With phase one of the Cameron, LA, liquefied natural gas (LNG) export project now complete, top executives at San Diego-based Sempra Energy on Tuesday talked bullishly about natural gas, as well as the future prospects for hydrogen.
CEO Jeff Martin said during a quarterly conference call the Cameron export facility was “substantially completed,” with commercial cash flow from all three LNG production trains expected to start within days. “Today we’re more strategically focused, more profitable, and more optimistic about our future growth prospects,” he said.
More quarterly earnings coverage by NGI may be found here.
In response to concerns and questions on the resiliency of the global LNG market going forward, Martin said it was best to look at the macro level and the mild winter this year in the Northern Hemisphere, as well as the pandemic’s impact on demand.
The International Energy Agency, he noted, “is predicting gas demand globally will decline this year by 4%, but the picture inside the LNG sector has demand increasing…Local demand for LNG over the first half of the year is one of the few commodities that is actually up close to 2%. U.S. LNG exports compared to last year are up 7%, and that’s a function of all the new capacity that has come online over the last 12-18 months, including Cameron. Interestingly, Europe is up 18% in the first half.”
Martin said there is “clearly an opportunity where LNG is quite competitive in many countries, where LNG is indigenous, such as Thailand. There, they are landing LNG twice as cheaply as they can produce it in their own economy. So I think there is continued optimism about LNG.”
Sempra LNG CEO Justin Bird during the conference call said the company’s team “continues to believe that the second wave of demand in the mid-2020s is a real opportunity.”
Roughly 80% of future gas demand is expected in the developing world, defined by the Asia-Pacific, Martin noted.
“There’s a big opportunity there, and I think the pandemic, if anything, is causing some LNG buyers to delay their decisions…It is also causing other infrastructure providers to fall behind on the wayside…
“It always comes back to what your competitive advantages are, and our approach has always been having competing, low-cost brownfield sites that can dispatch directly into the Pacific and the Atlantic. No other infrastructure provider in North America has that advantage.”
Bird said LNG supply has had an 8% growth rate, but Sempra expects it to “dramatically slow down to 1% annually…We think the supply growth will decrease as demand increases.”
Sempra is targeting 2021 to move forward on the Port Arthur LNG export project on the Houston Ship Channel. Management is talking with “many” shippers, but “there is no doubt that there has been a slowdown in the market as a result of Covid-19,” Bird said.
For the second phase at Cameron, Bird’s team is working with partners on conceptual work to optimize the expansion from a cost basis and timing perspective. “We continue to see long-term growth in the LNG business, but with a very disciplined capital approach.”
Regarding the push for electrification around the nation and its impact on Sempra’s gas utilities, Martin said, “I think there is a recognition that natural gas will play a long-term role in the state and nation’s energy policy. Remember that with electrification, more likely than not you’re going to need two or three or four times the electricity, and that will require more gas for power production.”
Longer term, hydrogen as a fuel is at a high-level of interest, Martin noted. Sempra is looking at up to 10 different projects that involve using hydrogen in transportation, blending opportunities in power generation, blending in compressor stations at the Southern California Gas Co. utility and injecting cost-savings and efficiency in existing facilities, such as LNG projects.
As it partners with hydrogen trade organizations and nations overseas, including Japan and Germany, Sempra is “quite bullish on hydrogen and renewable natural gas, particularly here in California,” Martin said. “For the energy transition that is facing our sector and globally, hydrogen is going to play an increasingly important role. It is still a little bit early, but it is time now for us to establish a leadership position.”
Group President Kevin Sagara, who was CEO of Sempra’s other California utility San Diego Gas and Electric Co., also talked up hydrogen prospects. The company, he said, has an edge in California, which “has always led the way in clean energy…In this regard, I expect it will be no different. We see opportunities in our own system” for industry and transportation in which hydrogen could “play a key role, and we would expect our infrastructure to be right in the middle of it.”
Regarding the economics for commercial-scale hydrogen, Martin cited the commercial viability trendline for solar photovoltaics and predicted the same cost reductions would happen to hydrogen. “A lot will depend on what advances on the research and development side…to costs in the forward curve.”
For 2Q2020, net earnings were $2.2 billion ($7.61/share), compared with $354 million ($1.26) for the same period last year. The two California utilities accounted for 60% of the holding company’s overall earnings, versus 80% in 2017.
Earnings from Cameron LNG’s first phase are estimated at $400-450 million annually, Martin noted.
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