Executive Q&A viewpoint
Dominion Energy is moving forward with its plan to construct natural gas liquefaction facilities for exporting LNG at its existing Dominion Cove Point LNG terminal on the Chesapeake Bay in Lusby, Maryland. The proposed liquefaction facilities, combined with existing Import/regasification facilities, will provide a bidirectional service for the import and export of LNG at the terminal. Dominion plans to start construction on the 5.25-MMtpy facility in 2014 and commence export operations in 2017 (Fig. 1).
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Fig. 1. When fully constructed in 2017, the Dominion Cove Point LNG terminal will |
On September 30, 2014, Dominion reached a major milestone when the company notified the Federal Energy Regulatory Commission (FERC) that it had accepted the FERC’s order approving the Cove Point LNG liquefaction and export project and all of the required environmental conditions. Construction of the export project is estimated to cost between $3.4 B and $3.8 B.
Michael D. Frederick, vice president of LNG operations for the facility, talks with Gas Processing about the status of the project and what happens next.
GP. Congratulations on your recent approval by FERC. What are the next steps in the process?
Frederick. FERC issued the order on September 29, with 79 conditions specific to the order. We accepted the order the next day, and filed implementation plans to show how we are going to comply with all of the conditions.
After they agree with those changes, we will receive their approval to start construction. Those plans include the three areas we are working on—the terminal itself, and two temporary offsite areas that we refer to as offsites A and B.
GP. What is the purpose of the offsite areas?
Frederick. Area A is about a mile from the terminal site. That’s the office and staging site where the contractors will report. The site will also be used for the laydown area. We will be busing in the contractors from there to the terminal.
Area B is down the road about six miles, near Solomons, Maryland. It’s where we are constructing a temporary pier so we can bring in large equipment and material on barges. On October 3, FERC issued the notice that we can start construction on offsite area B, so we started that on October 7.
As of October 15, we are still awaiting their approval on offsite area A and the terminal, and we expect that approval might take a couple of weeks to receive. We expect that we will have the facility in service by late 2017, with a capacity of more than 750,000 dekatherms per day of liquefaction.
GP. Do you have firm customer commitments for the LNG output?
Frederick. We do. The first is GAIL Ltd. of India and the second is Sumitomo Corp. of Japan. We know that they are very excited about us getting the FERC order, because they are very much looking forward to getting reliable and reasonably priced energy in the time frame consistent with our commitment to them.
GP. This project sounds like it will employ a significant number of people, which should help with Maryland’s 6.4% unemployment rate.
Frederick. Right. We have about 100 employees now, but, by the end of construction, we will have added around 75 additional permanent positions. We have already begun bringing people on board, beginning with the process engineers. We will hire more technical people next year. For this area, these are very high-paying jobs.
During peak construction, we will be employing about 1,200 to 1,500 construction workers onsite. During the three-and-a-half-year period of construction, that is in excess of 3,000 job-years of available employment.
I am routinely approached by workers from the area, who currently have to travel out of the area to Washington, D.C., and Baltimore for work, and who say they are excited about the opportunity to use their skills right here in their own community.
GP. Will this project have any impact on other local businesses?
Frederick. I know a lot of people that have been waiting for the start of construction, who are very excited about it. Many businesses in this area have not fully recovered from the recent recession, so I get asked every day when we are going to start. They are looking forward to the bump in local spending. This will create a lot of indirect opportunity for local folks as a result of the project.
Our engineering/procurement/construction contractor, IHI/Kiewit, has a project labor agreement in place with the local unions to do the construction work. They expect that 60% of the workers here will come from the tri-county area, which includes Calvert, St. Mary’s and Charles counties, which is commonly referred to as southern Maryland. That is fairly significant.
GP. From where will the gas be sourced?
Frederick. The export contracts are set up similar to our import contracts, which are still in force. We truly are the middlemen, so to speak. It is GAIL’s and Sumitomo’s responsibility to source the gas, to purchase the gas, and to bring it to our facility via the pipeline system. We will undertake the liquefaction, storage and loading onto the ship for them. Then, once it leaves our dock, they will take it where it is needed.
GP. Do you think this facility will have any effect on US Northeast gas production?
Frederick. The whole increase in gas production in this area is driven by the Marcellus and Utica shales. Even though the US pipeline system is interconnected and flows in many directions on any given day, I think it is fair to say that some of the gas that will wind up here will be sourced from the shales.
GP. Do you think this project, Cheniere’s project, and the other few proposed LNG terminals will have any impact on gas prices?
Frederick. The US Department of Energy (DOE) and the Energy Information Administration (EIA) have both conducted extensive studies on that, and they have concluded that if we do export this limited amount of surplus gas, it will not dramatically impact gas prices in the US. There might be a bit of an increase, but not a substantial one.
If we step into the producers’ shoes in the shale basins, certainly they are looking for something that will provide price stability for them. They are looking for additional markets. But the DOE and the EIA have studied the gas industry extensively to make sure that the benefits for US consumers are still the highest priority.
GP. Do you think that other industries, such as the transportation or petrochemical industry, might compete with LNG-exporting companies for US gas, or is there plenty to go around for all industries?
Frederick. I think some environmentalists would like the US to stop using all fossil fuels and to stay with renewables. Clearly, we need a balance, but it is unrealistic to think we could ever go completely renewable [energy], based on our current consumption rates. So, there has to be a balance.
If we look at transportation, from the cost and environmental perspectives, there is certainly an opportunity for the transportation industry to use more gas. However, that industry typically moves slowly, as far as changing technology, although there is opportunity for them.
Also, we have begun to see some of the petrochemical production that had previously moved to other areas of the world now coming back as a result of the lower-cost fuel. That’s good for the US and good for the industry. Although it takes about four to five years to build an LNG facility, it may be quicker than building a gas-based transportation industry or new petrochemical plants.
