Driving to Dominion Energy’s Cove Point LNG terminal in Lusby, Md., is different than just about any other journey to an oil and gas-related facility in the U.S. Though many midstream and downstream facilities are located along a coastline of some sort—especially LNG terminals, because of their shipping needs—it is rare for one to be in such an idyllic location.

“The environmental stewardship of this plant is unbelievable. It’s where environment meets industry and works,” Don Raikes, senior vice presi- dent of customer service and business development at Dominion Energy, told Midstream Business.

Indeed, the terminal has been in operation since 1978 and is situated in the heart of 800 acres of land along Cove Point on Chesapeake Bay, sur- rounded by picturesque homes, baseball fields, parks and beaches.

The facility was originally built to import LNG to help meet power gen- eration and heating demand along the East Coast. However, in 1980, just a few years after it was brought online, it ceased operations after the need for LNG imports subsided with increased domestic production of natural gas.

The place to fish

“When I first came here in 2002, most people didn’t even know it was here. If they did know of anything it was the docks, because when it [Cove Point] was inactive from 1980 until we reac- tivated it, that was the best place in the bay to strike for fish,” Mike Frederick, Dominion vice president of LNG opera- tions, told Midstream Business.

In 1994, Columbia Gas System Inc., the facility’s sole owner at the time, received approval to add a 14 million cubic feet per day liquefier to pro-
vide peaking service to the Southeast. However, imports didn’t recommence until 2003, after Dominion acquired the facility from Columbia the previous year. Dominion expanded the terminal by add- ing a fifth LNG tank in 2004, as imports were expected to increase with domestic supplies thought to be running out.


“One of the key things about Cove Point is it has the ability to move gas east to west into the Mid-Atlantic markets as well as into the Northeast through pipe- line systems,” Frederick said.


However, with the advent of shale production, specifically the Marcellus Shale, this import demand once again subsided. The sheer volume of gas being produced out of the Marcellus opened up new opportunities for the terminal to export this cheap and abundant resource to foreign shores. In 2011, the company announced its export project at the facil- ity, which is currently forecast to cost between $3.4 billion and $3.8 billion.

Surprise customers

Cove Point is fully subscribed by two companies—a bit of a surprise to some observers, who originally thought that the terminal would be an ideal center for exporting LNG to Europe when Dominion first filed for FERC approval. Cove Point’s Maryland location was assumed to impede access to Asian mar- kets due to competition from multiple terminals being developed along the Gulf Coast.

However, Cove Point is fully sub- scribed by Asian companies. Dominion struck the first U.S. liquefaction contract with a Japanese company when it reached a long-term deal with Sumitomo Corp. and Kansai Electric for half of the terminal’s capacity. The U.S. affiliate of GAIL (India) Ltd. has con- tracted for the other half.


These companies sought out Marcellus Shale production in order to diversify their supply as well as lock in the economic and deliverability security offered by U.S. natural gas.

“The word ‘Marcellus’ is known around the world,” Raikes said. “Our customers gained immediate leverage in the market as soon as they signed their first U.S. deal with us. We were the first U.S. company to secure an offtake agreement with a Japanese company and the second to secure an offtake agreement with an Indian com- pany. Having alternate sources of LNG is very beneficial to them.”

Environmental stewardship

The uniqueness of the terminal was also a challenge as Dominion faced pushback from environmental orga- nizations on its plans for growth.

The company was unable to expand past the current facility location and became more creative in its approach by increasing the terminal’s export capability within the same space.

“There are 131 acres in which we operate, and outside of that are the con- servation easements. We aren’t able to work outside of that easement because of opposition from environmental groups to fracking in general. One of the most disappointing things for me was the position they took against this facility. Prior to this project, we had great working relationships with those groups,” Frederick said.

The creation of the 43-million-gal- lon Lake Levy is a prime example of the close relationship Cove Point officials had with environmental groups. As part of the initial construc- tion of Cove Point, a manmade dam and sedimentation pond were built. They were originally supposed to be removed when a tunnel was dredged and completed, but the environmental organizations working closely with Cove Point officials asked that they be left, as they offered a great habitat for water fowl and wildlife.

The company has been careful to ensure that the expansion has minimal impact on the environment as well as the quality of life of local residents. It built a temporary off-site parking loca- tion for workers, who are then bused to the construction sites. In addition, large equipment is moved to construction sites at night, between 9 p.m. and 5 a.m., Sunday through Thursday, to ensure the least amount of traffic congestion.

