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Gas Projects Key to Absorbing Nuke Plant Loss, Sempra CEO Says

Upcoming successes, particularly with major natural gas infrastructure projects, should help San Diego-based Sempra Energy offset a one-time 2Q2013 charge and annual revenue losses due to its minority share in a closed nuclear power plant in Southern California, CEO Debra Reed said Tuesday during a second quarter conference call with financial analysts in which she reported increased profits for the quarter and first half of 2013.

By early next year, Sempra expects to have its Cameron, LA, liquefied natural gas (LNG) export project ready to begin construction and to be well underway with construction of two multi-billion-dollar gas pipeline projects in Mexico, helping to offset the negative impact of a $119 million 2Q2013 charge for the company's 20% ownership in the 2,200 MW San Onofre Nuclear Generating Station (SONGS), which majority owner/operator Southern California Edison Co. decided in May it would close.

Reed expects an export permit for non-free trade agreement (non-FTA) nations and a construction permit to both be in place by February next year for the proposed facility that will use Cameron LNG's existing import facilities, including two marine berths capable of accommodating tankers; three LNG storage tanks of 480,000 cubic meters and vaporization capability for regasification services of 1.5 Bcf/d (see Daily GPIDec. 11, 2012). Eventually, the facility will have three liquefaction trains with a total export capability of approximately 1.7 Bcf/d.

Lining up an engineering/construction contractor and financing for the $6 billion project is moving ahead on schedule, Reed said. "We expect firm commitments from lenders by the end of the year, and putting 60%-70% leverage on the project under attractive terms," Reed said. "We remain confident the DOE [U.S. Department of Energy] will approve our non-FTA permit before the end of 2013."

Construction of the facility should begin in the first half of next year, said Reed, reiterating the schedule she articulated late last year that calls for commercial operations to begin in 2017.

In Mexico, activity on Sempra's multi-billion-dollar gas pipeline projects should get started later this year, following Sempra's signing with Pemex through a Sempra stand-alone affiliate, IEnova, to start the first phase of the $1.5 billion Los Ramones gas pipeline project (see Daily GPIOct. 29, 2012). The first phase is a $450-$550 million 70-mile, 48-inch diameter leg originating at the U.S.-Mexican border. Construction will begin in the fourth quarter this year, Reed said.

Phase 2 for Los Ramones will be a 450-mile pipeline tied to the 70-mile leg that will cost $2 billion and bids for building the line will be completed this quarter. Reed said IEnova likely will make a bid with a still-unnamed partner.

"There is certainly interest in Mexico; people recognize that there is good growth there, and that these are good projects," said Sempra President Mark Snell. "But I do think that the companies that have been historically successful in Mexico, of which we obviously are one, are the ones who will continue to be successful there. I think the companies who have been doing business in Mexico for some time still have an advantage."

Separately, with supply and construction contracts now in hand, Sempra's second major Mexican gas pipeline project, the $1 billion Sonora line, is on track to be operational in the second half of next year, according to Reed.

 Aside from the SONGS charge, Reed said she thought the 2Q2013 results were "solid" -- $245 million, or 98 cents/diluted share, compared with $62 million, or 25 cents/diluted share, for the same period in 2012, and for the first six months, $423 million, or $1.70/diluted share, compared with $298 million, or $1.21/diluted share, for the first half of 2012.

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