FERC OKs Sempra LNG facility

Company interested in working with Alaska but timetables not parallel

Kristen Nelson

Petroleum News Editor-in-Chief

Sempra Energy is working liquefied natural gas projects on both the east and west coasts of the United States. Company officials were in Anchorage, Alaska, the week of Sept. 8 to explain the company’s Costa Azul LNG project in Baja California, Mexico, to committees of the Alaska Legislature.

The Alaska Natural Gas Development Authority has talked to Sempra in recent weeks about the possibility of using Alaska LNG for that facility, on which construction is expected to begin early next year.

As reported by Petroleum News Sept. 14, the East Coast project, a $700 million receiving terminal near Lake Charles, La., has received final approval from the Federal Energy Regulatory Commission. Sempra officials said in a statement that it will be the first new U.S. LNG facility to be constructed in more than two decades.

The proposed new LNG facility, Cameron, in Hackberry, La., received its final environmental impact statement from FERC in mid-August. Sempra said then that the final EIS for the Cameron LNG facility was the last remaining hurdle before FERC authorization to construct, which was issued Sept. 10. The Cameron facility is on the Calcasieu River approximately 150 miles east of Houston and 230 miles west of New Orleans. It will have the capacity to process up to 1.5 billion cubic feet per day of natural gas.

The Costa Azul project in Baja California on Mexico’s west coast received a storage and regasification permit from the Comision Reguladora de Energía, Mexico’s national energy regulatory agency, in August, as well as the key land-use permits from the Municipality of Ensenada. Construction on both the Cameron and the Costa Azul projects is expected to begin in 2004, with operations targeted for 2007, Sempra said.

Alaska legislators asked Sempra officials at hearings in Anchorage Sept. 10-11 why the company couldn’t wait to make a decision on its LNG supply until Alaska is ready to decide on how to commercialize its natural gas. (See story in Sept. 14 issue of Petroleum News.) In response to questions raised Sept. 10 about the possibility of Sempra using LNG from Alaska, David Freer, the company’s Washington, D.C.-based vice president of federal affairs, said the company is “very interested in the opportunity to work with Alaska.

“While it is unfortunate that our respective timetables are not parallel,” Freer said, the company is “extremely interested in sitting down immediately with appropriate parties to fashion an agreement in the timeframe available to both sides.”

The problem, Freer said, is that Sempra’s Costa Azul facility has received its major permits and needs to finalize a supply agreement by the end of the year.

The company is in “serious negotiations with a number of foreign governments and international oil and gas companies” to supply LNG to the Costa Azul facility, and expects to conclude those negotiations and have a contract signed within 30 to 60 days.

Freer said Sempra expects that contract to tie up LNG capacity on the West Coast. Costa Azul will be permitted at 1 billion cubic feet a day and will have the capacity to expand to 2 bcf. “When that occurs, the market will be essentially closed on the West Coast to additional LNG supply from any other source.”

Sempra is at “a critical juncture” in contracting for supply, he said: “Our timetable is locked in. And our schedule to proceed well established. Discussions with those suppliers, as I have said, are maturing.”

Greg Bartholomew, Sempra’s director of strategic planning and analysis, told the legislators that Sempra has “committed to the investment community that we will not start construction without having firm commitments for supplies.” Alaska has not been able to commit behind an LNG project, Bartholomew said: “We perceive that it lacks the intensity necessary to win.”

He said Sempra would like to see Alaska in the competition, “but Alaska needs to first decide whether it wants to compete.”