Natural Gas Industry: How Legal Troubles Could Derail this Company's Export Plans

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Over the last month, we've spent a great deal of time discussing the potential for Cheniere Energy (AMEX: LNG) to export liquefied natural gas out of the Sabine Pass in 2014.

The Sabine Pass isn't the only terminal being eyed for natural gas exports. Applications for seven other exporting facilities throughout the U.S. are pending with the Federal Energy Regulatory Commission (FERC).

That includes Virginia-based Dominion Resources (NYSE: D), which wants to export more than one billion cubic feet of natural gas per day through its Cove Point terminal in Maryland.

Just this morning, The Washington Post highlighted the potential of Dominion Resources' Cove Point facility.

"Just off Cove Point on Maryland's Western Shore sits an array of empty docks. Built to accommodate massive tankers bearing natural gas from abroad, the facility saw only five ships pass through in 2011, reports Dominion Resources, the owner. None have come this year. American firms have increased their production of natural gas from unconventional shale formations so much in the past few years that they are running out of places to store it, the price has plummeted and Cove Point's expensive facilities are all but idle.

On the other side of the planet, in Japan, the price of natural gas has soared. An energy-hungry world is coping with the shutdown of Japan's nuclear reactors after last year's Fukushima Daiichi meltdown, which left the country scrambling to find fuel for backup power plants. Japanese companies are investing hundreds of millions of dollars in natural gas projects and have paid 10 times the American price for imports.

The opportunity here is obvious: The United States should export some of its bountiful stocks of natural gas to Japan and other countries with fewer supplies and high demand."
That seems like a no-brainer - but Cove Point represents an important standoff between natural gas producers and environmentalists.

That's because a previous legal agreement allows the Sierra Club to reject any significant changes to the purpose or footprint of Dominion's Cove Point natural gas terminal. Right now, the grassroots environmental group plans to stop Dominion from exporting gas due to concerns about environmental degradation in the Chesapeake Bay.

This is a highly concerning development for Dominion.

Environmentalists Love/Hate Natural Gas

The Sierra Club has a history of blocking energy projects even if the government allows the permits and if environmental agencies sign off.

As The Post points out, common logic should trump the Sierra Club's order. LNG exports have immense benefits to the United States and the global economy.

Plus, environmentalists supported the increased use of natural gas before they were against it. Natural gas was considered a terrific bridge fuel by certain environmental groups, given that it only releases about 50% of carbon emissions compared to coal.

The Post lists the following as primary benefits:

  • The United States can improve its trade deficit.
  • Companies produce greater returns for stockholders.
  • An increase in state and federal tax revenue.
  • Immediate growth in private and public sector construction and maintenance jobs.
  • Help to reduce Russia's leverage over Europe's ongoing energy crisis.
  • A limit to the global use of coal in energy-starved nations like Japan.
  • And an improvement to trade relations with Japan, our leading Asian ally.


Exporting LNG also is a perfect opportunity to make money in Asian markets while reducing the U.S. usage of coal and crude oil.

To make matters more complicated, a hidden irony in this story centers on the Sierra Club's ties to the natural gas industry.

TIME magazine recently found that between 2007 and 2010 the Sierra Club accepted more than $25 million in donations from the gas industry to jumpstart the Club'sBeyond Coal campaign aimed to prevent construction of new coal-fired power plants. The gifts were primarily provided by embattled Chesapeake Energy CEO Aubrey McClendon.

Now the Sierra Club has turned a cold shoulder to the industry.

For investors in Dominion, it will be an interesting 2012. There could be lawsuits, or there could be a grand bargain between the company and its environmental rival.

In the end, I expect that Dominion will win the legal fight moving forward. There's too much common sense involved in this project.

But then again, logic and reason rarely enter the debate between energy firms and environmental foes. Follow this story into the election, as both candidates will likely chime in.

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