While some liquefied natural gas (LNG) and Mexican operations have been slowed, Sempra Energy’s U.S. utilities helped carry the energy infrastructure holding company to increased profits in 1Q2020.
“We’ve improved the earnings power of this company, and it can be seen in our strong first quarter results,” CEO Jeff Martin said during an earnings conference call on Monday, with results equivalent to half of full-year 2019 earnings. “We have created a higher growth and more resilient infrastructure platform that is well positioned to compete through different market cycles.”
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LNG results were mixed. The third and final liquefaction train at the Cameron LNG export terminal in Louisiana remains on track to begin commercial operation in the third quarter. The proposed Energia Costa Azul in Mexico also signed two 20-year agreements with shippers, but efforts have bogged down to gain an export permit. Other projects in Mexico could be pushed into next year because of the overall slowdown related to the Covid-19 pandemic, Martin said.
Sempra also has delayed for a year a final investment decision for the Port Arthur, TX, greenfield LNG project. However, management remains convinced more LNG infrastructure is needed by the mid-2020s because of expected increased global demand, CFO Trevor Mihalik reiterated.
“But fewer projects are expected to take hold as a result of the decreased spending ongoing in the oil and gas sector,” Mihalik said. While some LNG developers are “financially constrained, we believe there will be an even greater need for our projects.”
On the utility side, Sempra’s two California utilities gained favorable regulatory approvals, while Oncor, the Texas counterpart, added 18,000 customers in the first quarter. Oncor has a pure transmission/distribution model with no commodity or generation exposure, Martin said.
“We like the Texas marketplace even in today’s climate, so Texas really is the market of priority for us. It checks a lot of boxes we think about strategically.”
Oncor has a five-year, $11.9 billion capital program in Texas. In West Texas within the Permian Basin, most of the business is with oil and gas companies that want to be grid connected.
In the midst of the pandemic in April, Oncor registered 1% growth in residential customers. Oncor in late April also received 22 requests for oil and gas load in West Texas, with 40% of the load in the region self-generating.
“There is a huge price discount that allows drillers to lower the marginal cost of production if they can connect to the grid,” said Martin. A high percentage of drillers still use standby generation.
In 1Q2020, Sempra reported earnings of $760 million ($2.53/share), compared with $441 million ($1.59) for the same period last year.