Dominion files lawsuit to confirm right to construct Cove Point natural gas liquefaction project

Dominion (NYSE: D) filed a lawsuit to confirm its right to construct a natural gas liquefaction project at its Cove Point liquefied natural gas terminal in Lusby, Md.

The company filed a complaint for declaratory judgment in response to an erroneous claim by the Sierra Club that the club has the authority to block the project.

The plain language of a 2005 agreement, to which Dominion and the Sierra Club are parties, specifically permits all the activities related to the planned liquefaction project, Dominion said in a complaint filed with the Circuit Court of Calvert County, Md.

“This project is of immense value to Calvert County, the state of Maryland and the United States,” said Gary L. Sypolt, CEO of the company’s Dominion Energy business unit. “We have a long history of working with our environmental partners at Cove Point.  Although the Sierra Club has chosen not to work with us in this instance, we are confident we are right and believe the best time to resolve this issue is now.”

Once completed, the liquefaction project is expected to handle natural gas exports that would reduce the U.S. trade deficit by more than $2.8 billion per year. It also would generate directly and indirectly about $1 billion annually in additional federal, state and local government revenues.

In Calvert County alone, the project could produce additional property tax revenue of up to $40 million per year and would make Dominion the county’s largest taxpayer. Over the life of the project, it would have an estimated economic impact on Calvert County of $1.3 billion. The project would generate 2,500 to 3,100 construction jobs and 70 to 100 permanent jobs in Calvert County.

In contrast to previous projects at Cove Point, including a 2005 expansion of the facility, the Sierra Club declined Dominion’s offer to discuss how to undertake the project in the most ecologically sound manner. Instead, the club and its Maryland chapter last month delivered a letter demanding the company abandon the project.

“The Sierra Club and the Maryland Chapter’s opposition to the Project has virtually nothing to do with any environmental impact at Cove Point,” the company said in its filings. “Instead, their opposition to the Project is motivated by their nationwide ‘Beyond Gas’ campaign against natural gas as an energy source and their concern that the Liquefaction Project will lead to increased U.S. natural gas production in areas hundreds of miles from Cove Point.”

Nothing in the 2005 agreement prohibits expansion of liquefaction capabilities at Cove Point or the export of LNG.  In fact, the company cited several sections of the 2005 agreement as expressly allowing the liquefaction project and loading LNG onto tanker ships for export:

– The definition of authorized “LNG Terminal Operations” specifically includes the liquefaction of natural gas.

– The definition further permits “the receipt by tanker and the receipt or delivery by pipeline of LNG, revaporized LNG or natural gas at or from the LNG Terminal Site.”

– Future expansion projects within the 131-acre “fenced” plant site were expressly anticipated in the agreement.

Construction of the liquefaction project is expected to begin in 2014, with an in-service date in 2017, pending receipt of necessary approvals, negotiating binding terminal service agreements with the shippers and successful completion of engineering studies. At the end of March, Dominion signed binding precedent agreements with two companies, one of which is Sumitomo Corp., a major Japanese corporation with significant global energy operations. Between the two shippers, the planned project capacity of about 750 million cubic feet per day on the inlet and about 4.5 million to 5 million metric tons per annum on the outlet is fully subscribed.