As part of a broader strategy to emphasize its natural gas business and deemphasize independent power generation, San Diego-based Sempra Energy is considering putting its Port Arthur, TX, liquefied natural gas (LNG) import terminal on hold while expanding its more advanced LNG projects in North Baja California, Mexico and Cameron, LA.
Speaking Wednesday at the Lehman Brothers CEO Energy/Power Conference in New York, Sempra CEO Donald Felsinger said the company has “optionality” on the Port Arthur LNG project, which was approved by FERC in June (see Daily GPI, June 16). Meanwhile, it already has launched plans to increase the capacities of both its Costa Azul terminal in North Baja and the Cameron project. “If in fact we have enough volume [at Cameron] to push beyond the 1.5 Bcf/d it is sized for, should we take the spillover capacity and launch Port Arthur, or does it make more sense to expand Cameron?” he asked. “We’ve applied to FERC to expand [Cameron] to take this facility to about 2.65 Bcf/d.”
Felsinger also reiterated a strategic “realignment” at the company that emphasizes more investment in gas pipelines, storage and LNG, eventually exiting the merchant power sector, and selling or partnering its energy trading business.
“We continue to believe there are great investment opportunities in the natural gas infrastructure sector,” Felsinger said. It is hard to get more than a three- to five-year commitment in purchased power contracts from independent power plants, Felsinger said, compared to 20-year commitments that are common in the LNG terminal business and 10-year contracts in the pipeline business. Sempra wants the long-term assurance of the cash flows that LNG provides, he said.
“The key challenge for us now is just executing on the things that are already underway and that we are already investing in, such as our California utilities [Southern California Gas Co. and San Diego Gas and Electric Co.], the Rockies Express pipeline, our pipelines in northern Mexico, or spur pipelines, or our LNG facilities,” said Felsinger, who noted that the company has the financial strength and management team in place to take advantage of opportunities that might arise in the energy marketplace in the years ahead.
In response to a question about whether Sempra had additional plans to pursue LNG development on the East or West Coasts, Felsinger said he “personally wouldn’t bet that an LNG receiving terminal will ever be built along the California coast. Going forward, it appears that the Gulf of Mexico coast is the premier place for LNG development. As the Gulf production declines and the processing facilities and pipelines are there to serve the marketplace, the Gulf is the place to build LNG terminals. The East Coast has limited opportunities because not only would Rockies Express push a lot more gas to the East Coast, but other projects already planned will bump any East Coast projects off into the future.
“On the West Coast, I think you will see us expand Costa Azul from 1 Bcf/d to up to 2.5 Bcf/d,” said Felsinger.
Going forward, Felsinger told financial analysts to expect to see Sempra move upstream in the LNG business into liquefaction. He said the company might take a “small ownership interest” in a production facility in order to get the rights to market the gas.
“We don’t want to be in the LNG shipping business, but we would like to have the ability to arbitrage deliveries whether they are going to Europe, Asia or North America,” he said. “So, we’ll find a way to align ourselves to use the marketing skills we have through our Sempra Commodities [trading] business to, in fact, participate in that part of the value chain.”
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