September 15, 2023 [S&P Global]- Cove Point LNG has asked the US Federal Energy Regulatory Commission to alter the scope of regulation for certain facilities at its LNG terminal in Calvert County, Maryland, so that the company can more readily respond to market needs, now that some 20-year import service contracts have ended.
The changes would bring regulation of Cove Point facility — early versions of which first received imports in 1978 — in line with FERC’s current approach to regulating LNG terminals under NGA Section 3, Cove Point said. Cove Point first began receiving imports in 1978, but facilities were later mothballed for over a decade before being recommissioned in the 1990s and later expanded and then repurposed to also allow for exports.
Cove Point called the current use of NGA Section 7 for some aspects of the terminal service and processing at Cove Point “incontestably a historical artifact,” noting FERC switched its method of regulating LNG facilities soon after issuing an order enabling reactivation of Cove Point LNG facilities.
Cove Point noted that FERC, in a 2002 decision involving Hackberry LNG, adopted a “less intrusive” approach to LNG terminal regulation. Rather than requiring open access service of tariff or rate schedules for terminal service, it allowed rates and terms to be mutually agreed by the parties. The approach was further cemented in subsequent FERC orders and the Energy Policy Act of 2005, according to the company.
Allowing market flexibility
Given changes in international markets and the rise of US shale gas supplies, Cove Point told FERC the terminal has actively exported LNG since 2018, with “extremely limited” imports in recent years under the three contracts that were ending for tanker discharge services, using “Rate Schedule LTD-1.”
“In fact, no LNG import cargoes have been received at the CPL Terminal since December 2020,” the company said.
The proposed changes would allow Cove Point to enter into new Section 3 agreements with customers for LNG storage service, and for exports, imports, vaporization and re-exports as “economically dictated,” the company said.
“The commercial impact of the requested change to Section 3 regulation for CPL will be to allow it to contract for LNG export (and import) services using the unsubscribed capacity formerly contracted by its long-term LTD-1 customers on the market-responsive basis, with negotiated rates and terms of service… ,” it said.
Allowing the terminal to offer “market-responsive services” will allow it to compete on an even playing field with other LNG terminals, it told FERC.
The Cove Point facility, with 14.6 Bcf storage capacity, was the first LNG export facility on the US East Coast. Cove Point LNG is 75% owned by Berkshire Hathaway Energy, following the Sept. 1 completion of its purchase of a 50% stake from Dominion Energy.
In 2001, FERC authorized Cove Point to reactivate and replace facilities, and build new facilities, including a fifth LNG storage tank and resume imports at the terminal. According to the filing, the reactivation order granted approval under Section 3 for the siting, construction and operation, as well as under Section 7 on the basis that the facilities and services would be used for shipping gas in interstate commerce. FERC also allowed Cove Point to offer tanker discharging services under Rate Schedules LTD-1 and LTD-2, to three firm LTD-1 shippers with 20-year primary terms, the application said.
The application asks FERC to cancel that rate schedule provided under LTD-1, and going forward have all of the terminalling and processing facilities and related operations regulated under NGA Section 3. It seeks authorization by Jan. 31, 2024.
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