Making a case for a proposed $6 billion joint venture liquefied natural gas (LNG) export facility at the company's under-used Cameron LNG site in Louisiana, Sempra Energy senior executives said there are limits to the global LNG market and Sempra's proposed project, now fully subscribed, will be competitive.
"There is an awful lot of concern about exporting a tremendous amount of gas, but one thing we have to remind ourselves is that the LNG market, while it is big, is a fixed amount, and we have lots of competition around the world to sell that gas," said Sempra President Mark Snell. "Right now, we think there is a potential kind of excess demand in the near term of as much as 20 million metric tons a year, and it is mostly driven by Japan's desire to switch to more gas-fired power generation as it shuts down its nuclear fleet."
Snell said he cannot foresee a situation in which 20-30 Bcf/d would be exported. "It is probably not that big a market right now," he said. However, in Japan alone he also sees a potential for up to 10 Bcf/d of added LNG, and the Sempra Cameron facility has a proposed total capacity of something less than 20% of that (1.7 Bcf/d).
"There is a potential export market, but it is not unlimited, and I don't think the U.S. has to worry that we are going to have a large portion of our domestic gas supply go offshore," Snell said. CEO Debra Reed added her support for a Brookings Institution study that envisions an export level of 9 Bcf/d with very minimal impact of U.S. domestic gas prices (see related story).
"Brookings concluded that the export market should be open to all parties that can participate in the market, and that is the position we would really like to see adopted," said Reed, opting for a market-based approach. "We think if this is market-based we have a very competitive facility."
In response to an analyst's question regarding Sempra's West Coast LNG import facility along the Pacific Coast in North Baja California, Mexico, Snell said Sempra has taken a look at the option of exporting from that site, too, although he pointed out there is less land available at Energia Costa Azul compared to Cameron.
"We're definitely taking a look at it," he said. "Our top priority is to get Cameron online and move that forward." Reed reminded the analysts that unlike Cameron, Costa Azul is fully contracted as an import facility under 20-year agreements.
In response to other questions of how Cameron stacks up against the clear U.S. LNG export front-runner, Cheniere Energy Inc.'s Sabine Pass LNG facility near Cameron, both Snell and Reed emphasized that Sempra's Cameron customer/partners (Mitsubishi Corp. Mitsui & Co. Ltd., and now GDF Suez SA) give it added leverage in the marketplace throughout the Far East.
In April Cheniere units Sabine Pass LNG and Sabine Pass Liquefaction became the first to receive Department of Energy (DOE) approval to export LNG to countries that are not parties to a free trade agreement with the United States. Cheniere proposes to construct and operate liquefaction and related facilities that would enable their companies to liquefy and export up to 2.2 Bcf, or 16 million metric tons per year, of domestically produced gas. The project would be sited at Sabine Pass' existing LNG import terminal in Cameron Parish, LA (see Daily GPI, April 18). With multiple capacity contracts in hand, Cheniere is reportedly now coming up with the financing to proceed with its export project.
Sempra still has several milestones to pass that could take the rest of this year and most of next year, according to Snell. They include a DOE export license that is expected later this year, a Federal Energy Regulatory Commission (FERC) permit to construct the export facilities. "We've got a ways to go, but we're off to a very good start," he said.
Separately, Reed said she expects the FERC approval process to be completed in the second half of next year.
For 1Q2012, Sempra's LNG operations were lumped into its newly aligned U.S. gas and power companies, which are split between renewables and natural gas, and the renewables had a better showing -- $10 million in profits, compared with $4 million in the same period in 2011, while the overall gas operations recorded $1 million in net income, compared with $63 million for the same quarter last year. Overall, Sempra reported $236 million (97 cents/share) compared with $254 million ($1.05/share) for the same period in 2011.
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