For an interim period before long-term contracts kick in, Sempra Energy is looking for spot market liquefied natural gas (LNG) shipments to line up following the completion of some test shipments that are due in the second quarter on the West Coast, Sempra CEO Donald Felsinger told financial analysts on an earnings call Tuesday.
Sempra announced a slight profit increase from continuing operations ($1.13 billion, or $4.26/diluted share, for 2007, compared with $1.09 billion, or $4.17/diluted share, for the previous year). Its California utilities and global trading operations accounted for the bulk of the profits, nearly $500 million each for the year.
Although the LNG start-up at Costa Azul, the receiving terminal along the Pacific Coast of North Baja California, Mexico, is running two months behind previous schedules, the impact on estimated net income for the year is “negligible,” and the company expects to be in an enviable competitive position longer term with the first West Coast LNG facility and a second one along the Gulf of Mexico at Cameron, LA, Felsinger said.
Responding to a question about the time gap between when Costa Azul is commercially ready late in the second quarter and when long-term contracts kick in, Felsinger said Sempra executives Monday held a conference call with potential LNG cargo shippers that represented supplies from all over the world. “They’re out selling capacity and looking for spot cargoes,” he said.
“As our facility goes operational and there is the ability to bring gas into it before the BP contracts [from Indonesia] start, we will be out there trying to convince people to bring [their supplies] to Costa Azul.”
In response to another question, Felsinger refused to say what Sempra is paying for its test shipments, other than to classify the amount as “market prices.” He said as his people have analyzed the situation, “we realized we can’t start getting revenues from our customers until we can demonstrate the facility is commercial, and to do that we have to run test cargoes through it.”
Sempra CFO Mark Snell reiterated that the test cargoes are part of the start-up costs for the LNG facility and are capitalized.
Regarding questions on the outlook for more global liquefaction capacity being added, Sempra COO Neal Schmale said he and others in the industry think there will be “a lot of liquefaction capacity going to be coming on” in the next few years, and “it will have an impact on the market.” Generally, Schmale said Sempra views the global market as positive and he thinks it will continue to be that way in the years ahead.
In response to another question about recent LNG announcements by Cheniere Energy Inc., Schmale said its LNG operations reflect favorably on the value of Sempra’s assets in the growing U.S. LNG sector even though the ultimate volumes that will come regularly to America are hotly debated (see Daily GPI, Feb. 14).
Felsinger said Sempra has expansion approvals in the works for both its LNG terminals now completing construction (Costa Azul and Cameron) “so we now have the ability without launching [a third terminal at] Port Arthur, TX, to increase the Mexican facility up to about 2.5 Bcf/d and Cameron to 2.6 Bcf/d.
“What we have done is left ourselves some wiggle room to see how the upstream market develops. We can then determine if it makes more sense to expand one of our existing facilities or to launch a whole new facility [at Port Arthur]. We’re fairly well positioned to expand at either or both of the existing terminals or move forward with Port Arthur.
“[What we do] will be a function of how quickly the liquefaction capacity expands and how robust the market is [domestically] for gas to support new LNG supplies. We have as much flexibility as anybody out there to take advantage of what does happen, or what doesn’t happen.”
He called the time period of 2011 and later the “watershed” years for future liquefaction development coming on-line.
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