Sixty-foot sound barriers inside the terminal’s fencing minimize construc- tion noise and are required to meet a 55-decibel day/night average. These barriers are further hidden by trees and other plants.

Residents and county and state offi- cials have reciprocated this commitment by supporting Dominion in the face of challenges to the export project from environmental groups.

“Our relationship and environmental reputation with the state of Maryland made a difference [in moving forward with this project],” Frederick said.

20-year science project

Dominion remains committed to conserving this nature preserve, which includes a freshwater marsh project that has won several environmental stewardship awards, including the National Environmental Excellence Award from the National Association of Environmental Professionals, the Environmental Excellence award from the Southern Gas Association and the Chairman’s Stewardship Award from the Interstate Oil and Gas Compact Commission. In addition, the Cove Point terminal houses Calvert County’s first LEED-certified green building, which uses 32% less energy than a standard building.

Frederick said he is most proud of the award from the National Association of Environmental Professionals out of the recognition Dominion has received for Cove Point.

“A nor’easter breached the areas and the 190-acre marsh, which is a desig- nated Maryland natural heritage area and the only ecosystem of its kind in the [Maryland] western shore. It’s very unique, and bay water was inundating the marsh,” he said.

After a series of meetings with envi- ronmental groups and state officials about whether to let nature take its course or attempt to fix the problem, Dominion decided to step in, at its own expense. At the time, the company was expanding its dock to handle larger ships by dredging 150 feet in each direction.

“We’d never had to dredge the plat- form before, because the current kept it clean. We had 120,000 cubic yards of dredge material that we were looking [to use] for a beneficial use project. We pro- posed building an abetment in front of the marsh’s weakest point, fill behind it with dredge material and create a brack- ish water marsh to protect and rejuve- nate the freshwater marsh,” Frederick said. This has turned into a 20-year science project with three monitoring stations in the marsh through a contract with the Chesapeake Biological Lab at the University of Maryland.

Dominion also undertook a project to build an artificial reef just north of Cove Point’s platform using rubble from the demolition of the old Woodrow Wilson Bridge in Washington, D.C., that was transported by barge to Cove Point.

“Neither of these projects was required by any regulatory agency. The marsh was worked into the permit for the export project as we moved along, but it wasn’t required. The rubble project cost $3 million and the marsh was part of a $50 million project,” Frederick said.

Surprising imports

Cove Point will soon be both an import and export facility, but ship traffic should remain the same, according to Dominion officials. The company told Midstream Business that it anticipates about 85 ships per year, which is the same average it had during the peak of its import operations. This figure is also less than half of the 200 ships per year that the terminal is authorized to receive as part of its import permit.

The importing aspect issued another surprise to the company when it received four ships carrying a little less than 12 billion cubic feet total, in 2015, to meet peak winter heating demand. While imports are unlikely to be a major part of the facility’s operations in the future, they still have a part to play at Cove Point.

“The way the pipelines are situated, shippers are counting on those peak days in the winter when prices spike in Transco Zones 5 and 6. They’ve also made some fi rm contract sales for power generation,” Frederick said.

Property tax boon

The company anticipates that Calvert County will benefit from an additional $40 million per year in property tax revenue for the next 30 years, an additional $23 million in local income taxes and $2.3 bil- lion in sales revenue for county businesses.

When the export expansion is completed in December 2017, it will officially mark the beginning of the Marcellus Shale’s role as a global energy superpower able to send out large volumes of production around the world.

“There are many export projects proposed, and there is likely to be just a handful that will move forward,” Raikes said. “Cheniere was the first, and we’ll be the second one. How do you tell the pretenders from the contenders? A lot of projects will have smoke around them; there aren’t many with long- term contracts for offtake and banks signed up for an FID [final investment decision]. One of the things we were blessed with was our financial strength. We never had an issue with our cus- tomers over whether we could finance this project.”

He doesn’t anticipate many more LNG export projects to come online until 2020, when demand is expected to exceed supplies.

Regardless of how the LNG market swings in the coming years, Cove Point is set to make its mark on the global LNG stage by being the first—and possibly only—LNG terminal fully supported by production out of the Appalachian Basin.

Given the greater challenges to build- ing oil and gas-related infrastructure in the Mid-Atlantic and Northeast regions of the U.S., it is possible that Cove Point will remain unique not just in its har- monious relationship with nature, but in its proximity to the Marcellus and Utica shales.

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