explosive, and it's not flammable. Then we pour it out on a desk and it gradually vaporizes into the sky. I guess someone could burn that, but the chances of them getting close enough to make that happen are pretty remote."
Donovan said Dominion has upgraded Cove Point's electronic surveillance system and that security guards keep a close watch on the grounds.
A Coast Guard vessel will accompany LNG tankers up the Chesapeake, and a 200- to 500-yard security perimeter will keep other boats and ships from getting close.
"I've got mixed feelings about it," said Marvin Green, 81, who has lived in Cove Point Beach for 15 years. "I used to tell people this place is great because we've got three libraries and no traffic lights. Now I tell people the fishing is lousy because of pollution. It's too crowded now."
"But am I worried?" Green said. "At my age, I've already got one foot in the grave. I'm not all that worried about a gas plant."