While hinting that his company has locked up liquefied natural gas (LNG) terminal development on the West Coast with its supposedly easily expandable Baja, Mexico facility, Sempra Energy COO Donald Felsinger told an energy financial conference Tuesday that the Gulf of Mexico most likely will be the center of new LNG receiving terminals because of its access to national markets, along with readily available processing and storage infrastructure. Felsinger spoke at the Banc of America Securities Energy & Power Conference in Las Vegas.

“Going forward I think the majority of the LNG projects you will see will end up in the Gulf of Mexico,” said Felsinger, emphasizing it is a “much bigger gas market” than in the West, if you look at just Texas and Louisiana with the combined consumption of about 15 Bcf/d, compared to a total California-Southwest market of about 9 Bcf/d. “But more importantly because of all the declining offshore gas production in the Gulf, all of the infrastructure is in place, including gas processing, to allow the gas to flow to the Midwest and the Northeast where the markets for this (Gulf) gas have been.

Because of engineering and economic ease in expanding its planned 1 Bcf/d Costa Azul LNG facility about 50 miles south of the California-Mexico border along the North Baja Pacific Coast, Felsinger indirectly discouraged competing facilities, such as the four planned for the Southern California or North Baja coasts, by saying Sempra can double its capacity far more economically than what it would cost to build a second terminal along the Pacific. He indicated that negotiations are now ongoing for greatly expanding both the terminal and the take away large-diameter transmission pipeline leading to markets in California and the Southwest.

The 1 Bcf/d initial capacity is now fully contracted — half of which Sempra has purchased in a 20-year deal with BP and its Indonesian counterparts, and the rest from Sempra’s project development partner, Shell International, which has contracted with Sempra to run its own LNG supplies through the Baja terminal. A construction contract will be announced in mid-December, construction will begin the first of next year, and LNG will begin to be received and re-gasified in late 2007 or early 2008, Felsinger said.

“In my opinion this is one of the very few projects that will get built along the West Coast of North America,” said Felsinger, noting that current work on the right of way for the LNG facility’s natural gas pipeline is being sized “at relatively small incremental cost” for carrying up to 2 Bcf/d, so it can handle what he called “any future expansion of the LNG facility.” And for the terminal itself, he said, Sempra is in currently in discussions with potential shippers about expanding this facility “even before we release construction contracts.

“The expansion of this facility to either 1.5 Bcf/d or 2 Bcf/d is a much more effective solution than siting and building a new terminal,” he said. “We’ll have a cost advantage over facilities looking to be sited going forward. As I watch the developments along the California and Baja coast, I am convinced that other terminals will be the exception, and not the rule.” Felsinger thinks that market and local community constraints tend to verify his prediction.

Meanwhile, in the Gulf, where Sempra has two LNG projects (Cameron, LA, and Port Arthur, TX) and two storage projects, Felsinger envisions the area’s gas processing infrastructure being a valuable resource to take most of the world’s “hotter” (higher-Btu) gas and make it ready for U.S. markets that tend to use the lower heat value (1,000 to 1,050 Btu) supplies.

“You basically have to tone down the gas by stripping out the butanes, ethanes, and propanes. That infrastructure exists in the Gulf. It just so happens that in Mexico, the gas we will bring in from Indonesia currently meets California specification, so no processing is needed,” said Felsinger, although adding that depending on where Shell brings its LNG supplies from, there may have to be some processing done in Baja.

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