While acknowledging today's choppy waters in global liquefied natural gas (LNG) markets, San Diego-based Sempra Energy senior executives on Friday said they are aggressively seeking final long-term agreements for a proposed joint venture LNG export facility at Port Arthur, TX, and work building more energy infrastructure in Mexico.
Noting that more traditional memoranda of understanding (MOU) won't give them the assurances they need for the multi-billion-dollar Texas facility, Sempra's top executives said they are going after final sales agreements with potential shippers and buyers, bypassing the MOU stage. All of the deals would be for the global market after 2020, which is expected to be robust following today's worldwide oversupply situation.
And south of the border, where Sempra's IEnova subsidiary is the largest pipeline developer/operator in Mexico, Sempra hopes to land three new contracts this year totaling nearly $2 billion for added natural gas pipeline infrastructure.
For new LNG projects "there is no question that the market is tougher than when we signed [contracts] for the first three trains at our Cameron [LA] project, but we have been negotiating with some very strong counterparties who want to go to sales/purchase agreements, and we do, too," Sempra CEO Debra Reed said. "That would allow us more comfort in starting to spend money on the facility. An MOU doesn't have that same level of obligation.
"Getting sales/purchase agreements signed would give us a lot of confidence moving ahead with the facility later this year."
Octavio Simoes, president of Sempra LNG, echoed Reed's outlook, saying the proposed Port Arthur facility is not aimed at selling into the current global market, but the projected more robust market after 2020. "At the time it will be one of the lowest, if not the lowest, priced LNG projects in the world," he said.
Sempra emphasized the importance of time frames in talking about LNG projects yet to be designed and permitted. "What you read about is the current oversupplied LNG market, but you can also read about beginning in 2020 and beyond there is a growth in the marketplace that will need more LNG," Reed said.
Simoes said the global market pricing today is "broken," and it will go through adjustments in the next two years. Currently, spot market cargoes are being priced above long-term contract pricing, he said. Since it takes five to six years to get a project designed, contracted, permitted and constructed, developers like Sempra and its JV partner, Australia's Woodside Petroleum Ltd (see Daily GPI, Feb. 26), have to make decisions today to meet demand in the future, he said.
"Unless you believe that globally we are going to switch everything from gas to oil and coal, which would decrease our footprint significantly, it seems like the headwinds are blowing the other way," said Simoes, noting that the push for a lower carbon footprint worldwide will open new and larger markets for gas.
A different set of economic and political pressures come into play in Mexico, where the national oil company, Petroleos Mexicanos (Pemex) is under increasing political pressure because of lower energy revenues for the federal government. But Sempra senior officials at IEnova see all of this as an opportunity, Reed said.
"The whole reason for reform [of Pemex] was to bring capital into Mexico to build the kind of infrastructure it needs for the kind of growth it wants," Reed said. "Mexico is going to be more competitive the lower the [global] energy prices are in the long term. So to the degree they can use other parties' capital from sources like us to build the infrastructure to reduce their energy costs, they will move forward on that basis.
"The struggle for Pemex with its heavy reliance on oil revenues is an opportunity for us to come in and build things that are needed as part of the Mexican long-term infrastructure."
Sempra President Mark Snell said expectations from reforms have been for increases in Pemex production and that hasn't happened, but that is only part of the story.
"That is entirely the fault of $30/bbl oil and had very little to do with the Mexican reforms," Snell said. "What is coming out of reforms is a massive amount of infrastructure within the country, and that infrastructure is doing exactly what it is supposed to [lower costs] and bringing natural gas into regions that didn't have access to it. It is really making a difference in lowering electricity costs.
"To the extent that low oil prices are hindering some of the reforms at Pemex that is creating a large opportunity for us because it increases the need for Pemex to seek capital, and gives us an opportunity to look at assets they are willing to sell. From our perspective, the reforms are working as intended, and we can continue to benefit."