Natural gas prices will stay sufficiently high in the future to support the increased import of liquefied natural gas (LNG) in the United States, and San Diego-based Sempra Energy intends to be a leader in the emerging LNG trade, according to Sempra CEO Steve Baum, speaking to a Merrill Lynch energy financial forum in New York City.

“Our view of natural gas prices is that they are going to be at a level sustainably above a point that will support the entry of LNG to the United States — not only on the West Coast, but also in the Gulf of Mexico,” Baum said. “So we are very interested in how that business unfolds, and we will be a player in that business.”

Baum noted that Sempra now has completed the North Baja Pipeline from the Arizona-California border into Mexico and across to the power plants in North Baja directly south of Tijuana on the U.S. border. It has been engineered specifically so the gas can “flow both ways,” he said, adding that his company now owns a site (north of Encensada on the Pacific Coast of North Baja) for building a LNG receiving terminal. The terminal would have a pipeline leg linking it to the North Baja Pipeline.

“We had advanced discussions and completed an [memorandum of understanding] with the Pacific LNG Group for gas to be brought from Bolivia, and we are open to having gas brought from other locations,” Baum said. “We think that is going to be a very interesting business, and we’d be looking at assets that are currently going to be available and that will become better priced and more widely available as the year unfolds. These would be assets that fit into our strategy for developing a very strong West Coast and Mid-Continent gas position.”

Separately, a Sempra spokesperson would not speculate on whether Sempra is talking to the PG&E National Energy Group about buying some of its assets, but he did confirm that Sempra could buy out PG&E’s current U.S. interest and operations of the California portion of the North Baja Pipeline.

Although acknowledging that energy trading will not produce the level of profits previously expected, Baum said the utility holding company and growing merchant energy player will stick with its strategy, which envisions trading as an “essential component” to any successful energy business. The earning forecast for this year, while “softer” and “amended” slightly, is still in the range of $2.55-$2.65/share, Baum told a Merrill Lynch energy forum in New York City.

Projected trading earnings have slipped slightly below $150 million for the year, following a forecast at the upward range of $200 million early in the year and an earlier reduction to $150 million at mid-year, said Baum, who stressed how Sempra’s trading operation is more conservative and short-term transaction-based than other trading companies’ operations. “More than 80% of our trades convert to cash into two years,” he said, stressing that the company’s liquidity is much stronger than that of other major players in the sector.

Contrary to last year at this time when electricity trading was the principal source of profits, natural gas is providing the bulk of the profits so far this year, Baum said. With its still-strong credit rating in an industry that is suffering in that regard, Sempra is aggressively looking for new assets to acquire, particularly in the gas pipeline area.

“Although Sempra Energy’s trading group may fall short of original ($150-$200 million) profit projections for 2002, other Sempra businesses are ahead of their earnings plans for the year,” said Baum, noting the company will update 2003 earnings estimates later in the fall after it completes its annual planning process.

Generally, Baum used his time at the Wall Street forum to talk about trading and what he characterized as a “strong risk management” culture with a Connecticut-based organization that is aloof from traditional Houston-based traders.

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