Three liquefied natural gas (LNG) projects are being pushed by San Diego-based Sempra Energy at the same time it moves to shed its South American utility assets and expand its Texas/California utility rate base and Mexican energy infrastructure projects.
Sempra executives during a call last week to discuss second quarter results outlined plans to start commercial operations at the Cameron LNG export facility in Louisiana and accelerate the processes for getting to final investment decisions (FID) on similar export terminals at Port Arthur, TX, and the existing Energia Costa Azul (ECA) import terminal site along the Pacific Coast of North Baja California, Mexico.
Commercial operations are expected to start later this month at the first of three production units at Cameron, which was cleared by federal regulators to begin exporting in late July. CEO Jeffrey Martin added that plans are moving ahead with the Port Arthur project as the company inked a heads of agreement (HOA) with a unit of Saudi Arabia Oil Co., aka Aramco.
"Cameron LNG recently realigned its engineering, procurement and construction (EPC) agreement to provide incentives from the EPC contractors to meet certain schedule milestones in a timely manner" for the second and third trains that are still under construction, said Sempra COO Joe Householder. Householder said he is confident that those trains, which have in the past been delayed, will be completed on time.
Earnings projections remain unchanged at $400-$450 million annually from Trains 1-3, Householder said.
At Port Arthur, Householder pointed to 2Q2019 developments, such as the HOA with Aramco and another deal with Polish Oil & Gas Co. About 65% of the proposed initial capacity at Port Arthur is under contract, he said, adding that in Mexico, ECA is moving ahead as the company looks to secure export permits and reach an FID by the end of the year.
Management dealt with numerous questions related to future risks in the Cameron development, two pipeline disputes still unresolved in Mexico and the timeline and projected benefits for the South American assets sale. The company hopes to have bidders later this year for the sale of its South American utilities.
Martin said that as Cameron's development gets further along, the risks actually "diminish in time and exposure," and there have been no changes in the scheduled completion dates for Trains 2 and 3.
In South America, Martin noted that George Bilicic, a former vice chairman of investment banking at Lazard Ltd., has joined the company as group president to lead the high profile asset sale.
"We're right in the middle of a very competitive sales process," Bilicic said. "We've received robust interest in these very unique assets with strong underlying investment potential for the new owners, and we anticipate announcing the winning bidder toward the end” by the end of the year.
Sempra is also looking at further expansion potential at Cameron and Port Arthur, and the proceeds from the South American sale are expected to play a part of future development, Martin said.
Martin and Householder are taking European and Asian marketing trips in the coming weeks and said Cameron trains 4 and 5 are “an interesting opportunity” and something in which partner Total SA “has shown constructive interest.”
While the focus now is clearly emphasizing getting trains 2 and 3 operational at Cameron, Householder said Sempra's partners "are looking very hard at the expansion projects."
"On Port Arthur, we are really encouraged about having nearly two-thirds of it under contract or in an HOA. The project has a really high focus on our team to fill out the necessary commercial agreements so we can move that project forward," Householder said. "We are getting a lot of initial interest, and that in part encouraged us to go to” the Federal Energy Regulatory Commission for two additional trains.
Phase 1 of Port Arthur is expected to include two liquefaction trains, up to three LNG storage tanks and associated facilities that would enable exporting 11 million metric tons per year of LNG. It could ultimately be expanded to eight liquefaction trains.
In 2Q2019, Sempra reported earnings of $354 million ($1.26/share), compared to a loss of $561 million (minus $2.11) in the same period last year.