Monopoly, Sorry! or Chutes and Ladders?
However you play it, natural gas export is a high stakes game
The biggest development proposed in Southern Maryland history looks much like a high-stakes game, with scenic Cove Point at the center of the board. At stake are millions of dollars in tax revenue, thousands of new jobs — and a quiet way of life Calvert County residents hope to preserve.
In a game that seems a bit like Monopoly, energy giant Dominion Resources is seeking a $3.8 billion expansion of its liquefied natural gas terminal at Cove Point. After two years of environmental review, permits, protests and appeals, the project appears to be on the brink of approval.
People living near the controversial project — who fear both harm to the Chesapeake and their own property values — hope it doesn’t turn out more like the game Sorry!
The huge project comes closest to Chutes and Ladders, with its much-touted upside weighed against its potential downside and risks. It’s not all black and white, as some proponents and activists contend.
“When the expansion was first announced in 2012, all I heard was negativity, like It’s the end of Cove Point as we know it,” said Alan Spahr, president of the Cove Point Beach Association. The 175 homes in the association are within walking distance of Dominion’s sprawling plant off Maryland Route 497 near Lusby.
Spahr has met regularly with Dominion officials on the proposed export terminal and presented residents’ concerns to state officials. He has mostly gotten satisfactory answers, and he’s keeping an open mind.
“There’s always going to be a The sky is falling! faction, regardless of the issue,” Spahr said. “You’ve got to find the truth on both sides of the issue, and you can’t do that without the facts.”
Dominion is eagerly awaiting the Federal Energy Regulatory Commission’s final order and expects to receive the green light this summer.
“We’re getting close,” said Mike Frederick, vice president at Dominion’s Cove Point LNG plant. “We’re thinking some time in July or August.”
Here then, is a guide to who stands to gain or lose.
Dominion’s Power Play
Dominion, a Richmond, Va.-based Fortune 500 corporation, hopes to capitalize on the booming natural-gas supply surge in this country by turning its existing LNG import terminal at Cove Point into an export terminal. Its market and profits are guaranteed: All the natural gas that will flow from Cove Point has already been pre-sold to energy users overseas — half to Japan’s Sumitomo Corp. and half to GAIL Limited of India.
Despite the staggering cost and logistics of transporting natural gas hundreds of miles from Appalachia’s shale fields, then liquefying it for export, the Cove Point export project will still be highly profitable for Dominion, given the much higher price of natural gas overseas.
The $3.8 billion cost of the Cove Point plant expansion is significant, but it won’t make much of a dent in Dominion, which has a market capitalization of nearly $42 billion. The outflow of LNG at Cove Point is expected to boost Dominion’s net income significantly.
A Dominion investor briefing in July 2013 estimated that its exports from Cove Point would boost the company’s annual net income, currently $1.7 billion annually, by as much as $.25 per share. That equates to about $135 million annually when completed in 2017. Dominion expects annual earnings produced by Cove Point to grow to twice that amount by 2021.
On a Roll
In May, FERC issued a favorable 240-page Environmental Assessment of the project, concluding it posed “no significant impact” on the environment. Despite requests from environmentalists and local congressional representatives to extend the 30-day comment period past its June 16 expiration, FERC declined, indicating a decision is imminent.
The export plant will still be within its already permitted EPA limits, Dominion says, despite higher air pollutants that will be coming from Cove Point. Carbon dioxide emissions will be permitted to increase about 50 percent when the plant is up and running by late 2017.
“There’s nothing that’s free from an energy standpoint,” said Dominion’s Frederick.
Approval can’t happen fast enough for U.S. Rep. Steny Hoyer, whose 5th Congressional District includes the Cove Point site.
“It’s a big deal for the county,” said Hoyer, sitting in his House Minority Whip’s office in the U.S. Capitol. “This is an important asset. It makes Dominion the No. 1 property tax payer in Calvert County, and it’s going to create a huge number of jobs.”
Hoyer said he is not concerned that exporting natural gas, which the Cove Point plant will almost exclusively do, would have an adverse impact on domestic natural gas prices or supply.
“The DOE [Department of Energy] is monitoring that,” Hoyer said. “They have determined that we have reached the point where our domestic supply is growing so fast that we can now safely export natural gas, and that helps us with jobs here and our balance of trade.”
To gain the blessing of the initially skeptical Maryland Public Service Commission, Dominion agreed to pay $48 million toward emissions reductions elsewhere in Maryland, to offset the increased emissions at its Cove Point plant.
On a larger scale, Frederick said Dominion’s Cove Point expansion will result in a 4:1 net reduction of CO2 emissions globally. The exported natural gas will allow India and Japan to reduce their current dependence on coal-fired electricity-generating plants, which produce twice as much air pollution.
