For U.S. exports of liquefied natural gas (LNG) to pick up steam, the current significant wholesale gas price differences between North America and other major global markets will have to continue in the long term, according to Sempra Energy's head of its LNG operations, speaking at Sempra's financial analysts conference Wednesday in New York City.
Darcel Hulse, the CEO at Sempra LNG, said he personally does not think the current price differences will continue on a sustained basis.
Noting that Sempra does not have authorization to export multiple cargoes out of its LNG receiving terminal on the North Baja California Pacific Coast in Mexico, Hulse said with limited authorization from Mexican authorities there was a one-time export completed "with great success," involving a cargo swap between the Atlantic and Pacific Basins. He called it a "unique opportunity" that Sempra intends to repeat.
In terms of global pricing, Hulse said that historically since 2000 prices around the world have remained very close until last year. "The question now is what are the prices going to do going forward? Are they going to converge again, or are they going to stay apart?" he asked rhetorically. That is the key question for Sempra.
"If they are going to forever stay apart, then you can justify liquefaction [investments] in the United States and send the [growing domestic-produced] supplies to global markets," Hulse said. "If they are converging again, then it is going to be more difficult to ever do that, so that is the real issue going forward."
The pricing conundrum creates what Hulse called "some unique challenges" for us in the LNG business. While price separation would promote Sempra's export plans, for imports, Sempra needs to have global gas prices converge in order to obtain additional supply for its two LNG terminals, which have one-third of their capacity currently without supply contracts, he said.
Two-thirds of the two terminals' collective capacity is sold to what Hulse said are creditable counterparties under 20-year contracts, so what he calls the greatest opportunity to grow the LNG business is to "optimize out the unsold, remaining one-third capacity. Basically, in the short term, when we can't get long-term contracts to fill that one-third there are a lot of things we can do, such as short-term options, cargo swaps, and we can reload cargoes at our Cameron [Louisiana] facility and export those."
Sempra is now "eking out" profits from LNG, Hulse said, but its ultimate goal is to "try to get to the size of the business where we can control more molecules and distribute those molecules to the multiple markets around the world. With three major markets around the world, there are always opportunities for optionality among those markets." He cited variables such as weather, nuclear power problems and other factors affecting the global LNG markets at any given time.
"There are opportunities to move cargoes around the world, if we can get our hands on the molecules to do that. So that is our ultimate goal in figuring out how we do that." Hulse said there a several "opportunities" Sempra has been working on to do what he called "control the molecules."
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