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Federal Court Rejects Dominion’s LNG Expansion

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Federal Court Rejects Dominion’s LNG Expansion

July 21, 2008

WASHINGTON — A federal appeals court Friday rejected a federal regulator’s approval of Dominion Resources Inc.’s Cove Point, Md., liquefied natural-gas expansion project.

Depending on the Federal Energy Regulatory Commission’s reaction, the decision could potentially delay the project.

The Washington-based U.S. Circuit Court of Appeals ordered FERC to “more fully address whether the expansion can go forward without causing unsafe leakage.”

Natural-gas distributor Washington Gas Light Co. had objected to the expansion, arguing that the influx of LNG would cause its distribution system in the mid-Atlantic region to suffer severe leakage.

Karl Neddenien, spokesman for Dominion Resources, said the company “is confident FERC will act expeditiously and that the Cove Point expansion will proceed on schedule to bring much-needed natural-gas supplies to U.S. markets.”

Eric Grant, a spokesman for Washington Gas Light Co., said, “We are still reviewing the opinion; however, we appreciate the court’s recognition that the Cove Point expansion should not proceed until the safety issues are fully addressed.”

Mr. Neddenien said the company was “not required to stop construction immediately. The court’s mandate will not become final for 45 days. In the meanwhile, we will be working through issues to insure that construction can proceed in order to keep the project on schedule.”

In its decision, the court said, “we find substantial evidence supports FERC’s conclusion that any threat of increased leakage is due to defects in WGL’s system, but we grant WGL’s petition because substantial evidence does not support FERC’s conclusion that WGL can address safety concerns before the project’s in-service date.”

FERC spokeswoman Barbara Connors said the FERC staff was reviewing the decision and couldn’t immediately comment on the impact of the ruling.

FERC said in its Cove Point approval decision: “There is time for WGL to complete any remaining corrective measures that are needed on its system so that it can safely accommodate regasified LNG.”

But the court said that the only evidence FERC offered to support this finding is that WGL had effectively curbed the leaks in 14% of its system. “It does not even begin to suggest WGL will be able to fix the other 86% of its system before the expansion begins operations in a couple of months,” the ruling said.

WGL told FERC that replacing all of the couplings in time was “not a viable option” because that could take “up to a decade or more to perform given the number of trained contractors available to perform the work.”

Norway’s StatoilHydro ASA, BP PLC and Royal Dutch Shell each own capacity at the terminal.

Spokesman Kai Nielsen from StatoilHydro, which holds a third of the capacity at Cove Point, said the company wouldn’t immediately be able to comment. Press officers from BP and Shell weren’t immediately able to comment.

Cove Point is in the midst of a significant expansion, started after FERC approved the project in August 2006. The project is designed to take the facility’s peak capacity from its current one billion cubic feet a day to 1.8 billion cubic feet a day, and storage capacity will increase from 7.8 billion cubic feet to 14.6 billion cubic feet. The terminal currently has the capacity to receive around about 90 LNG shipments a year. After the expansion’s completion, it could potentially take in around 200 shipments annually. Work was scheduled to be completed in November 2008. Mr. Neddenien said the aim was still for the expansion to be ready for new shipments by the end of the year.

Dominion Resources rose 26 cents to $44.47 Friday in New York Stock Exchange composite trading. American Depositary Shares of StatoilHydro rose eight cents to $31.21.

Algerian state-owned energy company Sonatrach signed an agreement in March with StatoilHydro to supply LNG to the U.S. through the Cove Point terminal.

Mr. Neddenien noted that the court rejected WGL’s claim that Dominion should pay to fix the distribution company’s problems, and that the natural gas meets applicable specifications.

Write to Ian Talley at [email protected]

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