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Sempra Energy: Cameron LNG set to ship commercial cargoes in mid-August

Sempra Energy executives expected substantial completion "in the next day or so" on the first natural gas liquefaction train of its Cameron LNG export terminal in Louisiana, paving the way for commercial operations to begin in mid-August.

Starting commercial operations will be a key milestone for Sempra as it pursues a goal of becoming one of the top LNG exporters in North America. Executives said during an Aug. 2 earnings call that the second and third trains at Cameron LNG remain on schedule to start up in 2020.

"They're making really great progress, and the plant is running really well," Sempra President and COO Joseph Householder said. "There's very positive momentum at the site."

The first train at Cameron LNG was recently cleared by the Federal Energy Regulatory Commission to enter commercial service. Startup of the second and third trains would bring the estimated total off-take capacity to 12 million tonnes per annum, completing the first $10 billion phase of the project.

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The terminal began shipping commissioning cargoes at the end of May, becoming the fourth major U.S. LNG terminal to ship cargoes to world markets. Kinder Morgan Inc.'s Elba Island LNG in Georgia and the Freeport LNG Development LP in Texas are expected to begin exports of commissioning cargoes soon.

Sempra executives also said they have reached an agreement with lead construction contractor McDermott International Inc. that provides performance-based payments for hitting certain milestones on the second and third trains.

"As we get further along in the development of the project, the risk … actually diminishes in terms of time and exposure," Sempra CEO and Chairman Jeffrey Martin said.

Sempra declined to discuss the total amount under the agreement, saying it did not affect the earnings forecast the company provided. But McDermott executives said July 29 there were $110 million of progress incentives recognized during the second quarter under the agreement with Cameron LNG.

McDermott is also building Freeport LNG, which was cleared by FERC on Aug. 1 to start shipping commissioning cargoes. McDermott has faced several construction delays on the export projects.

As Sempra ramps up the Cameron LNG facility, the company is also working to commercialize additional export projects: the Energía Costa Azul terminal on the West Coast of Mexico and the Port Arthur LNG terminal in Texas. Executives said they are also trying to wrap up engineering, procurement and construction contracts for the projects.

In May, Sempra Energy executives said the company hoped to commercially sanction Energía Costa Azul later in 2019 and Port Arthur in early 2020. Sempra executives said at the time that the Mexico terminal was closer because nonbinding agreements for the project reached in late 2018 covered the entire export capacity of the first phase, about 2.4 mtpa.

Sempra on Aug. 2 maintained its goal of reaching a final investment decision around the end of 2019 for Energía Costa Azul. The company is working to finalize the nonbinding agreements, which are with France's TOTAL SA and Japan's Mitsui & Co. Ltd. and Tokyo Gas Co. Ltd.

The project is awaiting an export permit from Mexico. Executives said the company sees no impact from the U.S.-China trade war on the project, which would send U.S. gas to Asian markets.

Sempra did not provide a new timeline for Port Arthur LNG that would update the 2020 sanction date. But that date was marked before Sempra struck an agreement with Saudi Aramco, the common name for Saudi Arabian Oil Co., for the state-owned oil giant to pursue a 20-year deal for 5 mtpa of supply from the Port Arthur terminal and make a 25% equity investment in the project's first phase.

Sempra executives noted the company had commitments for about two-thirds of the Port Arthur project's 11-mtpa off-take capacity. In addition to the Aramco deal, these include a supply agreement with Poland's Polskie Górnictwo Naftowe i Gazownictwo SA for 2 mtpa.

"We have a lot more work to be done to finalize the additional customers that we need," Martin said.

Householder said Port Arthur LNG "has a really high focus in our team to fill out the necessary commercial arrangements." He also said the project was getting enough interest to prompt Sempra to start the prefiling process at FERC for an expansion that would double the nameplate production capacity of the terminal from 13.5 mtpa 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.

Sempra on Aug. 2 posted adjusted earnings of $309.0 million, or $1.10 per share, in the 2019 second quarter, down from $361.0 million, or $1.35 per share, in the prior-year period. The results missed the S&P Global Market Intelligence consensus normalized EPS estimate for the quarter of $1.18.

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