Some analysts and company executives have questioned whether an energy trading operation is good for the balance sheets of prospective and current importers of liquefied natural gas (LNG) in North America, but San Diego-based Sempra Energy, a leading proponent of trading and a major LNG player, was unabashedly supportive of its trading unit Tuesday at the Merrill Lynch “Global Power & Gas Leaders Conference.”

“We make decisions on the views we hold, not the views that others hold,” said Don Felsinger, Sempra’s president and the replacement for current CEO Steve Baum when he retires in early 2006. “We’re not afraid to take a position that goes against the flow.

“Those of you that follow us know we made a decision to stay in the trading and marketing business. We think it supplies synergies, stable earnings and as we look at the LNG and generation businesses, we think it makes a lot of sense to stay in trading.”

Southern Union President Thomas Karam told the same audience that “contrary to Sempra, we chose not to be in the energy trading or marketing business. We seek to take no commodity risks, and we are very happy to be in the regulated business. There is nothing wrong with being a toll road if you’re a very good toll road.”

Felsinger was specifically asked how Sempra looks at trading when investors see more instability in that part of the industry, and he said it provides the company with a “very unique view of the marketplace.” But more importantly, Sempra sees trading as an added asset in making deals with suppliers who want to bring LNG to North America.

As an aside, Felsinger said that like the other would-be LNG importers, all of Sempra’s businesses are potentially for sale at the right price and that, in fact, the company has been approached about selling its trading operations. “We’re always interested in seeing what is happening in the market, but we think this business is so valuable to us that the premium we would require we just haven’t seen yet,” Felsinger said.

Another area of interest among the financial analysts was whether there is any longer term potential for a merchant LNG market, given the initial requirements for large creditworthy players and huge supplies of natural gas shipped over long distances. The Merrill Lynch panelists had slightly different responses, but no one sees a spot LNG market developing any time soon.

Dominion Resource’s existing Cove Point, MD, LNG facility originally was developed 25 years ago on a merchant basis but stayed in business less than a year, the victim of falling energy prices, noted Dominion’s President Thomas Farrell. The terminal was idled for more than two decades until his company bought it from Williams, which he said did “an excellent job of getting long-term, 20-year contracts” before spending any money on refurbishing the facility.

“Our expansion also involves 20-year contracts, and I think you’re safer having long-term contracts,” Farrell said. “In our case we don’t call it, ‘take-or-pay;’ we just say ‘pay.'”

Sempra’s Felsinger “echoed” Farrell’s comments, noting that initially “there will not be a spot market developed for LNG, but longer term (10 or more years), it could take place.

“We see that as a common theme in our discussions with suppliers; they would like to have diversion rights, with some (penalty) payment, so people are thinking about what they would do if gas prices would be higher in some other part of North America where our terminal is not located, or in Europe and Asia. The suppliers would like to have the ability to take those cargoes to those other markets. Longer term, I think that will evolve.”

Southern Union’s Karam said the “lessons from the past are that when Cove Point and Lake Charles [LNG terminals] were built, gas prices were $6 to $8 in the late 70s and early 80s, before the bottom fell out. They had to mothball those plants, and that is an enormous amount of capital to spend with that degree of risk.”

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