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'New, Different' Gas Infrastructure Eyed by Sempra

Even with depressed wholesale prices, the North American natural gas industry still carries a need for robust "new and different" infrastructure, according to San Diego-based Sempra Energy CEO Donald Felsinger, who commented on the industry outlook as part of a third quarter earnings conference call last Monday. The new gas plays in North America make new pipeline and storage facilities a necessity, Felsinger said.

"With the amounts of gas identified now in North America, we still have a need for different types of infrastructure to move that gas to market," said Felsinger, acknowledging that his company already took a $65 million write-down on a failed Liberty Gas storage project in Louisiana.

"We are still bullish on certain types of new pipelines, and we are probably more bullish on the need for storage, and that is why we have a billion-dollar storage program in our capital budget," he said.

In response to a question of how potential flows of liquefied natural gas (LNG) into North America in the next year or two will affect these infrastructure needs, Felsinger said there is a factor that will determine how much new LNG will flow to North America -- namely, the eventual cost of shale gas production.

"There is a big debate in the industry going on right now as to whether that cost should be $6 or $8. I think as that plays out, there is no doubt in my mind that LNG can compete with either price scenario and be ready to bring incremental supplies into the United States at either of those prices. We feel pretty good at where we are positioned, where our terminals are [with the facilities at Cameron, LA, and along the Pacific Coast of North Baja California in Mexico], and the fact that LNG is going to compete in this marketplace."

Another reason for feeling that way, Felsinger said, is the increasingly critical need for additional gas storage to be able to allow shippers and end-users to overcome price volatility.

"We're entering some interesting times right now as we look at the ultimate outcome of RBS [Royal Bank of Scotland] and our commodities trading business, we are going to be very conservative with what we do with the [$1 billion-plus] cash on our balance sheet" (see related story). Sempra now has some $1.5 billion in additional capital projects it is now considering that were not on its radar earlier this year, Felsinger said.

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