Short of an abrupt and unforeseen big drop in wholesale natural gas prices, liquefied natural gas (LNG) imports promise to be a huge stimulus to investment in new natural gas infrastructure, according to the strategy outlined by Sempra Energy COO Donald Felsinger, who spoke Tuesday at the Merrill Lynch “Power & Natural Gas Leaders Conference” in New York City.

Felsinger estimated that there will be $500-$600 million in new pipelines built to support the company’s three proposed LNG receiving terminals in Baja California Norte, Mexico, the Texas Gulf Coast, and Louisiana Gulf Coast.

While executives from the two largest current LNG importers — Dominion Resources and Southern Union — emphasized different aspects of the current “hot” fuel, they reiterated Felsinger’s overall bullishness toward LNG and the related underground storage and pipeline infrastructure investments it is spawning. Their strategies are different from that of the San Diego-based utility holding company, which is boosting its trading operations while it is in the process of shedding its South American assets.

A Standard & Poor’s Ratings Services report last week, “Hot Prospects for a Cold Fuel,” painted a bright future for LNG even at the $2.50-$3.25/MMBtu price range, but Tuesday’s Merrill Lynch panelists emphasized a need for prices above $3.50 and assuming that for the next few years the prices will remain in the current $4-$6 range.

“It is different for the greenfield projects than it is for expansion facilities. Dominion doesn’t really care because we are going to get paid no matter what the price turns out to be over the next 20 years, but $3.75 to $4 is the number most people throw around in the East,” said Dominion COO Thomas Farrell. Felsinger said that on the West Coast the range is likely to be $3.50-$4.25/MMBtu. “The big variable is the cost of the LNG in the source country and the shipping costs.”

In addition to LNG, Southern Union eyes itself as becoming the nation’s leading interstate natural gas pipeline company, said Southern Union President Thomas Karam. Southern Union and General Electric Finance have formed a joint venture to purchase Enron’s domestic gas pipeline assets. The transaction is expected to close in December.

In response to questions from analysts, Felsinger defended Sempra’s decision to remain in the energy trading and marketing business, when its competitors for the most part have left that sector. “If we were to sell the business, we would have to contract for those skill sets,” he said, noting that all of Sempra’s assets are always possibly for sale “at the right price” but so far no one would pay the “premium” that Sempra would want.

He said the trading unit gives Sempra “a very unique view of the marketplace: where there are transmission constraints for both electricity and gas; what customers are looking for; but most importantly in our LNG business.

“There are many entities that would like to bring gas to North America that don’t understand the North American gas market and they are looking for someone to partner with or contract with that has the wherewithal to move gas throughout the market. We provide that skill set and can do it at a price that makes some attractive returns.

“The trading business is also valuable to how we market ourselves in the LNG business. It plays a key role in our short-term contracting for generation off-takes — both the gas supply and generation output. And it also helps in doing the supply management around our underground storage facilities.”

Karam said with Southern Union “what you see is what you get. We’re 99% regulated and 100% natural gas. We choose not to be in trading or marketing, and our philosophy is that there is nothing wrong with being a ‘toll road’ if you’re one of the best.”

While noting that firms like Southern Union and Dominion have an advantage in being able to expand capacity at existing LNG terminals, Dominion’s Farrell said that not all the current greenfield LNG terminals are going to be built because “they are not all going to get financed, and they are very capital intensive and take a long time to build. You’re safer having long-term contracts (as opposed to a merchant market).”

Felsinger said a spot market for LNG may develop longer term in “10 years or beyond.”

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