Court orders review of Cove Point gas project

WASHINGTON (Reuters) - A U.S. appeals court on Friday overturned a government order allowing the expansion of a liquefied natural gas import terminal in Maryland, saying federal regulators failed to show how a local utility could fix leaks in its pipeline in time to carry the gas.

The Federal Energy Regulatory Commission in 2006 approved almost doubling, to 1.8 billion cubic feet, the amount of gas the Cove Point LNG terminal could send out daily.

Cove point is south of Baltimore on the Chesapeake Bay. The expanded terminal, owed by Dominion Resources, would deliver new winter gas supplies in the Mid-Atlantic and Northeastern states.

WGL Holdings Inc’s Washington Gas Light Company, a local distribution company that receives natural gas from Cove Point, asked for court review of FERC’s decision, arguing the expansion project will cause severe leaks throughout its pipeline system.

The company said that in the two years after it started receiving Cove Point’s LNG, the company’s pipeline in Prince George’s County, Maryland, saw a 16-fold increase in leaks.

The company said higher heat content of the LNG, compared with traditional natural gas, caused leaks in the seals in the couplings connecting its pipes.

LNG is natural gas treated for transportation aboard special tankers. The gas, cooled to minus 259 degrees Fahrenheit (minus 162 Celsius), changes into a liquid and shrinks to less than 1/600 of its original volume.

Once it arrives at a terminal, the LNG is returned to a gaseous state and shipped through pipelines.

The FERC said the leaks were due to hot tar applied to the couplings that damaged the seals when the pipeline was installed decades ago. The agency also said Washington Gas had time to replace the couplings before the extra LNG supplies started arriving.

The U.S. Court of Appeals for the District of Columbia said it backed the FERC’s conclusions that any threat of more leaks is due to defects in Washington Gas’ pipeline, and not the LNG.

But the court sided with company because it said evidence does not support FERC’s finding that the company can address safety concerns before the LNG project is completed in November.

The court noted that three years after the spike in leaks, Washington Gas has been able to repair only the affected portion of its pipeline in Prince George’s County.

The court said FERC does not explain how the company can repair the other 86 percent of its pipeline before the expanded terminal is operating or how enough trained contractors to perform the work “in such short order” can be found.

“Accordingly, we conclude FERC failed to carry out its obligation of ensuring the expansion can go forward consistent with the public interest,” the court said.

The court sent the case back to the FERC so the agency can more fully address whether the project can go forward without causing unsafe leaks.

Dominion said the LNG project will going forward. “We’re confident the Cove Point expansion is safe and in the public interest,” said company spokesman Karl Neddenien.

However, Neddenien said he did not know if the court’s ruling meant Dominion could not deliver gas from Cove Point into the Washington Gas pipeline system. (Reporting by Tom Doggett; Editing by David Gregorio