“On track” was the mantra for Sempra Energy, which reported increased utility and other first quarter earnings results, although accounting requirements caused some of its natural gas trading results to appear to have slipped on a quarter-over-quarter comparative basis. First quarter results showed net income of $228 million, or 86 cents/diluted share, compared with $255 million, or 98 cents/share, for the same period last year.

The only bump in its so-far smooth road for various new natural gas infrastructure projects is the current pause globally in building added liquefaction capacity in the world’s major gas production fields. More time will be needed for the global liquefied natural gas (LNG) developers to work out complex economic, technical and marketing details, so in the meantime, plans for a new LNG receiving terminal at Port Arthur, TX, remain on hold, according to senior officials at San Diego-based Sempra. They spoke May 2 on a first quarter earnings conference call with the financial community.

During the call, CEO Donald Felsinger and other senior executives hinted that longer-term options for the future of Sempra’s trading operations are still being explored.

The trading unit, Sempra Commodities, earned $71 million in the first quarter, compared with $116 million for the first quarter in 2006, which was a record, but the most recent quarterly results were dampened by mark-to-market accounting requirements that prevented $86 million of natural gas storage/transportation profits from being counted in the quarter. Similarly, in the first quarter a year earlier $44 million in gas proceeds had to be deferred, Sempra claimed.

In other areas, Sempra’s two utilities — San Diego Gas and Electric Co. and Southern California Gas Co. — collectively reported a 22% increase in first quarter net income, with $117 million for the first quarter this year compared to $96 million in the same period last year. SDG&E earned $62 million this quarter, compared with $47 million in 2006, and SoCalGas earned $55 million, compared to $49 million in 1Q2006.

Generally, Sempra sees the LNG market as strong with future prices running above current ones, and this economic pull eventually should help shake loose the added production.

Unlike an analyst’s description, Sempra President Neal Schmale said he does not characterize the liquefaction stalemate globally as “precarious,” but rather as a combination of expected factors involved in making very large investment decisions that have long-term consequences. Schmale said what he would call “normal difficulties” of getting the capital-intensive infrastructure online has caused the delay.

“We really haven’t changed our view from our analysts’ conference [in March] of how we think new liquefaction projects are going to develop,” he said. “These things take a long time to play out in terms of changes, and a couple of months isn’t going to change much.”

Felsinger reiterated that the utility holding company’s view is that there is going to be a delay of anywhere from one to two years in the company’s development of a third North American LNG receiving terminal at Port Arthur, TX. Separately, Felsinger reported as part of the call with financial analysts that the Costa Azul LNG terminal along the Pacific Coast of North Baja California, Mexico is now 70% completed and a similar facility at Cameron, LA, is 45% complete, with both targeted for start-up operations next year.

“What has not changed are the market fundamentals [in the global LNG business],” Felsinger said. “If you look at today’s natural gas market, there are even stronger market signals for the need for LNG. We’re trading today at $8/MMBtu [for LNG] and the forward strip prices are out in the $8 to $10/MMBtu range. If anything, the current signals are even a stronger incentive for people to get their acts together and get these [liquefaction facilities] built.”

Regarding trading, Sempra executives indicated they are still pursuing three options for the trading unit, and one might be selected in two or three years after current major liquefied natural gas (LNG) receiving terminal and storage/pipeline projects are in full commercial operation.

“Actually, when you look at our first quarter results for commodities on a mark-to-market basis, this is one of the top performing quarters ever,” said Felsinger.

In terms of Sempra trying to maximize what the financial analysts call its “excess balance sheet capacity” now taken up by the collateral and other financial-backing requirements of energy trading, Felsinger reiterated that one of the three options in play for trading is what he called “the status quo,” continuing to keep the business performing well with healthy returns, along with looking at establishing a stand-alone credit rating for Sempra Commodities or finding a suitable partner.

“We’re still going down the path of looking at all three options,” Felsinger said. CFO Mark Snell confirmed that the company is “active in the market” in talking to potential partners and looking at alternative capital structures for the business. “We don’t have anything to announce right now, however,” he said.

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