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New projects to lead to higher W.Va. gas royalties

MOUNDSVILLE, W.Va. – With new, multi-billion dollar projects in the works and pipelines under consideration, it won’t be long before Ohio Valley mineral rights owners could start to see a significant jump in their royalty checks.

The latest announcement that could benefit local residents is the Dominion Resources Cove Point project in Lusby, Md., which will take natural gas produced primarily in the region, liquify it to make it safe for transport and then ship it to overseas markets such as India and Japan.

Corky Demarco, executive director of the West Virginia Oil and Natural Gas Association, said Dominion’s $3.8 billion Cove Point project should have a “significant impact” on the Mountain State, as it will be the only East Coast transit hub for natural gas to overseas markets.

If the price of natural gas increases, he said mineral owners will likely see more royalties because there will be more drilling.

“They will want to have a steady supply of gas going that way,” Demarco said, referring to Dominion’s project. “That will be as close to mostly methane as possible. This should increase drilling activity in our state.”

Liquified natural gas, known as LNGs, should not be confused with natural gas liquids, or NGLs, which consist of ethane, butane, propane and other wet gases. Liquified natural gas typically is methane – the same gas used to heat your home – that is “cooled until it becomes a liquid and then safely stored at essentially atmospheric pressure. If spilled, LNG evaporates and quickly dissipates because it is lighter than air. LNG has been safely transported to the United States and around the world for decades with more than 135,000 LNG carrier voyages taking place without major accident or safety or security problems, either in port or at sea,” according to the International Group of Liquified Natural Gas Importers.

Exporting natural gas also will bolster companies to open new wells in dry gas areas that currently are not experiencing much drilling.

“Some people who have not seen their land drilled yet still will. They probably just have not gotten to some places in Belmont County yet,” Mike Chadsey, spokesman for the Ohio Oil and Gas Association, said. “There are a lot of variables with royalties because of the variables in the lease agreements.”

Dominion’s Cove Point project, which has received final regulatory approval from the Federal Energy Regulatory Commission, will be able to export up to 5.75 million metric tons of LNG per year, starting in June 2017. Overall, U.S. natural gas exports have about doubled over the past 10 years, and are up 600 percent from 2000.

Natural gas imports, meanwhile, have dropped about one-third in the past 10 years.

Demarco said the Dominion project marks a course-correction in how natural gas is being supplied to the world.

“It’s really amazing. We started out thinking we were going to have to use that to import gas,” Demarco said of Cove Point. “It’s a 180 degree change.”

Chadsey said the industry has a “glut of gas right now.”

“We need to get it out and start using it. Whether it is residential, commercial or industrial, natural gas is good for everyone,” he said.

Shawn Bennett, senior vice president of the Ohio Oil and Gas Association, said the proximity of the Cove Point LNG facility to the Marcellus and Utica shale areas should give producers a more convenient outlet for the gas they produce.

Chadsey also said the planned Odebrecht ethane cracker in Wood County would be a “huge” boost for Buckeye State drillers.

“That would be off the charts,” he said.

Dominion hopes to begin its export operations in 2017. It envisions that 85 ships would leave from its terminal each year, carrying natural gas that has been cooled to liquid at minus 260 degrees. The gas is shipped in liquid form for ease of transport. Dominion plans to ship the liquefied natural gas to Japan and India, where gas prices are higher than in the U.S.

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