Sempra may build an additional midscale LNG export facility on Mexico's Pacific Coast before commercially sanctioning its proposed Port Arthur LNG export terminal in Texas, signaling a shift in the company's LNG growth ambitions that was induced by a struggle to build commercial support for the U.S. Gulf project.
"It definitely can jump ahead of Port Arthur," Sempra CEO, President and Chairman Jeff Martin said during a Nov. 5 earnings call, referring to the project in Mexico.
The Vista Pacifico LNG project on the Sea of Cortez at Topolobampo in Sinaloa would be capable of producing about 4 million tonnes of LNG per year. This production capacity would make it significantly smaller than the roughly 11-Mt/y Port Arthur facility and closer in size to the company's $2 billion Energía Costa Azul terminal under construction in Baja California.
Sempra has ranked building the Energía Costa Azul terminal on time and on budget as its top priority among LNG projects. The company expected the facility, which will have a production capacity of 2.5 Mt/y before a potential expansion, to start producing LNG in late 2024.
Sempra planned to focus next on a projected 7-Mt/y expansion of its Cameron LNG terminal in Louisiana, which the company projected would reach a final investment decision at the end of 2022.
"Our likelihood of going forward there we account as being relatively high," Martin said, adding that this is why the developer has all of the preliminary agreements in place to turn into final deals that will underpin the project.
West Coast advantages
Executives' Nov. 5 comments also underscored the appeal of LNG export projects in western Mexico that may have an easy time gathering commercial support after a massive jump in Asian LNG prices over the last year. Proposed LNG export projects in Mexico would rely on cheap natural gas shipped from the U.S. and could benefit from a shorter route to major Asian demand markets. Facilities on the West Coast would also allow off-takers to bypass persistent congestion at the Panama Canal.
Sempra did not disclose any commercial progress for the Vista Pacifico facility or provide a timeline for developing the project, but Martin said, "Our expectation is it will be oversubscribed."
Executives said the project, adjacent to a refined products terminal owned by Sempra, would benefit from its proximity to two underutilized pipelines with direct access to gas supplies from the Permian Basin. The executives also suggested that the project would have little trouble winning regulatory approval in Mexico, saying it aligned with the objectives of the Mexican government.
"This is really a government-sponsored project and one that they have been quite public about supporting from a permit and pipeline capacity standpoint," Martin said.
Sempra stopped providing a timeline for commercially sanctioning Port Arthur after saying in May that it would likely delay a final investment decision on the project until 2022. The company has said since that it planned to evaluate design changes that could make the project more competitive.
Delays in developing Port Arthur prompted Polish Oil and Gas Co. in July to end a deal for buying 2 Mt/y of LNG from the facility and to instead sign purchase agreements for the same amount from Venture Global LNG terminals. Sempra confirmed in June that a preliminary Port Arthur deal with Saudi Arabian Oil Co. had expired.
Competitors' deals
Sempra executives also addressed the recent commercial progress of some rival North American LNG developers, including Venture Global and Cheniere Energy Inc., which have announced recent long-term supply deals with coveted buyers in China. Both developers have been able to offer LNG supplies before the construction of new liquefaction trains.
Justin Bird, recently named CEO of Sempra Infrastructure Partners, which includes LNG operations, said the company might look for partners to find ways to offer bridging volumes for new long-term contracts underpinning Sempra's LNG expansion projects.
"I wish I had capacity I could sell right now to bridge some of the construction on these other projects because I do think it is a competitive advantage," Bird said. "The market is very hot right now, and people are looking for volumes in the next few years."
Sempra on Nov. 5 posted adjusted earnings for the third quarter of $545 million, or $1.70 per share, up from $432 million, or $1.49 per share, in the third quarter of 2020. The results beat the S&P Capital IQ consensus normalized EPS estimate for the quarter of $1.69.