With hints of increasing earnings projections for the full year next month, San Diego-based Sempra Energy’s CEO Steve Baum told a Wall Street audience last Wednesday that Sempra has carved out a major role in both natural gas and liquefied natural gas (LNG) marketing. Separately, on its electric side, Sempra is trying to start discussions for a global settlement with California officials regarding a long-term power supply contract with the state Department of Water Resources (DWR) and related litigation stemming from the state’s 2000-2001 energy crisis.

Baum indicated that Sempra will be moving toward selling its South American natural gas distribution businesses, but will be strengthening its ties in Mexico and its trading units’ gas-related business. Aside from BP, Baum said Sempra Energy Trading is the largest marketer of natural gas in the country. He said rather than a “speculative trading unit,” he views Sempra’s trading operation as essentially an energy marketing unit.

He reiterated that the company’s study and analysis supports the conventional wisdom that declining North American gas basins and the prospect for sustained prices in the $3 to $4/MMBtu range mean that LNG imports will be economically viable beginning later this decade.

Calling LNG the “major source of growth” for the company, Baum said there will be no start of construction of facilities — either at Cameron, LA, or North Baja California in Mexico — until there are corresponding supply contracts that are big enough to recover the company’s investment. Bolivian sources continue to be the best source (closer, cheaper) for the proposed North Baja plant, and Sempra last week met with the president of Bolivia in an attempt to get those negotiations re-started, he said. Otherwise, he mentioned Qatar in the Middle East and other Atlantic-based sources as possible LNG suppliers for the Louisiana facility.

Noting that his company is the only one with all of its local environmental and siting permits in North Baja, Baum said that he expects to build the first LNG receiving terminal there, although he did acknowledge that Shell, which has its own supplies and a proposed LNG terminal site bordering Sempra’s, might “find it attractive” to bring its gas to the Sempra terminal. Marathon’s larger integrated energy center, he thinks, is farther behind in the race because of the potential difficulty of getting environmental and land-use permits closer to the major metropolitan area of Tijuana, Mexico.

Regardless of which terminal is built first, Baum said, Sempra will be involved in some part of the LNG import process because its North Baja transmission pipeline is the only takeaway route for gas from the LNG terminals. The 500 Bcf/d pipeline is now fully subscribed but it is designed to have its capacity doubled through compression and to also backhaul supplies eastward to its origins on the California-Arizona border at Topock.

“We’re deeply in the process of negotiating with suppliers for throughput arrangements for these facilities,” Baum said. “We will not build them unless we have committed contracts for throughput that at minimum would return our investment to us. We’re at a stage now in the next several months where we’ll be making the decision as to whether to enter into the rather large contracts for the tanks and other big components, and we will not do that unless we have contract (supply) capacity.” He reiterated that Sempra is talking to both large companies with major supplies and sovereign nations, such as Qatar, Indonesia and Bolivia.

Baum said Sempra will continue to operate its trading unit as a nonspeculative business. The company doesn’t like “taking [a] betting position, and 65-70% of our trading business involves direct commodity sales to customers. We’re now the largest trader, or seller, of physical natural gas in the United States, aside from BP. That provides a very strong base upon which we can establish the trading company as an integral part of our LNG strategy.”

Regarding its South American holdings, Baum said the businesses in Argentina, Chile and Peru “are not core to the businesses of Sempra and we have plans to dispose of those businesses in due course.” On the other hand, he described the company’s natural gas distribution/transmission and power generation plant businesses in northern Mexico as “quite successful.”

Regarding the much-debated long-term $6.6 billion, 10-year wholesale power contract with California’s DWR, Baum characterized earlier settlement discussions as being unsuccessful last year, but recently he has “renewed the possibility of settlement discussions with the state,” expanding the mix of players to include the state attorney general, California Public Utilities Commission and others. “We would be willing to amend the contract in a way that would not be harmful to us and could be quite valuable to the state to the tune of as much as a billion dollars in energy savings,” along with throwing in what Baum called “a whole list of other cases I would like to wrap up that would settle as well,” including some anti-trust litigation brought against Sempra.

“We would be willing to settle the supply contract as long as it was not harmful to us in order to settle a number of other matters,” he said.

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