With its prospective liquefied natural gas (LNG) terminal business well underway, even in the wake of Hurricane Katrina, San Diego-based Sempra Energy's core "philosophy of doing business" is now clearly illustrated by its proposed joint venture with Kinder Morgan to build a $3 billion, 1,500-mile natural gas pipeline from the Rockies into the upper Midwest and East, according to Neal Schmale, Sempra's CFO, speaking Thursday at the Lehman Brothers energy conference in New York City.
Schmale called the proposal to build a 42-inch-diameter pipeline "interesting" in its operational and financial aspects, but also because it "kind of describes our philosophy of doing business." He said Sempra will tend to "look for large economic trends and then try to get in front of those trends," as he feels the company has done in its LNG plays on the Gulf Coast and Pacific Coast of North Baja.
As the LNG move was motivated by Sempra's macro analysis of the North American gas production having peaked, so Schmale said the pipeline from the Rockies is based on the more recent analysis that among all of the production regions in North America, the Rockies has the best chance -- at least in the near term -- of increasing production.
"There is an analogous situation with the pipeline as you look at the geologic potential or the United States and where new gas might be produced," Schmale said. "It appears to us that the Rockies is a place where there is opportunity for production to go up -- as opposed to decline -- and the Rockies is also an area that has been under-served as far as takeover capacity. We think that creates opportunities for us and Kinder Morgan on this pipeline."
The near-term fate of the proposed pipeline is the upcoming open season, Schmale said, "to see what interest there is in the pipeline." Sempra, itself, through one of its units is bidding for up to 200 MMcf/d capacity on the proposed 2 Bcf/d line (see NGI, Aug. 18). "If we can lock up a lot of the capacity, I think this pipeline can be a very positive thing."
Meanwhile, Schmale confirmed Sempra LNG is proceeding with the construction at its Cameron, LA, site near Lake Charles, and the construction continues to move ahead on its Costa Azul facility along North Baja's Pacific Coast. The company's third LNG terminal near Port Arthur, TX, should be approved by the Federal Energy Regulatory Commission before the end of this year, Schmale said.
On the energy trading side of the business, the CFO said Sempra Commodities is now projecting 2005 profits in the $180 million to $220 million range, and overall, the company expects to have at least half of its profits come from its merchant operations and the rest from its two major California utilities, Southern California Gas Co. and San Diego Gas and Electric Co.
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