Amid generally upbeat financial results reported for the third quarter Monday (see related story), Sempra Energy divulged that its Liberty Gas Storage Project in Louisiana may have to be shelved if it can’t find an engineering solution to cavern development problems. Separately, cost increases and delays are plaguing two other major gas and power projects. CEO Don Felsinger said Liberty in a worst case scenario might have to be written off at about $65 million to cover Sempra’s share of the salt dome storage project.

The two-salt dome project is part of broader storage development in conjunction with a 35-mile takeaway transmission pipeline from Sempra’s liquefied natural gas (LNG) terminal that is winding up construction at Cameron, LA, along the Gulf of Mexico. Last May Sempra reported delays in the storage project, but estimated that initial injections would begin in late summer at the facility (see Daily GPI, May 20).

The two caverns at Liberty total 17 Bcf of potential capacity, and the one cavern that currently is experiencing development problems is the larger (11 Bcf capacity) one, Felsinger said in response to an analyst’s question. If the project has to be abandoned, Felsinger and COO Neal Schmale said Sempra has other caverns that would “fully replace” the two involved in Liberty.

“The lesson [for us] is that these are one of those facilities in which we tried to take a pre-existing cavern and make it capable of holding high-pressure natural gas,” Felsinger said. “In other projects we have in the region, we are going into salt domes and mining our own caverns, so we will have much more confidence in the integrity of the caverns there, so the lesson here is don’t go buy a cavern that was used for something else and think you can store gas in it.”

Felsinger referred to “subsurface issues” that have delayed completion and caused Sempra’s pipeline/storage unit to analyze whether it can, in fact, correct the issues. “If not, it may require us taking an impairment charge of approximately $65 million after taxes for our 75% share of the project. Alternatively, if your corrective actions are successful — which we expect to know by the end of the fourth quarter — we would expect to take the facility into service in the first half of next year,” he said.

“Other than the one-time charge, our ongoing efforts to develop salt dome storage in the Gulf [Coast area] will not be adversely impacted.”

In the eastern leg of the Rockies Express Pipeline (REX) in which Sempra has a 25% interest and in the Sunrise Powerlink high-volt transmission line in the southern end of California, Sempra has experienced cost increases and delays, but Felsinger said he was optimistic that both projects will eventually be successfully completed.

Felsinger called a recent split verdict between an administrative law judge and the assigned commissioner at the California Public Utilities Commission (CPUC) a “major milestone” in attempting to build the 150-mile Sunrise transmission line, which is now estimated to cost $1.9 billion, up from earlier estimates of first $1.3 billion and later $1.6 billion. Apparently a more southerly, compromise route offered as an alternative by the CPUC commissioner added up to $300 million more to the project’s estimated cost to cover mitigation measures and new routing.

“We believe the CPUC ultimately will approve some variation of the recommendation made in the alternative version of the proposed decision,” said Felsinger, speculating that the state regulators would make a final decision by the end of the year.

On REX, Sempra is looking at higher-than-forecast costs for the latest expansion of that pipeline caused mostly by labor and what Felsinger called “work-around issues” imposed as part of the permitting process. The revised total estimate for REX’s easterly expansions is now $6 billion, he said, noting that Sempra’s equity share is $750 million, and it is expecting annual returns of about $80-90 million from that investment.

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