More time will be needed for the global liquefied natural gas (LNG) developers to work out complex economic, technical and marketing details involved in building added liquefaction capacity, and thus, plans for a new LNG receiving terminal at Port Arthur, TX, remain on hold, according to senior officials at San Diego-based Sempra Energy. They spoke Wednesday on a first quarter earnings conference call with the financial community, reporting earnings that were robust, but down over a record quarter a year earlier because of accounting adjustments related to natural gas trading activities.
Generally, Sempra sees the LNG market as strong with future prices running above current ones, and this economic pull eventually should help shake loose the added production.
Unlike an analyst's description, Sempra President Neal Schmale said he does not characterize the liquefaction stalemate globally as "precarious," but rather as a combination of expected factors involved in making very large investment decisions that have long-term consequences. Schmale said what he would call "normal difficulties" of getting the capital-intensive infrastructure online has caused the delay.
"We really haven't changed our view from our analysts' conference [in March] of how we think new liquefaction projects are going to develop," he said. "These things take a long time to play out in terms of changes, and a couple of months isn't going to change much."
Sempra CEO Donald Felsinger reiterated that the utility holding company's view is that there is going to be a delay of anywhere from one to two years in the company's development of a third North American LNG receiving terminal at Port Arthur, TX. Separately, Felsinger reported as part of the call with financial analysts that the Costa Azul LNG terminal along the Pacific Coast of North Baja California, Mexico is now 70% completed and a similar facility at Cameron, LA, is 45% complete, with both targeted for start-up operations next year.
"What has not changed are the market fundamentals [in the global LNG business]," Felsinger said. "If you look at today's natural gas market, there are even stronger market signals for the need for LNG. We're trading today at $8/MMBtu [for LNG] and the forward strip prices are out in the $8 to $10/MMBtu range. If anything, the current signals are even a stronger incentive for people to get their acts together and get these [liquefaction facilities] built."
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