Settlement of ship dispute clears way to reopen Calvert County gas terminal

September 20, 1990|By John H. Gormley Jr.

A settlement reached yesterday in a dispute over three liquefied-natural-gas tankers will allow plans to proceed for the reopening in late 1992 of the Cove Point LNG terminal in Calvert County.

Columbia LNG Corp., the Wilmington, Del.-based owner of the LNG terminal and regasification plant, said yesterday that the settlement "appears to clear the way for efforts to revive the LNG trade in the eastern United States."

The $370 million Cove Point terminal opened in 1978 but closed just two years later when the market for imported natural gas collapsed. The plant has been in mothballs ever since.

With expectations of a strengthening market for natural gas in the United States, the idea of importing supercooled liquefied gas has become attractive again, and Columbia has been working with the Royal Dutch Shell Group, an Anglo-Dutch company, to reopen the Cove Point terminal.

Acquiring ships to transport the gas from Africa to the United States is a key part of those plans.

A tangled legal dispute over title to the three ships has prevented Columbia and Shell from concluding agreements with the Algerian and Nigerian companies that are expected to supply the gas for the Cove Point facility.

A spokesman for Shell said the settlement "will now allow the various supply arrangements to progress." Columbia said yesterday that it hopes those supply agreements can be concluded before the end of the year.

The reopening of Cove Point also requires the approval of the U.S. Energy Department and the Federal Energy Regulatory Commission.

Both the Cove Point plant and the LNG ships will have to be refurbished before they can go back into operation.

The reopening of the plant is expected to mean 100 new jobs at Cove Point and a $3 million increase in local tax revenues.

The three ships, which cost $125 million each to build about a decadeago, have been in mothballs since 1981. Controlled by the U.S. Maritime Administration, the vessels are moored at Quonset Point, R.I., a former naval base on Narragansett Bay.

Under the settlement, Argent Marine Services Inc., a New York company, will be allowed to buy two of the ships for $18.1 million each. The ships, which will be operated by Shell International Marine, a subsidiary of Royal Dutch Shell, under a 20-year charter agreement, will be used to supply Cove Point.

Cabot LNG Corp., which has a subsidiary that operates an LNG plant in Boston harbor, will get the third ship, also for $18.1 million. That ship will be used to supply the Boston LNG terminal.

The settlement was a compromise between the claims of Argent and Cabot. Two years ago, the Maritime Administration agreed to sell all three ships to Argent for $12.7 million each.

Cabot subsequently filed a federal suit challenged Argent's right to the ships under rules that limit their ownership to U.S. citizens. Argent in turn filed suit to force the Maritime Administration to live up to the terms of the original agreement.

As a result of the compromise, Argent will get only two of the three ships and must pay $5.4 million more per ship than called for in the original agreement with the Maritime Administration.

Nevertheless, Stephen Gottlieb, Argent's president, called the settlement "a fair compromise for everybody."

Without the settlement, the dispute might have dragged on for a year or more, he said, and would have delayed the Cove Point project further. "We didn't think that would be good for Shell," Mr. Gottlieb said.

In addition to operating the ships, Shell also owns a 5 percent stake in Cove Point.

Shell Oil Co., Shell's U.S. subsidiary, has an agreement to increase its stake in the terminal, reportedly to 50 percent, contingent on certain conditions that have not been made public.

With the ownership of the ships now clear, Argent must determine what needs to be done to put the ships back into operation and must choose a shipyard to do the work.

The ships, the same ones used to supply Cove Point before the terminal closed, were built by Newport News Shipbuilding and Drydock inHampton Roads, Va., at the mouth of the Chesapeake Bay.

Cove Point is the largest of four LNG terminals in the country.

The Boston-area plant owned by the Cabot subsidiary and a terminal at Lake Charles, La., are operating. A terminal at Elba Island, Ga., is closed.

Joseph Teves, a vice president of Cabot LNG Shipping, the subsidiary that will operate Cabot's LNG vessel, said that ship should be in operation in about a year. Refurbishing it will take several months, he said.

He attributed the increased interest in LNG projects to foreign producers' greater willingness to negotiate prices and to expectations of increased domestic use of natural gas, in part because of environmental concerns that will favor gas over other fuels that produce more pollution.

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