As part of a second quarter earnings conference call with financial analysts, Sempra Energy senior officials last week confirmed that they have ongoing negotiations with at least four separate parties for capacity at the proposed Cameron, LA liquefied natural gas (LNG) receiving terminal, and they expect to have the facility's 1.5 Bcf/d capacity fully subscribed by the end of this year.
They also expect to project finance the facility, which will begin construction in the next two months, following an announcement last week of an initial capacity deal with Italy's ENI S.p.A.
In response to a question from analysts, Sempra COO Don Felsinger said ENI "felt quite comfortable with our terminal and the prices we were offering, and as we continue to have discussions with other individuals that we have signed [agreements to negotiate] with, we feel confident we will fill up the remaining capacity at Cameron some time by year-end and then start working on Port Arthur."
The ENI deal, which includes access to an undisclosed portion of capacity in a takeaway pipeline that Sempra is developing in conjunction with the LNG receiving terminal, will supply the San Diego-based energy holding company with coverage of its cost, plus a return on its investment, in the $700 million Cameron facility, which was the first terminal permitted by the Federal Energy Regulatory Commission in 25 years, according to Sempra CEO Stephen Baum.
"My rule for our developers is that we be assured through contracts of recovery of our investment, plus a return, before we begin construction of a LNG facility," Baum said. "I didn't insist that we have 100% of the capacity contracted, although it did happen that was the case in Energia Costa Azul [in North Baja California, Mexico, which is already under construction].
"With respect to the Cameron facility, we are really quite confident because of negotiations that are in advanced stages with other parties for capacity at that terminal in addition to the 600 million-per-day now contracted by ENI," said Baum, drawing short of putting a precise time frame on the negotiations, although confirming that two of the four parties include Tractebel LNG North America LLC and Russia's Gazprom. "We're quite confident of them, but I don't want to tie them to a particular time frame.
"The 600 million cubic feet daily completely pays for the terminal with a return, and we have enough interest [from others in buying capacity] to spill over to our Port Arthur facility."
CFO Neal Schmale said in response to further analysts' questions that "over time, we expect to be project financed" at both LNG terminals. "Exactly how much would be project financed would depend on market conditions at the time the transaction is done, but with the kind of contracts we have supporting these facilities, they are very amiable to project financing."
Sempra officials continued to stress the company's progress in the LNG terminal development, along with strong earnings from its other major business sectors, particularly its two California-based utilities, as reason for its increasingly favorable earnings projections. Felsinger reiterated the company's bullish outlook for LNG, in particular in the United States:
"We still believe that by 2012 the country will need seven or eight new terminals, and the majority of those will be located in the Gulf, but we feel very confident with the locations that we have at Cameron and Port Arthur (TX) that we are in the sweet spot in the Gulf in terms of access to pipelines for takeaway to major markets and to take advantage of basis [price] differentials."
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