Sempra Energy reached two major agreements last week involving its proposed 1 Bcf/d liquefied natural gas (LNG) import terminal in Baja California Norte, Mexico. Sempra sold Shell International the rights to half of the capacity at the Energia Costa Azul terminal for 20 years and rights to half of any future expansion capacity. Sempra also reached a deal for 500 MMcf/d of LNG supply with BP Indonesia.

The Shell agreement stipulates that Sempra Energy LNG will own, construct and operate the Energia Costa Azul regasification facility, which will be located in Costa Azul on the west coast of Mexico, 14 miles north of Ensenada. It will be the first LNG project on North America’s West Coast when it becomes operational in 2008, according to Sempra Energy.

The agreement comes nearly a year after Shell International and Sempra Energy announced plans to team up to develop and build the proposed $600 million plant to lessen the environmental impact (see NGI, Dec. 29, 2003). The companies previously had proposed separate Baja California LNG projects.

“We have worked cooperatively with Shell to develop this project over the past several months…,” said Sempra COO Donald E. Felsinger. “We jointly determined that the consolidation of the ownership, construction and operation of the project [by Sempra Energy] and Shell’s capacity agreement represented a mutually beneficial commercial arrangement for both companies.”

Catherine Tanna, director of Shell Gas & Power in the Americas and Africa, said the company is “committed to the Mexican market, and looks forward to selling LNG into Mexico and, where appropriate, exporting gas to the United States.” Shell affiliate Coral Energy will market any excess regasified LNG in the U.S. market.

Shell’s LNG supply will come from the Sakhalin II project in eastern Russia, where Shell is the largest shareholder. “This is a landmark deal… For the first time, LNG from Russia will supply Mexico and California,” said Tanna.

Reserves at Sakhalin II are about 1 billion bbl of oil and over 500 billion cubic meters (17.7 Tcf) of natural gas. In a separate announcement last Thursday, Sakhalin Energy Investment Co. said it signed an agreement to supply 37 million tonnes of LNG over 20 years to Shell Eastern Trading Ltd for the North American gas market. The agreement calls for significantly higher volumes of LNG deliveries in the first three years with a plateau at 1.6 million tonnes/year (0.2 Bcf/d). Excess natural gas from the deliveries will be marketed in the United States by Shell’s Coral Energy affiliate.

“Sakhalin Energy and Russia have created a fundamental shift in global natural gas supplies,” said Ivan Malakhov, governor of the Sakhalin Oblast. “Russia has been a reliable supplier of natural gas into the European market via pipeline for many years. Now with Sakhalin Energy’s decision, in partnership with the Russian government,” LNG shipping will become the method of choice for delivering gas to markets from the Russian Far East.

First LNG production from Sakhalin Energy is expected in late 2007 with deliveries to the Baja terminal in 2008. Total production capacity at the liquefaction project will be 9.6 million tons per year when both of the first two trains are in operation in 2008. Sakhalin Energy also will provide the ships to deliver the LNG to the Baja California terminal.

The LNG supply deal with BP and its Tangguh LNG partners also is for 20 years. The LNG will come from the proposed BP Tangguh LNG Project in the Berau-Bintuni Bay region of Teluk Bintuni Regency, Papua, Indonesia. About to 3.7 million tons of LNG, or an average of 500 MMcf/d, will be delivered to the Baja terminal beginning in 2008. BP Indonesia operates the LNG liquefaction project and holds a 37.16% stake. Its partners include Japan’s Mitsubishi Corp., Japan National Oil Corp., and Sumitomo Corp.

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