In addition to investing in its California utilities, Sempra Energy plans to ride the growing U.S. bandwagon for exporting plentiful domestic supplies of liquefied natural gas (LNG) through a $7 billion joint venture and midstream master limited partnership (MLP) centered on its under-used Cameron LNG receiving facility in Louisiana, according to CEO Debra Reed, who spoke Thursday at a Sempra financial analysts' conference in San Diego.

Along with Sempra President Mark Snell, Reed outlined a five-year strategy that calls for $14 billion in capital expenditures, $11 billion of which would be in Sempra's two California utilities, San Diego Gas and Electric Co. (SDG&E) and Southern California Gas Co. (SoCalGas), along with the push to have an LNG export joint venture at Cameron operating by 2016. In the meantime, Sempra would also push for more investment in renewable energy and limit its gas-fired merchant generation to existing facilities.

In addition, as the operator of utility and pipeline assets in Mexico and several South American nations, Sempra looks to expand its "utility footprint" in the U.S. and abroad, said Reed, noting it would be looking for possibilities in utilities adjacent to its current holdings. Sempra recently completed a full review of all of its assets, which are heavily concentrated in natural gas infrastructure, to identify what over the next five years it will keep and what it might eventually sell, Reed said.

"Several trends came out of that assessment and one was that there is going to have to be a lot of capital invested in utility infrastructure," she said. "That's why we are looking to spend $11 billion in capital in our two California utilities over the next five years."

In regard to the U.S. natural gas industry, Sempra has concluded that an MLP financial structure will be the best way to "integrate and grow" its midstream business, said Reed, adding that she expects strong cash flows from growing an LNG export business. Reed and Snell said they envision creating a business the size of SoCalGas, the nation's largest gas distribution utility, which produces $200-300 million of net income annually.

Reed said one of the biggest "shareholder value creation opportunities" for Sempra is found in the potential LNG export business. With the import facility, including the multi-ship marine terminal, already in place, Reed said adding export capability is "pure upside potential" for Sempra.

In giving more specifics on the LNG export plans, Sempra's Snell acknowledged that, unlike the company's Baja California LNG import facility in Mexico that is fully contracted and making a profit, the Cameron facility is only about 40% contracted and is "breaking even" at best on a net income basis. Snell several times referred to the LNG exports as a "fantastic opportunity," adding that it was centered on "reversing the flow" of supplies through what Sempra hopes to develop as a tolling facility for sending LNG to Japan and other global markets.

"With the shutting down of some nuclear capability, Japan's total need for LNG has increased by about 20 metric tons per year," said Snell, while emphasizing the global price differential between the United States and the rest of the world's gas markets. "They really are looking for a new source of supply, and are going to be turning ever more to the United States for this gas."

Sempra's plans call for two or three trains of liquefaction capability at Cameron, each train about 4 million metric tons/year, although Snell emphasized the ultimate size of the facility will be driven by customer demand, and those customers will also be part of a 50-50 joint venture partnership in the facilities with Sempra. The technology will be a proven one used in about 80% of the liquefaction facilities worldwide and most recently installed in Peru, Snell said.

Current plans envision "commercial development agreements" with customer-partners by the end of the second quarter this year who will commit to the Cameron facility and to not negotiating with other terminals, and will fund pre-filing costs on an equal basis with Sempra, and eventually they will sign 20-year tolling agreements with the facility.

"Our intent is to sell tolling capacity contracts, unlike other players in the market," Snell said. "We're not planning right now to sell the commodity. We have a lot of [potential customer] interest in that, so we don't have to take that commodity risk." Cameron has the advantage of being close to several major shale gas plays and to a lot of pipeline infrastructure, a lot of which Sempra already controls, he said.

Sempra plans on making its existing $1 billion facilities its major contribution to an eventual joint venture liquefaction export project. The remaining estimated $6 billion would come from the joint venture customer-partners, Snell said. The projected annual net income from a three-train facility would be a little more than $300 million, he said.

"This is a fantastic opportunity, an opportunity to build an operation the size of SoCalGas almost overnight."

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