Final investment decision on Port Arthur LNG project in Texas delayed until 2021

Sempra Energy on Monday delayed until next year a final decision on whether to build a proposed 11 million mt/year LNG export terminal in Texas. The postponement comes amid weak international pricing and challenges in securing sufficient commercial agreements with buyers of US supplies.

The global market has been beset by a wave of cargo cancellations and threats of force majeure declarations that would negate contracts, as widespread stay-at-home orders designed to limit the spread of the coronavirus have caused demand for LNG to decline.

Port Arthur LNG would be the only export terminal in Sempra's North American portfolio that would be built from the ground up. That means potentially higher construction costs, resulting in a greater need for capital commitments from offtakers or equity partners.

Sempra's Cameron LNG terminal in Louisiana, where two trains are in operation and a third is in commissioning, and its Energia Costa Azul facility in Mexico, which recently finalized two offtake deals that should allow that export project to advance, are able to utilize existing infrastructure from when those sites were originally built as import facilities.

"Yes, Port Arthur is slipping a little bit," CEO Jeffrey Martin said during an investor conference call.

A final investment decision had previously been targeted for the third quarter of 2020. Martin said Port Arthur LNG, like all major energy growth projects that Sempra is pursuing, will have to generate an investment return equal to or greater than its utility infrastructure "or we will not proceed on a project."

Sempra is talking with Poland's PGNiG and Saudi Aramco "about the optimal timing of this project," Justin Bird, head of Sempra's LNG unit, said on the call. A firm 2 million mt/year sales and purchase agreement that PGNiG signed in December 2018 and a preliminary agreement that Aramco signed in May 2019 to take a 25% stake in Port Arthur LNG remain in effect, a Sempra spokeswoman said in an email response to questions.

Other developers also have struggled to advance new US LNG projects to construction this year given current market conditions.

Texas LNG in Brownsville, Texas, has delayed FID until 2021, while Cheniere Energy recently suggested it may put off FID on its midscale liquefaction expansion at its facility near Corpus Christi until next year as well. Tellurian said recently it is "very difficult to predict" when it will be able to take FID on its Driftwood LNG project in Louisiana. Meanwhile, Shell in late March pulled out of its Lake Charles LNG joint venture with Energy Transfer. NextDecade's most recent corporate presentation in March maintained a 2020 FID target for its Rio Grande LNG project in Brownsville; since the coronavirus took hold in the US, company officials have not responded to repeated questions about the status of the project.

ECA LOCATION

Benefiting from its location on Mexico's Pacific Coast as well as its smaller initial size and scope, Energia Costa Azul remains on track for an FID by the end of June. Phase 1 calls for a one-train export facility with capacity of around 2.5 million mt/year. Sempra recently finalized preliminary offtake agreements with France's Total and Japan's Mitsui covering the full amount of the capacity, executives said on the investor call.

The project must still get an export permit from Mexican regulators. While the coronavirus pandemic has slowed the regulatory process in Mexico, Sempra officials said they are confident the permit will come through in time to meet the company's current FID target. Feedgas would be shipped to the site from the US via pipeline. A second phase would be designed for 12 million mt/year of offtake.

Sempra, which is based in San Diego and gets the bulk of its revenue from its gas and electric utility businesses, is not giving up on further energy infrastructure expansion in Texas, Martin said.

"We like the marketplace, even in today's environment," the CEO said.