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Sempra All-In On LNG Exports, Considering Expansions

Sempra Energy is gearing up to expand its Cameron, LA, liquefied natural gas (LNG) export project, pursue other export possibilities in Texas and Mexico, and assess the value of establishing a master limited partnership (MLP) backed by Cameron or other assets, senior executives said Tuesday.

CEO Debra Reed said a major strategy is to "broaden the LNG business," by building on the work accomplished to date to get the first three trains at the Cameron liquefaction site under construction. "This positions us well to expand our LNG footprint," she said during a third quarter conference call.

"The combination of forming the joint venture [JV] and moving from the development to the construction phase, where we have a fixed price, turnkey EPC [engineering, procurement, construction] contract is another huge step that gives us confidence the project will be successful," she said. The LNG JV between Sempra, GDF Suez SA, Mitsui & Co. Ltd. and Mitsubishi Corp. was created two years ago (see Daily GPIApril 18, 2012).

Reed and senior executives outlined the timetable for Sempra to pursue FERC approval next year to add two more trains (4 and 5) at Cameron, which it could do if there is enough support. Sempra also is considering whether to develop its 2,900-acre, three-mile-long waterfront property in Port Arthur, TX, on the Gulf Coast for a deepwater port that could be used to potentially export LNG and/or natural gas liquids. As well, Sempra is pondering whether to convert to an export facility the Energia Costa Azul (ECA) LNG receiving terminal on the Pacific Coast in Baja California, Mexico.

For the Cameron expansion and the potential Port Arthur export project, Sempra already has attracted "strong customer interest for both," Reed said. With further analysis, Sempra will develop "more clarity" on the prospects and timing of the two projects and if appropriate, could file with the Federal Energy Regulatory Commission (FERC) next year.

Sempra is studying the possible size, structure and economics of an LNG export facility at ECA, and it intends to have a clearer idea of the project's potential in the first half of next year, Reed said. Unlike Cameron, ECA is fully contracted for LNG imports through 2028.

Falling global oil prices aren't a concern for Sempra's aggressive LNG export expansion plans. "All of the joint venture parties agreed to move forward with some of the initial work on a FERC filing for trains 4 and 5, so that in itself is a good indication," Reed said. Generally, the project backers have expected volatility in oil prices, and Sempra continues to feel it is "well positioned" in the global LNG market, Reed said.

Sempra President Mark Snell emphasized that the LNG business is a long-term investment. "What we are seeing in our partners is an interest in obtaining long-term supply of LNG from the United States with all the stability and continuity that can provide. We really haven't seen that interest abate, even as we have watched oil prices fall during the last few days."

Snell emphasized that the underlying numbers for the project give him confidence in moving ahead with expansions even before the first trains are built and operating by 2018. "U.S. LNG, especially from the Gulf Coast, has a pretty good cost advantage over just about everything else that there is in the world today, and that holds even when oil prices drop into the $70/bbl range."

A lot of the oil-linked contracts, particularly in Asia, for LNG have floors and ceilings on prices as oil prices fluctuate, so even if oil dropped to prices not seen for more than a decade, the global price of LNG would not necessarily fall to those levels, Snell said. "There are built-in price levels there, and I think we're competitive with those."

Diversity of supply for the buyers also is important, and that keeps U.S. LNG very much in the forefront competitively, according to Snell, who said he is "very confident" Sempra's partners want to see the expansion to trains 4 and 5 at Cameron go forward. He also said Sempra sees other interest in plans to develop the Port Arthur site.

Some of the expansion projects could be online as early as 2020, Snell said.

Sempra also is considering new types of financial opportunities and expects to complete an analysis of traditional MLPs and total return vehicles (TRVs) by the end of March, Reed said. It's something Sempra has considered for some time (see Daily GPIMarch 30, 2012). CFO Joe Householder said Sempra now possesses pipelines, renewables and LNG projects with long-term cash flows that could be used as a base for the MLP or TRV.

Sempra earned $348 million ($1.39/share) in 3Q2014, compared with $296 million ($1.19) in 3Q2013. The company expects to earn at the high end of guidance this year, $4.25-4.55/share.

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