Sempra confident regas dispute won't stall proposed Mexico LNG export project

Houston — Sempra Energy does not expect a dispute involving reservation fees at its regasification facility on Mexico's Pacific Coast to interfere with plans to convert the terminal to be able to handle LNG exports, company executives said Aug. 5.

Sempra has secured long-term offtake agreements covering the Energia Costa Azul project's 2.5 million mt/year first phase and a $1.5 billion engineering, procurement and construction contract with Technip that protects it from cost overruns. It is still working with Mexican regulators to obtain a key permit that it needs to be able to make a final investment decision.

During an investor conference call to discuss Sempra's latest financial results, executives addressed force majeure claims that two customers have filed seeking to break their agreements to continue paying reservation fees for regas capacity at the site. A market shift toward an emphasis on LNG exports has lessened or eliminated demand for imports at some legacy North American facilities.

"We're examining all of our options in light of the timing and baselessness of the claims and plan to vigorously exercise our rights and remedies in all available forums," CFO Trevor Mihalik said. "We don't believe that the initiation of arbitration by one of the customers will delay the ongoing steps to FID on the ECA Phase 1 liquefaction project."

In June, amid the market impacts from the coronavirus pandemic and delays in receiving the permit it needs, Sempra stopped providing a target for when it expects to make FID on the Energia Costa Azul export project.

During the latest investor call, executives did not address the timing for that specific project. They did say they are keeping to their current target for FID on the Port Arthur LNG export project in Texas in 2021 and that they continue to develop a proposal to add a fourth and fifth train at Sempra's Cameron LNG terminal in Louisiana. Train 3 was expected to begin full commercial operations within days, executives said.

They did not rule out, however, the possibility that the scope and timing of the Texas and Louisiana expansion projects could change.

"Ultimately, demand from customers will drive the timing of Port Arthur," Mihalik said.

Sempra continues to talk with Poland's PGNiG and Saudi Aramco, as well as other potential customers, about the Port Arthur project, Justin Bird, head of Sempra's LNG unit, said on the call.

Sempra secured a firm 2 million mt/year sales and purchase agreement with PGNiG in December 2018, but has yet to finalize a preliminary agreement that Aramco signed in May 2019 to take a 25% stake in Port Arthur LNG. Sempra has not announced any firm offtake agreements tied to the proposed Cameron LNG expansion.

For existing LNG export operators in the US, low international prices and weak global demand have prompted the cancellation of at least 157 cargoes that were scheduled to be loaded in the US between April and September. Multiple developers of new US liquefaction terminals have delayed FID until 2021 or beyond.

Other projects

Meanwhile, developers of new export facilities at sites that were originally built to handle imports face pressure from customers over reservation fees for regas capacity since demand has dried up.

Kinder Morgan is awaiting a legal decision about whether its remaining customer at its Gulf LNG regasification facility in Mississippi will be allowed to pull out of its long-term capacity deal there. Energy Transfer and Shell's BG are said to be negotiating an amended regasification services agreement to replace their existing one at Lake Charles LNG in Louisiana.

In late March, Shell pulled out of its joint venture with Energy Transfer to convert the Lake Charles site to handle LNG exports. Energy Transfer said it would develop the project on its own.