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Sempra Sees 'Momentum' in Cameron, Mexico Gas Projects

Favorable regulatory actions on both sides of the U.S.-Mexican border have increased the bullishness of Sempra Energy's senior executives looking to cash in on billions of dollars of infrastructure projects. Recent U.S. decisions on liquefied natural gas (LNG) export plans and Mexico's recent outline for up to $600 billion of energy projects has Sempra top brass salivating.

CEO Debra Reed said during an earnings conference call that Sempra is "on track" to fulfill its guidance for 9% to 11% annual earnings growth starting this year. A big part of that is tied to the $6 billion Cameron LNG export project in Louisiana, which received a final federal environmental review late last month (see Daily GPIApril 30a), and growing infrastructure opportunities in Mexico, where Sempra professes to have a strong foothold already with its LNG and pipeline projects.

Reed, Sempra President Mark Snell and other executives voiced strong enthusiasm for the Rockies Express (REX) pipeline proposal for an east-to-west operation and two laterals (see Shale DailyApril 30b), all of which can complement Cameron operations, according to Sempra's current strategy for betting heavily on U.S. gas pipeline and storage infrastructure. Sempra holds a 25% interest in REX and the proposed projects.

With the environmental green light from FERC, Reed said she expects the construction of the Cameron export project to begin later this year, becoming the nation's second Lower 48 LNG export project being built.

"With all the attention on gas exports [based on the Ukraine-Russia situation], we're hopeful that there will be some shorter time periods [at the end of the Federal Energy Regulatory Commission (FERC) and Department of Energy processes]," Reed said.

It could take up to 90 days for a FERC approval to construct, with an additional 30-day public comment period, but during that period, FERC could issue an "initial authorization to construct" that would allow some preliminary construction, Snell said. "Based on the approval of the first export project [Sabine Pass], we believe we will get approval to begin construction later this year, and that will be timed well with our financing and the expectations we have laid out earlier."

In Mexico, Reed said there are "exciting things happening" given recent moves by government officials (see Daily GPIApril 22). Her reading of the recently released Mexican government's five-year plan is it includes up to $600 billion of energy projects overall, and tens of billions of dollars worth of gas and electric projects that Sempra could bid on in coming months.

This year, there are up to eight projects that Sempra is potentially interested in: five electric generation-tied gas pipelines, three in the United States and two in Mexico, and another three with Petroleos Mexicanos (Pemex) dealing with gasoline, naphtha and propane pipelines. "[For the first five], we expect the bid packages to be out in the next couple of months," Reed said.

"We think there are some great opportunities and we are analyzing them right now. We are interested in both the Mexico and U.S. projects. We don't have anything in our plans in Mexico on generation or electric transmission right now, but the government has published some initial projects to bid on, and those are all in our sweet spot. They are areas of interest that are not in our plans today.

"The other area of interest is in the gathering and processing. We have done different types of pipelines in Mexico [ethane, for example], so we think this is a great opportunity area for us, getting into the gathering and processing area in Mexico; we're exploring those opportunities. All of the markets are opening up there, so it is not just [natural] gas pipelines for us."

The company reported $256 million ($1.03/share) in first quarter adjusted earnings after a $9 million after-tax charge for its minority share of the closed San Onofre Nuclear Generating Station in Southern California. This compared with $178 million (72 cents/share) for the first quarter last year.

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