Citing increasing indications of declining gas supplies and increasing demand for the fuel in the continental United States, San Diego-based Sempra Energy said it plans to make imported liquefied natural gas (LNG) a bigger part of its future business strategy. Senior officials at Sempra made these latest assessments in a report to employees that emphasized the company plans to import up to 2.5 Bcf of LNG at two sites on the West and Gulf coasts.

“Domestic natural gas production is declining while demand is increasing,” said Steve Baum, Sempra’s CEO in an employee report under the heading of the company becoming a “major” LNG importer. “Imports will fill the growing gap. Now is the time for Sempra Energy to make its move.”

Last week, the company received an environmental permit for its proposed LNG terminal in North Baja California, Mexico, from Mexico’s national environmental agency. It was the first environmental and risk-assessment permit issued for an LNG project in Baja California, and the first permit awarded for an LNG facility on the entire Pacific Coast, said Sempra Energy International President Darcel Hulse. He noted Sempra expects “in the near future” to receive two other key permits, an operating permit from Mexico’s Energy Regulatory Commission (CRE) and a local land-use permit from the City of Ensenada, Mexico.

The company is seeking to build the LNG terminal and associated facilities at a site in Costa Azul, along the Pacific Coast about 14 miles north of Ensenada, Baja California. The proposed $600 million project, which is targeted for in-service in 2006, would have the capability to import and process 1 Bcf/d of gas for expanding markets in northern Mexico and Southern California. As a tie-in to the project, the Federal Energy Regulatory Commission last summer approved the U.S. leg of a 215-mile, 500 MMcf/d pipeline (North Baja Pipeline) to serve gas distributors, power plants and other eventual LNG terminals in the region.

“LNG will be a critical part of the energy-supply mix in North America over the next decade, especially in Baja California, which is not linked to mainland Mexico and currently relies on the pipelines in the western United States for all of its natural gas,” said Donald E. Felsinger, group president of Sempra Energy Global Enterprises, which oversees SRI.

Energy demand in Baja California is projected to grow at 7% to 10% annually over the next decade, which means that energy supplies must double to keep up with demand, according to Mexico’s secretary of energy.

In fact, Sempra believes that gas supplies in all of North America have “peaked.” The United States alone consumes more than 30% of the annual worldwide gas production.

Hulse said the continuing preference for natural gas for firing electric generating plants provides a ready future market for LNG. New nuclear plants, expanded hydro-electric production and massive applications of renewable resources are not realistic options for meeting future power demand, Hulse emphasized to Sempra employees. “Gas has become the ‘fuel of choice’ when you look at the options,” he said.

Thus, Sempra is placing increased emphasis, Hulse said, on its planned LNG receiving terminal on the Pacific Coast and on development rights for a receiving terminal near Lake Charles, LA, that it acquired earlier this year from Dynegy (Hackberry LNG), and for which FERC approval is expected by the end of the year.

“The two facilities would make up a significant part of the network that imports LNG into North American,” said Hulse. “And we will be strategically positioned with one facility on the West Coast and one on the Gulf Coast.”

Historically, separate parts of Sempra, which was formed five years ago by the merger of the holding companies for Southern California Gas Co. and San Diego Gas and Electric Co., were early proponents of LNG. SDG&E in 1965 developed an LNG storage facility south of San Diego that was closed in 1985 where piped in supplies of gas were liquefied for storage. And SoCalGas and affiliates seriously pursued the first West Coast (lower 48 states) LNG receiving terminal along the California coast in the 1970s and early 1980s, but were eventually forced to abandon the plans due to environmental concerns, regulatory delays and ultimately deregulation of natural gas that greatly pushed down the price of gas.

©Copyright 2003 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.