Overall, I think the diversity of fuel usage is a good strategy for the industry, period. I think all of these usages are important and appropriate. I do believe there is enough supply to go around due to the technology advances in gas production. I think we will see continued improvement of production capabilities. Also, an advantage to this facility is that it is bidirectional, so if the US needs to import gas sometime in the future, then that can happen, too.
GP. Will new LNG facilities, such as Cove Point, divert gas away from gas processing plant operators?
Frederick. No. As an operator of an LNG facility, I would be just as happy to receive all dry gas, in the form of methane, as opposed to wet gases—those with greater volumes of heavier hydrocarbons. So, to the extent that producers have the opportunity to direct their wet gas toward facilities that can extract that wet gas is an advantage to them and to us.
Our requirement for gas quality is pipeline tariff, which has some limitations on the total amount of entrained heavy hydrocarbons. We have designed the terminal so we can accept the pipeline-quality gas that we are expecting, including what might come out of shale. Some of the liquids can be extracted and used as fuel, and some of them would be liquefied and carried into the liquefaction train and into the cargo.
GP. Is there anything unusual about the Cove Point facility?
Frederick. Yes. We built an underwater tunnel that is 1.25 miles long, to connect the onshore facilities to the offshore platform in the bay. The tunnel has three compartments. The left and right compartments house the transfer piping that run from onshore to offshore. The middle compartment is for personnel transit. We typically transit by riding bikes.
Because we are a state-of-the-art facility, we get worldwide interest in this project. I’ve been here for nine years, and it is still interesting to me that, when we host tours and I ask people what they found most impressive, people say it was riding the bikes in the tunnel.
Another aspect that is unique to us—and we are extremely proud of this—is our environmental stewardship. All reputable companies do things the right way, environmentally, but I think we go above and beyond.
GP. How do you mean?
Frederick. As an example, in 2009, larger LNG carriers were brought into service. To accommodate those, we needed to lengthen our pier and undertake some dredging, due to the additional draft of these larger vessels used by our customers, which are BP, Shell and Statoil.
While working on this project, we acquired about 120,000 cubic yards of dredging material. Meanwhile, on our property, which is just over a thousand acres, there’s a substantial freshwater marsh that is unique to Maryland. In fact, it was designated a Maryland Natural Heritage area. The beach that separates the freshwater marsh from the bay was very narrow.
A few years ago, a severe storm caused a breach to that beach area, allowing brackish bay water to infiltrate the freshwater marsh. Because we operate here in partnership with the Sierra Club, the Nature Conservancy, the Maryland Conservation Council and the Maryland Environmental Trust, there was a great debate about whether or not to save that marsh. We realized we had this opportunity with the dredge material, and we all agreed that we could put that to work. We built a stone abutment out in front of the beach, filled in behind it with the dredge material, and then planted native species in the brackish water marsh we created. This brackish marsh now protects the beach, along with the freshwater marsh behind that.
We put three monitoring stations in the marsh that measure pH, salinity and dissolved oxygen, among other metrics. Basically, it is now a 20-year science project, to see how a freshwater marsh and its species, which have been damaged from brackish water influx, can rejuvenate or regenerate. We are extremely proud of that. It’s a perfect example of how Dominion goes above and beyond what is required, from an environmental perspective.
GP. Is there any opportunity for the nearby community to access these areas?
Frederick. Actually, we planted about 750,000 plants in that marsh, and it’s been virtually all done with grade school and high school students and in partnership with the National Aquarium of Baltimore (Fig. 2).
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Fig. 2. Employees, students and community volunteers work together to preserve |
In fact, at some of the high schools, the students actually grow the plants in the wintertime when school is in session, and then they bring the plants here in the spring to plant in the marsh. We’ve won some awards for this project. One was from the National Association of Environmental Professionals.
GP. Are any colleges involved?
Frederick. Sure. We provide the data from the three monitoring stations in the marsh to the Chesapeake Biological Laboratory, which is part of the University of Maryland. The University conducts analytical studies on the data. To put it in perspective, the freshwater marsh includes about 160 acres, and the area of the abutment that we built in front of it is about 10 acres.
GP. That sounds like a significant benefit to the nearby community.
Frederick. Another benefit is that, while our export project is under development, the county is receiving about $16 MMpy in property taxes.
When we go into operation, the county will receive an additional $40 MMpy in property taxes. For this county, that represents a full 20% of its operating budget.
GP. Is this a well-populated area?
Frederick. Actually, it’s really not. This county has done a great job of keeping the land in preservation. One of the ways it has been able to do that is because there are two significant taxpayers here—the Calvert Cliffs Nuclear Power Plant and Dominion Energy.
The county has been able to support the area in a rural setting because of these facilities being built there. We are really proud to be a part of this tremendous effort, and we are looking forward to completing construction and bringing this facility into service. GP
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Michael D. Frederick is the vice president of LNG operations at Dominion Energy’s Cove Point LNG facility in Maryland. He joined the company in 1982 and has held various positions in engineering and operations in gas transmission. When Dominion purchased Cove Point in 2002, Mr. Frederick led the transition team and was later named director of LNG operations. In September 2011, he was named director of planning, reliability and geographic information systems services at Dominion Virginia Power. In that role, he was involved in two of the three largest restoration events in Dominion Virginia Power history. These events were necessitated by Hurricane Irene in September 2011 and by the June 2012 derecho, which is a widespread, long-lived, straight-line wind storm associated with a fast-moving group of severe thunderstorms. Mr. Frederick earned his bachelor’s degree in mechanical engineering from the University of Pittsburgh, and he is a past-president of the Annemarie Sculpture Garden and Arts Center in Calvert county, Maryland.
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