All of the major global liquefied natural gas (LNG) shippers — mostly large oil and gas production companies — are now “more comfortable” with the longer term wholesale natural gas business in the United States and willing to take the risk of downstream prices once added LNG imports begin flowing in 2007-08, according to San Diego-based Sempra Energy CEO Steve Baum, speaking Tuesday at the Deutsche Bank Electric Power Conference in New York City.

Baum reiterated his belief Sempra will have the first two new LNG terminals built in the United States in Louisiana’s Gulf Coast and the Pacific Coast of North Baja California.

“We’re finding that the shippers are comfortable now with the United States [natural gas] market having enough buoyancy in prices over time for them to take the downstream price risk,” said Baum, who announced to the financial community earlier in the year he will be retiring in January 2006, a year or two before the first LNG shipments are scheduled to arrive at Sempra’s Hackberry, LA, terminal. “In effect, we are now confident that Sempra will not carry any of that [price] risk, except for very small pieces we might take at variable discounts to hub prices.

“That is a very big step. Our view is that on a sustained basis natural gas prices will be above $3.50/MMBtu in the United States after the entry of [more] LNG, contrasted with prices over $6 today. We believe those prices will fall into the $3.50 to $4 range for 2008 and beyond.”

Baum called the North Baja project “pretty well put to bed,” with a still-to-be-finalized contract for Indonesian gas that would come in at a price that is “discounted to index,” so the “next risk facing the project will be in its construction.” In Louisiana, at the proposed Cameron project in Hackberry, Baum said Sempra currently is in direct negotiations with a counterparty to take the terminal’s capacity, and about 30% of the equity position in the facility, with Sempra retaining 70%.

Longer term, Sempra’s third proposed terminal at Port Arthur, TX, includes 3,400 acres lying directly across the Houston Ship Channel from Cheniere’s proposed LNG site and just north of Exxon Mobil’s site — all three of which are currently before the Federal Energy Regulatory Commission for licensing. Baum said he thinks his terminal site is the “superior” one and “may very well get approved before the other two.”

In response to questions about Sempra’s willingness to sell parts or all of its proposed LNG projects, Baum emphasized that the company has already sold half of its interest in the North Baja project to a part of Shell, and that deal calls for any subsequent expansions being shared 50-50 between the two partners. At Cameron, he said Sempra “expects” to keep 70% of $700 million the project.

When the company announces the final supply deals for Cameron, Baum said, the contracts will be with what he called an “extremely creditworthy counterparty,” so the facility can be completed through project financing at considerable saving in the financing costs.

“It is too early to say” in regard to the Port Arthur LNG project, but Baum said Sempra’s strategy is to “hedge it out before it is built” so when it is hedged it in essence becomes ‘financeable.'”

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