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Sempra’s LNG Bets Pay Off With Costa Azul

Posted by Fereidoon P. Sioshansi on the June 30th, 2008

From the July 2008 edition of EEnergy Informer.

After 7 years, Costa Azul terminal is open for business, just in time for high natural gas prices

Natural gas has become the fuel of choice for electricity generation in the short term as utilities across the US confront unprecedented opposition to coal. With domestic supplies already stretched to the limit, more attention is going to expand terminal facilities to import liquefied natural gas (LNG). But if there ever was a strong not-in-my-backyard (NIMBY) syndrome, this must be it. Nobody wants an LNG terminal anywhere near where they live, forcing developers to propose offshore terminals and other exotic out-of-sight, out-of-mind options. The problem is particularly acute in California, hungry for clean gas but reluctant to allow a facility anywhere along its protected coastline.

Sempra Energy, the parent of Southern California Gas Company, decided that the only feasible option was to bypass California’s Herculean citing obstacles by investing in a facility south of the border in Mexico, literally a stone’s throw from California’s energy-starved and climate conscious market. Sempra bet over $2 billion into 2 LNG terminals in the West Coast and Louisiana and $1.2 billion for a 25% stake in Rockies Express, a natural gas pipeline bringing gas from Colorado to Ohio.

In mid May 2008, Sempra LNG, a subsidiary of Sempra Energy, announced that its Costa Azul LNG terminal in Baja California, Mexico, has completed performance testing and is ready for commercial operations. Located south of the US border, 14 miles north of Ensenada, the new terminal is the first of the kind on the West Coast of North America.

Gas reserves

“Costa Azul is the largest capital project in our company’s 10-year history thus far and part of our ongoing plan to develop critically needed natural gas infrastructure throughout North America,” said Donald E. Felsinger, chairman and CEO of Sempra Energy, who persevered amidst opposition and setbacks over a 7-year period. The terminal can process 1 billion cubic feet per day (Bcf/d) of natural gas, half of which is leased to Shell International Gas Limited under a 20-year agreement.

A second Sempra LNG terminal, Cameron LNG, with 1.5 Bcf/d capacity is under construction near Lake Charles, LA, slated for completion by the end of 2008. The two terminals will increase US LNG import capacity by 2.5 Bcf/d or roughly 40%. Currently, there are 5 similar facilities in the US, 4 in the East Coast and 1 in Alaska – 40 are on the drawing board.

Mr. Felsinger expressed surprise at the sudden demise of coal in the US in the past few months. Talking to the Wall Street Journal (7 Apr 08), he said, “We have been looking at the US landscape and trying to anticipate the infrastructure needed,” adding, “We saw more robust future for coal.”

As early as 2005-06, US utilities were planning to build as much as 24,000 MW of coal-fired plants and only 10,000 MW of natural gas. Last year, however, over 13,880 MW of coal-fired capacity was canceled while consumption of natural gas has increased by 10%, according to data from the Energy Information Administration (EIA) reported in the WSJ article. Call it luck or perfect foresight, but Sempra’s bets are paying off handsomely with natural gas prices hovering above $12 per million BTUs.

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  1. on June 30th, 2008 at 10:02 am

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