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Sempra Sees West Rockies Pipe Upside, Gulf Storage Woes

At least one new natural gas pipeline from the Rockies to the West Coast will be built in the next five to seven years, and Sempra Energy may consider taking an owner/operator stake in one of them, senior officials of the San Diego-based company said recently. Gas storage also has Sempra's close attention, but for different reasons.

Sempra senior officials talked about these projects and other issues during an earnings conference call Feb. 24, during which the company reported increased profits in almost all of its areas of operations.

Nevertheless, CEO Donald Felsinger reiterated that the proposed Liberty Gas Storage project in Louisiana could end up costing the company a $55 million write off if current assessments of the cavern prove negative in its salt dome project. Definitive information should be available in the next two to three months, Felsinger told financial analysts.

In the West, Sempra has no agreements with either of the two major Rockies pipeline proposals now active for moving added supplies to West Coast markets -- TransCanada/Williams' Sunstone and El Paso Corp's Ruby projects. (The time limit on an earlier agreement with Sunstone expired, a company spokesperson told NGI last Monday, although Sempra never made an announcement in that regard.)

While in a "rational market," only one of pipelines would get built, but the industry behavior sometimes can be irrational, Felsinger said. In either case, Sempra would like to be a potential shipper/owner in at least one of the lines, he said.

"We've been watching with a lot of interest the activities of both the Sunstone and Ruby projects," Felsinger said. "We don't currently have an active memorandum of understanding [MOU] with either party, so we are sitting on the sideline here to see if we have a position we would want to take with either one of these pipelines." Last June Sempra signed a MOU with TransCanada and Williams on the Sunstone project.

"I think a pipeline will get built because there is enough gas in the Rockies to support the needs in California. This next year should be very interesting to look at what takes place in the pipeline competition," Felsinger said.

He was asked whether one project has advantages in permitting or economic feasibility over the other.

"I think they both have strengths and weaknesses from the standpoint of their routes and their market opportunities," Felsinger said.

In a third quarter earnings call last November, Sempra divulged that the Liberty storage project might have to be shelved if it couldn't find an engineering solution to cavern development problems that have emerged. At that time Felsinger said Liberty in a worst-case scenario might have to be written off at about $65 million after taxes to cover Sempra's share of the project.

"We have mentioned before that we are struggling with the integrity of one of our caverns," Felsinger said. "For the last few months we have been putting in place some low-cost solutions that we are currently testing.

"So I would expect that in the next several months we will have an answer on whether we can get the cavern to work. In the worst-case scenario, in the case in which we would have to abandon this facility, we would be looking at a write-off that would be something like $55 million after taxes."

The two-salt dome project is part of broader storage developments by Sempra in conjunction with a 35-mile takeaway transmission pipeline from its liquefied natural gas (LNG) terminal that is winding up construction this year at Cameron, LA, along the Gulf of Mexico. Last May Sempra reported delays in the storage project, but estimated that initial injections would begin in late summer at the facility.

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