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Baja LNG Not Big Factor in California Market, NorthernStar Exec Says

New supplies soon to flow through Sempra Energy's liquefied natural gas (LNG) terminal in Mexico will not be a major factor longer term in the California energy market, said a NorthernStar Natural Gas executive overseeing the company's proposed Clearwater Port LNG project off the coast of Oxnard, CA.

Among three currently active Southern California offshore LNG proposals, Clearwater hopes to exploit self-identified environmental and strategic advantages as one of two West Coast LNG projects being championed by NorthernStar.

In an interview with NGI, Billy Owens, vice president for NorthernStar's California development, said growing gas demand inside Mexico and higher-than-expected costs for the gas at the California border could dampen the impact that supplies from Energia Costa Azul have in California. In addition, he said that among the different U.S. markets, Arizona could get more of the North Baja terminal's gas.

"We don't think that Costa Azul is going to be a significant factor in the California market," Owens said. "In addition, politically, that terminal's existence creates questions about whether a second terminal is needed in the West. That is part of the discussion and analysis we will be doing; right now there are no commitments in the near-term to have any of that gas show up in California."

Sempra officials over the past six months also have been promoting the idea that Costa Azul's capacity could be doubled to 2 Bcf more economically than building a separate, 1 Bcf capacity terminal on the West Coast. Owens said last year's solicitation of market interest in expanded capacity at the North Baja California facility drew only tepid interest.

"There are two basic reasons why I don't think Costa Azul will be a factor in California," he said. "There was no significant response to the expansion proposal last year, and the other side of that is from what we see the Mexican gas demand is going to grow quite dramatically in the next several years.

"In addition, Mexico will consistently have first rights on that gas supply, and second, when you look at the costs, by the time you deliver it to California, we think a terminal of our type would be more cost-effective in terms of the delivered price for the gas. Sempra has a lot of transportation costs to get it in here."

Marketers for Sempra also have made a lot of promises for delivering gas to Arizona, so assuming that commitments are made there, it is debatable how much, if any, gas would be available for California, he said.

NorthernStar's plans continue to call for development of a terminal along the Columbia River in Oregon at Bradwood Landing and to reconfigure an idle oil drilling platform off the coast of Southern California into Clearwater Port. The Oregon facility is further along in the permitting process, but Owens is still hopeful that Clearwater's draft environmental review phase can begin later this year and a final determination from the U.S. Coast Guard and state of California can come by the end of next year.

In the meantime, NorthernStar still needs long-term supplies of LNG and financing for this and its second project in Oregon.

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