With liquefied natural gas (LNG) contracts that are essentially take or pay, and a robust future renewable energy market in the West, Sempra Energy COO Neal Schmale pushed aside any concerns about delays now facing some of his company’s major energy supply projects, such as its LNG receiving terminal in North Baja California, Mexico, and Cameron, LA. Schmale expects the Costa Azul facility in Mexico that began commercial operations earlier in May to have at least 25% of its capacity used at any given time starting next year.

Schmale made his remarks in response to questions from financial analysts at the Deutsche Bank Energy and Utilities Conference in Miami, FL. He acknowledged that LNG is coming in more slowly than was previously expected, but Sempra’s “fundamental view” that LNG is going to play an increasingly big role in North America remains unchanged.

The facility will be 100% utilized from a financial standpoint under the 20-year contracts Sempra has in place — up to 500 MMcf/d from Indonesia that it has under contract with BP, and another 500 MMcf/d for terminal capacity under its long-term deal with a unit of Royal Dutch Shell, which wants to bring Russia’s Sakhalin gas through Costa Azul.

“From a financial standpoint, it is safe to say we will have the capacity in Costa Azul fully utilized,” Schmale said. “From a physical standpoint, I would expect to see the capacity in that facility used at 25%.”

Schmale was asked whether Sempra was concerned about the absence of supplies at its already operating LNG facilities located on the Gulf Coast.

“Given the surplus of regasification capacity that is either on, or coming on, in the Gulf, it is going to be difficult for us or anyone else to sign supply contracts any time soon for the same time period that we were able to set for the initial contract,” Schmale said. “Having said that, I would emphasize that our fundamental view of the world natural gas trade has changed very little from what it was when we started this [Cameron, LA] facility.

“We believe when you start with the premise that natural gas is going to be the fuel of choice worldwide for a whole host of reasons, including environmental reasons, and you add to that the decline of the resource base in the United States, the U.S. resource base is not nearly as prolific as the world resource base. That basic geologic situation coupled with the basic economic state of affairs, long term we think the United States is going to need a lot of LNG and what we are seeing now is a delay in when it is going to come in.”

(It may be a long delay and the price may be high. Recently, Kathleen Eisbrenner, Shell Gas & Power executive vice president for global LNG, told the GasMart 2008 audience that over the next four years the number of LNG importing countries will jump from 17 to 29 while exporting countries only will grow from 15 to 18. Among those now building importing terminals are Argentina, Brazil, Chile, and Uruguay, which could cut into LNG supplies used for the North American summer storage fill to feed their own peak winter demand (see Daily GPI, May 22).)

In response to a question on a major proposed merchant wind generation project in North Baja, La Rumorosa, Schmale said the California Independent System Operator has said that until some upgrades are made in the transmission linking the area south of the U.S.-Mexico border, there would not be room on the existing grid to move the power to Southern California Edison Co., which signed a contract for 250 MW of wind-generated supplies from a Sempra unit.

“It is sort of in a holding pattern right now, waiting for the transmission issues to sort themselves out,” Schmale said. “This underscores a point I have been trying to make, namely, that if California is going to achieve its very aggressive renewable goals — which we fully support — something significant and comprehensive has to be done with transmission.”

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