Reopening of idle LNG terminal proposed Cove point would get Algerian gas

February 19, 1991|By Ross Hetrick | Ross Hetrick,Evening Sun Staff

After sitting idle for more than 10 years, the liquefied natural gas import terminal at Cove Point in Southern Maryland may be reactivated in 1993.

Columbia Gas System Inc. of Wilmington, Del., and Shell Oil Co. of Houston, Texas, yesterday announced a long-term agreement that may lead to the importing of liquefied natural gas from Algeria through the existing regasification terminal at Cove Point.

However, deliveries would not begin until 1993 and the plan must get the approval of U.S. regulatory agencies. After approval, it would take about another year to recommission the terminal, which is now in a standby condition, Columbia said.

When it is operational, the terminal will have a work force of about 120.

Shell International Gas Trading Co., a subsidiary of Shell, signed a contract last Saturday with Sonatrading, a subsidiary of the Algerian state hydrocarbon company, to buy LNG equivalent to 91 billion cubic feet of natural gas a year.

The liquefied gas is to be carried in two existing U.S. flag LNG tankers and be sold to Cove Point Trading Co., a proposed marketing partnership between subsidiaries of Columbia and Shell Oil.

The two ships are the Arzew and the Southern, which are owned by Argent Marine Services Inc., a New York company. The ships will be operated by Shell International Marine, a Shell subsidiary, under a 20-year charter agreement.

Argent bought the two ships for about $18 million a piece from the U.S. Maritime Administration last November. The Maritime Administration acquired the ships after the original owner, El Paso Co. of Houston, defaulted on government guaranteed loans in the mid-1980s.

The two tankers, which had served Cove Point in the late 1970s, have been docked in Quonset Point, R.I., a former naval base on Narragansett Bay.

The LNG is to be regasified at the Cove Point terminal, which is owned by Columbia, and marketed to pipelines, distribution companies and large commercial and industrial gas users. The terminal has access to three major interstate gas pipelines.

The price of the gas will be determined by market conditions with each participating company getting a percentage of the proceeds. The purchase agreement with Sonatrading is for 15 years.

The $370 million Cove Point terminal, which can regasify up to a billion cubic feet of natural gas daily, was built in the late 1970s at the height of a natural gas shortage. Utilities were anxious to get natural gas at any price and the imported gas was sold at a premium price.

The terminal received its first shipment in March 1978. But the shipments stopped in April 1980 when the Algerian government raised its price and natural gas became more plentiful in the United States as the result of the deregulation of natural gas prices.

Despite the downturn in the market for liquefied gas, Columbia has always maintained that the terminal had a future.

"It's in the heart of the Eastern market area where demand for natural gas is expected to continue to grow during the coming decade," said Max M. Levy, president of Columbia LNG and Columbia Atlantic Trading Corp., two Columbia subsidiaries. "It's like finding a new gas field in Maryland and not having to build major pipelines to get it to market," he said in a prepared statement.

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