Plans set to reopen LNG operations


October 28, 1990|By John H. Gormley Jr. | John H. Gormley Jr.,Sun Staff Correspondent

Cove Point -- It's one of the world's most expensive wildlife refuges. The chain-link fence surrounding the 300 acres supports about 30 bluebird boxes. The rocks placed over the top of a mile-long concrete tunnel dug into the mud of the Chesapeake Bay provide ideal habitat for striped bass and other fish. Many of the high structures of the ship terminal have been colonized by nesting ospreys.

For over a decade, the birds and the fish have pretty much had the run of the place, but in the next two years the wildlife will have to learn to cope with a much higher level of human activity at the Cove Point liquefied natural gas terminal in Calvert County, as steps are taken to reactivate the plant by 1993.

Idle since 1980, the $400 million Cove Point LNG plant was designed to be a major supplier of natural gas for gas retailers and industries in the eastern United States. Specially built ships would bring foreign-produced LNG -- natural gas that has been transformed to a liquid by cooling it to minus 260 degrees Fahrenheit -- to Cove Point, where it would be heated back up, converted to a gas and injected into a pipeline connected with the domestic gas transportation system at a point in Loudoun County, Va.

The plan worked for just two years. The first LNG ship arrived at Cove Point from Algeria in 1978. The LNG shipments continued at a rate of almost one a week for two years. But then a pricing dispute with the Algerian producers of the LNG and ample supplies of affordable domestic natural gas brought the shipments to an end.

The last ship unloaded LNG at Cove Point in April 1980. Columbia LNG Corp., the Columbia Gas System subsidiary that owns the plant, kept the storage tanks cold for another six months in the hopes that the shipments would resume.

"To cool down this terminal is no little task," observed Max Levy, Columbia LNG's president. "You don't just cool it down and heat it up again."

Instead of returning, the three ships that supplied Cove Point were put into mothballs, and the storage tanks have remained empty ever since. The future for Cove Point looked so bleak that in April 1988 Consolidated System LNG, a subsidiary of Consolidated Gas System of Pittsburgh, simply walked away from its 50 percent ownership of Cove Point, leaving Columbia LNG with sole ownership.

Since then the prospects for LNG projects in the United States have improved dramatically. Foreign producers have shown greater pricing flexibility through a willingness to sign agreements under which they receive a percentage of the market price of the gas. In the past they insisted on more rigid contracts based on fixed prices; in addition the so-called "bubble" of domestic gas supplies has dwindled, according to Columbia LNG officials. All this has happened at a time when environmental concerns are greatly increasing the appeal of natural gas as an alternative to more-polluting fuels like coal or oil.

The reactivation of the Cove Point plant makes sense at current price levels, according to Mr. Levy, who expects the profitability to improve. "What everybody is betting on is a general increase in the price of gas," he said.

With the improved economic outlook for LNG projects, Columbia joined hands with Houston-based Shell Oil Co. in an effort to reopen Cove Point. Shell now owns 5 percent of Columbia LNG and has agreed to purchase a 50 percent share for $110 million over the next year or two, Mr. Levy said.

Columbia and Shell have been negotiating supply agreements with Algerian and African suppliers. Mr. Levy expects those agreements to be in place by the end of the year.

With the economic issues falling into place, Columbia and Shell needed to arrange transportation of the gas. The breakthrough on that front occurred a month ago when a settlement was reached in a legal dispute over control of the same three specially built LNG tankers that supplied Cove Point a decade ago. As a result of the settlement, two of those ships will be used bya Royal Dutch Shell Group subsidiary to supply Algerian gas to Cove Point.

The clearing of that hurdle, freed Columbia LNG to begin the reactivation of Cove Point plant, a process that Mr. Levy estimates will take about two years.

The physical part of that process should be relatively easy, despite the length of time the plant has been out of operation. Standing on the ship terminal built on stilts a mile from shore, Mr. Levy said, "Everything is in mint condition."

The terminal has a staff of 17 workers who check and maintain the equipment. The loading equipment, for example, is tested every two weeks, Mr. Levy said. The main question focuses on the instrumentation designed to measures performance and ensure safety. "You can't test instrumentation in a down facility," Mr. Levy said.

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