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Port Arthur LNG final investment decision likely to be delayed to 2022: Sempra

Highlights

Proposed greenfield project in Texas would be 11 mtpa

Costs, commercial challenges, emissions are factors

Houston — Sempra Energy will likely further delay a final investment decision on its proposed 11 million mt/year Port Arthur LNG project in Texas, this time to 2022, as it continues to face commercial challenges a year after the coronavirus pandemic began to affect the global marketplace, Chief Financial Officer Trevor Mihalik said May 5.

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Strong near-term prices and demand in Asia and Europe, while a bullish sign for existing liquefaction terminals, has so far not translated into sufficient commercial activity to allow most US developers to sanction the construction of new facilities over the last 12-18 months.

Though short- and medium-term contracting has been relatively robust, only a few new long-term contracts tied to US terminals have been signed over that period. Sempra, which operates the Cameron LNG terminal in Louisiana and is building a liquefaction facility at its Energia Costa Azul import terminal in Mexico, has not been immune to those dynamics.

Given Sempra's work to reduce its greenhouse gas emissions profile and make its expansion plans more competitive, as well as the continued impact of the pandemic on global energy markets, it is more likely that the FID for Port Arthur LNG "will move to next year," Mihalik said during an investor conference call held to discuss Sempra's latest financial results.

The only firm supply deal tied to Port Arthur LNG that has been announced to date is a 2 million mt/year sales and purchase agreement that Poland's PGNiG signed in December 2018. A preliminary agreement that Saudi Aramco signed in May 2019 to take a 25% stake in Port Arthur LNG and lift 5 million mt/year of supply from the facility has not yet been finalized some two years later.

"I don't see any scenario that we would probably take FID without having it fully contracted," CEO Jeffrey Martin said on the call.

During the call, executives did not address specific timing for FID on a proposed second phase of Cameron LNG, beyond saying that initial design and technical work was continuing and commercial discussions with partners including Total and Mitsui was progressing.

"We continue to be very optimistic about our development portfolio," Martin said.

SIZE AND SCOPE A FACTOR

While he acknowledged the strong market fundamentals that just a day earlier propelled Cheniere Energy, the biggest US LNG exporter, to post a higher profit and raise its outlook for the full year, Martin said the size and scope of the Port Arthur project is a factor in Sempra's decision-making process.

"Obviously, this is a very large project for the United States and our company," Martin said.

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.

The three-train first phase of Cameron LNG was able to utilize existing infrastructure from when that site was were originally built as an import facility. Energia Costa Azul, likewise, was originally built as an import facility.

A final investment decision for Port Arthur LNG had at one time been targeted for the third quarter of 2020, before Sempra about a year ago delayed FID to 2021.

Now, Martin said on the call, "We expect we will probably move that FID into next year."

ENERGY TRANSITION

The global energy transition to greater use of cleaner-burning fuels is also a consideration for Sempra on the LNG front.

Like several of its peers, the company is looking at potential carbon capture opportunities, as well as quantifying and providing to its customers the volume of carbon emissions from its LNG cargoes, executives said on the call. They cited as a potential driver Cheniere's announcement May 4 that it had delivered a carbon-neutral cargo to Europe under its offtake agreement with Shell.

"I think you will start to see more of that in the LNG marketplace," Justin Bird, chief of Sempra's LNG unit, said on the investor call.