Residents: Pawns in the Game?
With the Cove Point expansion plan steamrolling forward, opponents are ramping up efforts to stop it, or at least slow it down. At a rally July 13 in front of the U.S. Capitol led by the Chesapeake Climate Action Network, protesters called for an end to U.S. natural gas exports, specifically from Cove Point.
The same Takoma Park, Md.-based group organized a weeklong picket line June 23-27 outside FERC headquarters in Washington. Speakers opposed the conversion of Dominion Cove Point LNG to an export operation that could encourage more fracking in the U.S. Fracking injects huge amounts of water into underground natural gas deposits to crack open fissures and extract the gas; it is currently not permitted in Maryland.
Opponents are preparing lawsuits to require a full Environmental Impact Statement on the Cove Point expansion, beyond the Environmental Assessment.
Other opponents worry more about their own back yards.
“County officials are only looking at the pros,” said Tracey Eno, who lives in the Cove Lake community, a mile and a half from the plant. Eno says local officials focus on tax revenue, without much regard for quality of life. She sees no benefit in the plan for local residents.
“It’s not helping my business,” said Eno, a licensed massage therapist. “What am I getting, except more polluted air in my lungs and lower property values?”
About 2,000 residents live within a two-mile radius of the existing plant. Most affected will be residents like Spahr and Eno, who live in the 265 houses located past the plant’s entry gate on dead-end Cove Point Road (Maryland Route 497). They now share the narrow two-lane road between the plant and the historic Cove Point lighthouse, where Dominion’s half-mile-long offshore terminal pier is part of the otherwise scenic Bay view.
Construction will have the greatest impact on area residents. For that phase, Dominion is building a large, temporary staging area west of Route 2/4 to reduce traffic on Route 497. It also plans a 60-foot-high wall on the southern and eastern border of the existing plant’s boundary to mitigate noise and light pollution.
The wall is an aesthetic worry for some critics of the proposal, but Dominion spokesman Karl Neddenien said it should be mostly unseen behind the existing 70- to 80-foot-tall tree line surrounding the site.
Fay Fratz, who also lives just southeast of the plant, says she has “no problem with the expansion.”
In recent years, Dominion has paid for extensive beach and wetlands restoration projects nearby, outside its Cove Point plant’s operations area.
“They have always been conscientious, good stewards of the environment,” said Fratz, a retired nurse and neighborhood watch coordinator. “I can’t think of anyone else I would rather have there.”
Union workers are eager to see the Cove Point plan approved. It would inject up to 1,200 jobs, the majority filled by workers living in Calvert, St. Mary’s and Charles counties.
“This is a home-grown project,” said Steve Zimmerman, business agent for the International Brotherhood of Electrical Workers Local 26. “Calvert County residents get first crack at these jobs.”
Holding a Full House
Energy companies are scrambling to catch the early wave of natural gas exports, and Dominion Cove Point is poised to be the third of some 20-plus export terminal proposals seeking approval. Terminals in Louisiana and Texas have already been given the green light, and several factors give Dominion a head start over other competitors, including:
Location: Cove Point would become the first LNG export terminal on the East Coast, and it is relatively close to regional natural gas reserves. Dominion-owned pipelines connect Cove Point to natural gas suppliers in Pennsylvania, Ohio and West Virginia.
Impact: The Cove Point plant’s expansion would occur entirely within its current 113-acre industrial site, which is surrounded by a wide 1,000-acre green buffer zone that cannot be developed.
The export facility would simply reverse the flow of natural gas, using the existing seven LNG storage tanks, pipes and offshore pier for tanker ships. It will add a large electricity generating plant to power the new liquefication equipment for export operations.
The number of ships coming and going from Cove Point will not increase, Dominion says. It is permitted up to 200 tankers per year, but has never had more than 80 a year in the last decade of operations.
Physics: The liquid natural gas to be exported requires six hundred times less volume than it would in its gaseous state.
Politics: The Cove Point expansion has the unanimous support of the Calvert County Commission and the county’s state legislative and congressional representatives.
Jobs: Up to 1,200 jobs, almost all union labor, will be created during the construction phase over the next two and a half years. At least 60 percent of those jobs will go to Southern Maryland workers. Dominion will add 75 permanent jobs on-site when buildout is complete, adding to its current Cove Point work force.
Incentives: Calvert County negotiated a deal in which Dominion will receive about $500 million in tax incentives over the project’s first 15 years, while Dominion will pay out more than $800 million in new taxes over the same period. County officials expect to recoup the $500 million granted in incentives within seven years after the 15-year agreement.
“The county got what we wanted out of it,” said Mark Volland, spokesman for Calvert’s economic development department.