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Sempra Inks Huge Mexcian Gas Supply Deal

Sempra Inks Huge Mexcian Gas Supply Deal

A new era of natural gas playing a significant role in Mexico's western Baja Peninsula was launched last week with the completion of Sempra Energy's 10-year deal worth close to $1 billion to supply up to 300 MMcf/d to fuel new and converted Mexican power plants at Rosarito Beach in Baja, beginning in December 1999.

Sempra's gas supplies will fuel one of Mexico's new 450 MW electric generation plants, along with two existing oil-fired units totaling 680 MW that will be converted. Eventually a total generating load of 1,500 MW could be served in the coastal area 23 miles south of the U.S. border. The project will require Sempra to finance a 30-inch diameter transmission pipeline from the U.S. border to service the power plant in partnership with a Mexican company, Proxima Gas, which will build and operate the pipeline.

"The key to this deal is our ability to put together an integrated package with one price for delivery of the gas to the power plant's door," said a San Diego-based Sempra spokesperson. "The pipeline is an added plus since Baja is isolated from mainland Mexico energy grids and has historically had no gas infrastructure." Sempra has long coveted this project because it carries the potential for supplying other plants and the growing industrial load along the U.S.-Mexico border and the general border cities of Tijuana and Mexicali, among others. It expects to be an aggressive bidder for the development of new gas distribution systems in the nearby border cities of Tijuana, Tecate and Ensenada, which Mexico's national energy commission has indicated it will hold bidding on in the near future.

There was no competition for Sempra to supply the power plants; other U.S. firms that had expressed earlier interest dropped out, according to the Sempra spokesperson, noting that Sempra still had to satisfy the Mexican government's requirements to win the bid.

"We are pleased to deliver this kind of integrated energy solution to help (Mexico) meet its rising energy needs of Baja California's businesses and residents," said Stephen L. Baum, Sempra's vice chairman, president and COO, noting that the project is a "first" for the newly merged energy services company that was created in July by the merging of the parent companies of San Diego Gas and Electric Co. and Southern California Gas Co.

Two of its unregulated utility affiliated companies, Sempra Energy International and Sempra Energy Trading, are involved in the Baja project. Sempra has no interest in competing to develop the new power generation plants in Baja, but it does-through its SDG&ampE utility operations-transport bulk power in periods of peak demand south of the border. Through other Baja projects begun earlier, Sempra is serving about 2,000 residential gas customers in Chihuahua and 33 industrial gas customers in Mexicali, while it continues to develop new distribution pipeline systems in both cities. Some residential customers in Mexicali are now being served, too, according to a spokesperson.

Expectations among Sempra's leaders are that Baja's recent booming energy growth will continue to feed the growing industrialization by international firms along the California-Mexico border, although most of these projections don't factor in the current international economic downturn spurred by the Asian and Russian financial crises.

Sempra International develops, operates and invests in energy infrastructure projects, including natural gas distribution systems and power generation facilities, outside the U.S. It currently has gas distribution partnerships in Argentina and Uruguay, in addition to Mexico.

Richard Nemec, Los Angeles

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