WASHINGTON (Reuters) - The Sierra Club will try to use a 40-year-old legal settlement to scuttle plans by Dominion Resources Inc to convert a liquefied natural gas terminal in Maryland into a major export hub.
The environmental group, which opposes the export terminal as part of its wider fight against natural gas drilling from shale deposits, can weigh in on certain changes at the site of the proposed terminal under a 1972 legal agreement.
The Sierra Club says that under that settlement, it has a say over whether Dominion can convert an import terminal at Cove Point, near a state park, into an export plant. Dominion’s CEO disagreed with that view during a conference call with analysts on Thursday.
The Sierra Club and the Maryland Conservation Council made the deal with the then owner of the planned Cove Point terminal, just south of Calvert Cliffs State Park. Dominion, the current owner, wants to convert the facility from an import terminal to an export plant that would ship up to 1 billion cubic feet of cheap U.S. natural gas a day to foreign markets where it would fetch a higher price.
Dominion is one of nearly a dozen companies seeking government approval to export some of America’s abundant shale gas resources. Natural gas is trading at $2 per million British thermal units in the United States, much lower than its level in Europe of $6-$8 and around $13 in Asia.
The Sierra Club and Maryland Conservation Council challenged construction of the Cove Point LNG import terminal more than four decades ago. Their 1972 settlement with Columbia Gas System Inc. bound Columbia and any future owners of the terminal to certain conditions for use of the land. It also required approval of the environmental groups for expansions.
“The deal says what it says, and that’s the end of the story,” Sierra Club lawyer Craig Segall said. “If they want to try to persuade someone to let them out of it, that’s their prerogative, but I don’t think they will be successful.”
On a conference call to discuss quarterly earnings, Dominion’s CEO said the company did not agree that the settlement bars it from exporting gas.
“As we do with all stakeholders on which we are going to have an impact, we like to work out cooperative arrangements,” Tom Farrell, chief executive of Dominion, said on the call.
“We always have with the Sierra Club. We hope that we can, as we go along here. But we have the right to build it, and we are going to proceed accordingly,” Farrell said.
Dominion’s share price was up 39 cents on Thursday, after the company announced first quarter net profit rose to $494 million, or 86 cents a share, from $479 million, or 82 cents a share, a year ago.
The push to export natural gas has sparked debate over how the United States should handle its newfound gas bounty.
Critics say allowing exports could raise prices for U.S. consumers. Some producers say exports are necessary to allow shale production to keep flourishing since the current glut of U.S. natural gas has sent domestic prices to 10-year lows and forced some companies to cut back on output.
Environmentalists oppose expanding the use of fossil fuels and hydraulic fracturing, or fracking, the drilling technique that spurred the shale gas revolution and that they claim has potential to foul water supplies.
“Every billion dollars that we’re throwing into an LNG terminal is a billion dollars that’s better invested in solar and wind,” Sierra Club Executive Director Michael Brune told Reuters.
Bill Cooper, president of the Center for Liquefied Natural Gas, disputed the notion that exports would greatly expand shale gas drilling and said exports would help create jobs and boost the U.S. economy.
“The industry is drilling wells every day and we don’t have an export market,” Cooper said. “What we’re talking about is creating another demand market to take care of the excess supply that we’ve already found.”
The agreement on the Cove Point terminal has been updated several times since 1972, most recently in 2005 to allow Dominion to add new storage tanks to the site. The 2005 deal restricts the use of Cove Point to LNG imports and bars major new construction on the site without consent of the two environmental groups, the Sierra Club said.
The Sierra Club said it remained confident that its interpretation of the agreement will stand, allowing the group to block Dominion’s export plans.
While the land deal is unique to the Maryland terminal, the challenge to Cove Point is a part of group’s larger effort to oppose LNG exports. The group has already begun challenging export terminals on the federal level, calling for further studies on the environmental impact of fracking and LNG, an energy-intensive process that cools natural gas to levels where it becomes a liquid.
Reporting by Ayesha Rascoe; Editing by Lisa Von Ahn, Bernard Orr and David Gregorio