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Southeastern U.S. Could be Growth Area for Gas Assets

Since its analyst meeting early last year, Sempra Energy senior management has signaled that its newly designated U.S. Gas & Power (USGP) unit was intent on moving away from merchant power assets in the West and deploying more capital in the Southeast to support its gas infrastructure strategy. USGP maintains a regional headquarters in Greenville, SC.

The Sempra gas/power unit currently operates two natural gas distribution utilities in the Southeast: Mobile Gas in Alabama, serving about 100,000 customers; and Willmut Gas in Mississippi, serving about 20,000 customers. It also has its liquefied natural gas (LNG) receiving terminal at Cameron in Louisiana and has plans to build a multi-billion-dollar liquefaction complex at the site for exporting LNG.

Thus, when Sempra USGP said late last year it was selling half of its interest in a 1,250 MW gas-fired power plant, Mesquite, in Arizona, USGP CEO Jeffrey Martin said the $371 million sale was aimed at expanding the company's natural gas strategy.

"[Our] strategy recognizes that natural gas will continue to build in popularity in the [Southeast] region," a Sempra spokesperson told NGI late last year. He cited the U.S. Energy Information Administration estimates that a significant amount of coal-fired generation was set to retire during the next five years and many of those units are located in the Southeast. "Many of these will be switching to natural gas."

Two of the nation's largest independent electric generation plant operators, Calpine Corp. and NRG Energy Inc., have pointed to expectations for more gas-fired generation as older coal-fired generating facilities are retired or mothballed. They both have interests in the Southeast, along with other regions.

However, increases in gas prices during 2012 dampened some coal-to-gas switching when it comes to lower-priced, cleaner Powder River Basin (PBR) coal, but on a 3Q2012 earnings call NRG COO Mauricio Gutierrez stressed the switching is still active when eastern coal is involved, and that is the situation in the Southeast where NRG has increased interests since its merger with GenOn was completed last month.

Sempra's growth strategy in the Southeast region is also driven by its USGP unit's midstream business, including underground storage and pipelines. "These assets will help supply manufacturing and industrial facilities," the spokesperson said.

In addition, as more LNG export facilities are built in the next five to 10 years, there will be additional demand for gas storage and pipeline services, and Sempra USGP hopes to fill much of that demand with its Gulf Coast region assets.

"The combination of coal-fired generation plant retirements, high demand for gas-fed power plants, and the close proximity of assets in Alabama and Mississippi to the Gulf Coast all contribute to the rationale for this strategy," the spokesperson said.

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