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Sempra Wants to Harmonize REX into Gas Symphony

With its 25% interest and upcoming expansions, the Rockies Express (REX) pipeline could make sweet music for Sempra Energy senior executives who are hoping to transform the pipeline's expanding assets into value added for their U.S. midstream gas infrastructure and liquefied natural gas (LNG) export projects.

At the end of April, Tallgrass Energy Partners LP's REX launched a binding open season for 1.2 Bcf/d of capacity to move supplies east-to-west out of the Marcellus to the Midwest and other markets (see Shale Daily, April 30). Sempra CEO Debra Reed highlighted the latest development during her company's 1Q2014 earnings conference call Friday, noting that REX already has all of the capacity locked up at 50 cents/Dth and those shippers will be able to match any higher bids from the new binding bids.

An open season earlier this year on the REX Seneca Lateral was completed and an added 400,000 Dth of capacity (200-600,000 Dth) is set to come on the market later in the second quarter, Reed said.

Reed said Sempra's 25% interest applies to three ongoing pieces of REX -- the first phase of the Seneca Lateral (200 MMcf/d); the second Seneca phase (400 MMcf/d); and the east-to-west reversal flow (1.2 Bcf/d at 50 cents/Dth for 20 years).

"We can't divulge the investment levels for each of these phases, but I would say they are not substantial," Reed said. The first phase of Seneca is already in Sempra's capital spending plan, but the second phase and the east-to-west flows are not in those plans. The results of the binding open season are due later in May, Reed said.

The combination of enhanced storage and pipeline assets complement Sempra's prospective Cameron, LA, LNG project, and "really complement what we see changing in the natural gas markets," Reed said. This synergy leads into the development of a master limited partnership (MLP), something analysts have been closely watching regarding Sempra.

"Clearly we are pleased with the upside potential at REX," said Sempra President Mark Snell. "Given the interest in the east-to-west shipping and some of lateral opportunities, there clearly is a strong asset there now that looks like it is going to have good cash flows for a long time."

Snell said Sempra's minority (25%) ownership in REX means that the pipeline assets, alone, can't be the basis of a partnership, but they can be added to other assets to comprise one. "We certainly have plenty of other assets with which to do that," he said.

Potential assets for another MLP might involve new assets in Mexico, should Sempra win the bidding, and three proposed Mexican projects in the United States, Snell said (see related item).

With the Cameron LNG export project as the anchor, Reed said Sempra has the potential for "an amazing MLP." She said there are a lot of energy infrastructure needs in the United States, "so there are always lots of opportunities for us to look at." Her "fallback position" still lies with Cameron and the assets around it, she said.

With REX and the accelerated growth in Marcellus supplies, Reed and Snell stressed a high level (5.5 Bcf/d) of market interest in added reversed capacity moving gas east to west.

"We can expand the east-west capacity in REX beyond the 1.2 Bcf/d, but the question is the economics when you get into additional compression and/or looping of pipelines," said Snell, noting that the looping can get "very expensive." He said added capacity will be studied, but there is nothing going into Sempra's plan now beyond the 1.2 Bcf/d level.

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