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Sempra pursues Port Arthur, Costa Azul projects in push to be a top LNG exporter

As Sempra Energy ramps up its Cameron LNG facility in Louisiana, the energy company is also pursuing projects to advance its goal of delivering about 45 million tonnes per annum of LNG and becoming one of the top exporters in North America, a top Sempra executive said in an interview.

It is not clear which Sempra export project will be the next to receive a final investment decision: the Energía Costa Azul terminal on the West Coast of Mexico or the Port Arthur LNG terminal in Texas.

"We've got different teams that are negotiating those, so there is a little bit of internal competition on seeing who can get it done first," said Dennis Arriola, group president and executive vice president at Sempra. "It's a good thing to have those different options."

Sempra Energy executives said in May that the company is moving toward commercially sanctioning the first phase of Energía Costa Azul later in 2019. The first phase would convert Sempra's import terminal in Baja California, Mexico, to an export facility with a capacity of about 2.4 mtpa.

Sempra's target for commercially sanctioning Port Arthur was early 2020. But that was before a decision by Saudi Aramco, the common name for Saudi Arabian Oil Co., to pursue a 20-year deal for 5 mtpa of supply from the Port Arthur LNG terminal and make a 25% equity investment in the project's first phase.

For now, Arriola said Sempra is working to finalize the agreement with Saudi Aramco. But Arriola said Sempra is still seeking to line up deals with additional off-takers that Sempra can use to secure financing for the project. Sempra has not determined how much of the capacity it will contract out before greenlighting the Port Arthur project, which has a nameplate production capacity of 13.5 mtpa.

"It really depends upon the overall portfolio," Arriola said. "Is somebody just going to want capacity, or are they going to want equity? Until you actually have everything on the table, we haven't predetermined that. It's really coming down to all the negotiations."

Sempra had already signed a 2-mtpa deal with Poland's Polskie Górnictwo Naftowe i Gazownictwo SA in December 2018.

"From a credit perspective and from a purchaser standpoint, you want to make sure that if somebody were to walk away, that you are not left holding the facility," Arriola said in an interview July 11 on the sidelines of a U.S. Senate Committee on Energy and Natural Resources hearing at which he spoke as witness. "We want diversity in ownership and diversity in off-take as well."

Sempra struck nonbinding agreements for the Energía Costa Azul LNG project in November 2018 that could cover the entire export capacity of the first phase of the project. Sempra is working to finalize those deals with France's Total SA and Japan's Mitsui & Co. Ltd. and Tokyo Gas Co. Ltd., Arriola said.

"There is a lot of pent up demand for that," Arriola said. "What these customers do is they want a portfolio and they are going to buy some from Qatar, they are going to buy some from Australia, they are going to buy some from the United States. And then from the U.S. standpoint, they are saying, 'How can I diversify my risk both from a basin standpoint but also from a transportation standpoint?' That's why you could find someone buying from both our ECA facility and from Port Arthur."

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Energía Costa Azul is intended to draw on Permian Basin natural gas and to compete in LNG-hungry Asian markets, benefitting from lesser transportation costs than Gulf Coast projects because of the shorter travel distance.

Sempra is planning a second, larger phase at Energía Costa Azul that would add about 12 mtpa of LNG production capacity and require building additional pipeline capacity to support it. As Sempra works to build commercial support for phase 2, Arriola said the company is undeterred by the U.S.-China trade war. China recently raised tariffs on imports of U.S. LNG to 25% as part of its retaliation for the Trump administration hiking tariffs on Chinese goods.

"We are not counting on having to sign contracts with the Chinese," Arriola said. "We might, but we are not counting on that ... I don't think we are going to have a problem selling out the West Coast."

Sempra could ultimately exceed its 45-mtpa LNG development goal with an expansion at Port Arthur. The Federal Energy Regulatory Commission agreed to begin the prefiling process for an expansion that would double the nameplate production capacity of the terminal to 27 mtpa. FERC also agreed to take an early look at the massive 2.5-Bcf/d pipeline proposed by Sempra that would support the expansion.

As for Cameron LNG, Arriola said the project remains on track for the first train to enter commercial service soon. The second two trains are expected to startup by mid-2020 for an estimated total capacity of 12 mtpa that would complete the first $10 billion phase of the project.

The second phase would expand the project by two trains, adding about 8 mtpa of LNG production capacity. It is awaiting a final investment decision.

After Cameron LNG shipped the first commissioning cargo May 31, feedgas flows to the facility dropped through the early part of June before rebounding. The facility was expected to keep shipping commissioning cargoes until FERC clears it to enter commercial service.

"Obviously, whenever you are starting up one of these, you are working on it, you are tweaking it, you are working on it, you are tweaking it," Arriola said. "We are working to get it fully operational as quickly as we can."