Sempra Energy's Costa Azul facility in North Baja California, Mexico, the first liquefied natural gas (LNG) receiving terminal on the West Coast of North America, may sit mostly idle after it is deemed commercially available later this spring. Nevertheless, Sempra will earn a profit based on capacity payments from part of Royal Dutch Shell that holds a contract for half of the 1 Bcf/d terminal's throughput.
The terminal could see occasional spot cargoes that Sempra marketers are able to pull in to fill the void until its Indonesian supplies begin coming a year from now.
The only assured revenue stream this year at Costa Azul is from the Shell payments, and the timing for first shipments from its Russian Sakhalin Island supplies last month were estimated for late this year or early in 2009, about a year behind original time schedules set four years ago when the deals were signed. The same can be said for Sempra's 500 MMcf/d supplies from BP in Indonesia's Tangguh Field.
"The Tangguh deliveries [to Costa Azul] start a little more than a year from now," said Sempra CEO Don Felsinger during a May 2 earnings conference call.
In October 2004 Sempra and BP affiliates signed their 20-year agreement for gas from the proposed BP Tangguh LNG Project in Indonesia to supply about half of the 1 Bcf/d going into the then-jointly owned Sempra-Royal Dutch Shell receiving terminal at Costa Azul. At the time BP and Sempra in a joint announcement said up to 3.7 million tons of LNG, or an average of 500 MMcf/d, would be delivered beginning in 2008, representing the first long-term Asia-Pacific LNG supply coming to North America.
In response to questions from analysts, Felsinger said that in developing the LNG terminals and other infrastructure assets, Sempra's mindset has been that these are long-term (30-year or longer) assets. "One of the things we have made sure we had up front in our contracting is that we had the ability to earn a return on that investment.
"That is why this $2 billion of LNG investment [at Costa Azul] is going to generate about 8% to 9% [in] unlevered returns. And that gives us a very good position to watch what is happening in the market, decide at what price and when we will release additional capacity to the market."
Costa Azul will have completed its test shipments and will become commercially ready later in May, a Sempra spokesperson said. In the meantime Sempra is actively seeking spot shipments for the terminal.
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