Given continuing historic low U.S. natural gas prices, San Diego-based Sempra Energy said Tuesday it has amended its 20-year contract for liquefied natural gas (LNG) shipments from the Tangguh project in Indonesia to allow BP Indonesia more flexibility to divert LNG shipments to other, higher-paying global markets, particularly those on the Pacific Rim.
Sempra President Mark Snell said the move is intended to help offset the continuing drag from lower natural gas prices and provide the Indonesian shippers more flexibility in commanding higher prices for their supplies.
“It is a positive for us because we have a guaranteed number of shipments — albeit small — giving us the total amount we need to keep the plant cool, and we’re also allowed to divert a cargo to our other facility in the Gulf [of Mexico], which eliminates the need to buy an expensive cargo there [Cameron, LA] to keep that plant cool.”
Sempra senior executives made the disclosure as part of the company’s 4Q2011 earnings conference call with financial analysts. Sempra reported earnings growth for both the quarter and all of 2011: $292 million, or $1.21/share, in 4Q2011, compared with $280 million, or $1.15/share, in 4Q2010; and $1.4 billion, or $5.62/share, for all of 2011, compared with $739 million, or $2.98/share, in 2010.
Entered in 2004 and effective in the second half of 2009 (see Daily GPI, Oct. 13, 2004), Sempra’s 20-year deal to bring up to 500 MMcf/d of LNG from Indonesia to its Energia Costa Azul terminal along the Pacific Coast of North Baja California, Mexico has always had a provision allowing up to half the contract volumes to be diverted in return for payments to Sempra. The amended contract allows for more volumes to be diverted with revised terms on the payments to Sempra and a guaranteed minimum number of annual shipments to the Mexican receiving terminal, Sempra CFO Joe Householder said.
“Given the wide disparity between the price for natural gas in Asia and the United States, we have seen a significant increase in the amount of diverted cargoes and a resulting increase in our earnings, so in lieu of these market conditions, we have amended this contract to provide enhanced value to both parties, including certainties of cargoes for Sempra and additional flexibility for the Tangguh partners,” Householder said.
As a result, Sempra expects “more consistent” earnings from the contract going forward, said Householder, who noted that in 2011 Sempra LNG earnings increased to $99 million from $68 the previous year. Beginning with the first quarter this year, the company will no longer publish separate results for its LNG business, which has been reorganized into a foreign group of businesses, including utility and gas infrastructure operations in Mexico and several South American nations.
“We currently expect 2012 earnings from LNG to be more in line with our prior guidance of $50-70 million as the benefit of the [Indonesian] contract amendment will be offset by lower natural gas prices,” Householder said. “In the longer term, however, we expect earnings from existing LNG operations to be roughly $55-85 million a year.”
An analyst asked about the financial impact of the amended contract specifically, but Sempra officials refused to make any disclosures in that regard. Snell basically said the impact is flat on Sempra’s overall earnings.
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