UPDATE 1-U.S. allows Cove Point LNG expansion to continue

(Adds comments from Dominion spokesman, paragraphs 3, 11)

WASHINGTON, Oct 7 (Reuters) - Federal regulators said on Tuesday that the expansion of a liquefied natural gas import terminal in Maryland could go forward after a U.S. appeals court halted the project in July on safety concerns.

The Federal Energy Regulatory Commission decided to reissue its authorization of the expansion of Dominion Resources' D.N Cove Point LNG terminal, but limit the amount of supply shipped to a local distribution company.

“We are pleased that FERC has taken direct action to allow the Cove Point expansion to continue and to separately address the remaining issue raised by the court,” Dominion spokesman Karl Neddenien said.

WGL Holdings Inc's WGL.N Washington Gas Light Company argued that the higher heat content of the LNG caused a 16-fold increase in leaks to its pipeline in Prince George's County, Maryland, in the two years after the company began receiving natural gas from Cove Point.

But FERC concluded, when it approved the project in 2006, that the leaks in the coupling seals that connected the pipes were mainly due to hot tar the company applied to seals when the pipes were installed as a means of corrosion control.

FERC believed that Washington Gas could replace the couplings before the expanded terminal came online.

In a July 18, 2008, ruling, the U.S. Court of Appeals for the District of Columbia agreed that the threat of more leaks were due to defects in Washington Gas’ pipeline, which the company would be responsible for repairing.

Despite this consensus, the court ultimately sided with Washington Gas, saying FERC failed to show that the company could address these safety concerns before the November completion of the project. The case was sent back to the FERC to better address the potential for unsafe leaks.

After holding technical conferences and collecting more data, the FERC found that it could ease safety concerns by restricting deliveries to Washington Gas’ system.

“We anticipate that at some point in the future, we may be able to remove this restriction,” FERC said. “However, in the meantime, the condition we impose will prevent unsafe leakage on WGL’s system from occurring as a result of the terminal expansion.”

Neddenien said, “We look forward to completing the expansion and bringing much-needed additional supplies of natural gas to Maryland and the East Coast.”

The project will almost double the daily volume of gas Cove Point can deliver to 1.8 billion cubic feet. It will also bring winter gas supplies to the mid-Atlantic and northeastern states. (Reporting by Jasmin Melvin)