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THE NEW YORK TIMES: Sempra Builds 1st LNG Terminal in Mexico

Published: February 10, 2006
Filed at 2:40 p.m. ET
ENSENADA, Mexico (AP) — In late 2003, Sempra Energy's bid to build the first liquefied natural gas terminal in western North America was in deep trouble. Plans to import gas from Bolivia sparked a popular uprising that killed dozens of people and toppled the government there.
Today, Sempra is leading the race. It turned to Indonesia for the gas, and is building a $1-billion plant on Mexico's pristine coastline, just 50 miles south of San Diego. The terminal, to be completed in early 2008, will be a key fuel source for California homes and businesses for decades to come.
The decision to build in Mexico is paying off big for Sempra, which owns Southern California's two major gas utilities. Rivals who want to build LNG terminals on California's coast are being stymied by environmental and NIMBY — ''not in my back yard'' — groups. For Sempra, the choice was easy.
''The Mexican government had their arms open, saying, 'Please, anybody who wants to build an LNG plant, come here and apply,''' said Donald Felsinger, chairman and chief executive officer.
Sempra isn't the only company using a cross-border strategy in the energy industry's rush to LNG.
Terminals are being built in Canada to fuel the eastern United States — one by Anadarko Petroleum Corp. in Point Tupper, Nova Scotia and one by Repsol YPF in Saint John, New Brunswick. Gas from those plants will be sent on a pipeline that connects to the U.S. grid in Calais, Maine.
LNG is supercooled liquefied gas that is shipped from far-flung countries — Iran, Qatar, Russia and Indonesia are major suppliers — to coastline terminals, where it is heated, vaporized and fed into a pipeline. Sempra and other companies are convinced that LNG is key to keeping a lid on gas prices in the United States as domestic supplies dwindle.
The rub: Many coastal communities don't want massive fuel tankers hogging their shores. Regulators approved five new LNG terminals in Texas and three in Louisiana, but companies have struggled to find a home outside the Gulf of Mexico, particularly in California and New England.
That's not to say that all Mexicans welcome LNG either. Lobster fishermen and the owner of a neighboring resort say Sempra's hulking plant threatens business. Surfers say a phenomenal surfing spot was destroyed after the San Diego-based company began construction in March.
Environmentalists have waged a spirited — and so far unsuccessful — campaign to derail Sempra, regularly blocking traffic at the plant entrance and bringing activists from around the world to rally local opposition. They sued the California Public Utilities Commission in state court last year to force the regulator to reconsider a ruling that cleared the way for Sempra to pipe gas from the plant to the U.S. grid near Tecate, Calif.
Mexican opponents have scored big victories against other companies that planned LNG terminals in nearby cities that, by comparison, made Sempra's location look downright remote. ConocoPhillips Co. dropped plans for a terminal in Rosarito, a spring-break hotspot just 15 miles south of San Diego. Marathon Oil Corp. was forced out in 2004 when municipal authorities seized its beachfront property in the crowded border city of Tijuana.
''They are using Mexico as a dumping ground, as a back door to the United States,'' said Jose Luis Sanchez, 47, an environmental activist in Tijuana.
Sempra says the plant is good for Mexico, which will split the gas with the United States. ''They wanted to make sure that their economy is not stranded, and they've acted,'' said Darcel Hulse, president of Sempra's LNG unit.
The drone of bulldozers and cement trucks fills the air as some of the plant's 820 construction workers labor on a grated hillside of agave and desert shrub one recent morning. Cranes hover above the concrete foundation of two giant cylindrical tanks that will store the liquid gas.
The plant sits on a 395-acre lot on the northern edge of Ensenada, a port city of 250,000 people. When finished, it will process up to 1 billion cubic feet of gas daily — equal to about one-sixth of California's consumption — and there's enough room to more than double capacity to 2.5 billion cubic feet a day.
A tiny fishing village of about a dozen makeshift trailers lies next to the plant. Men fish for lobster, crab and sea cucumber in a stretch of ocean also populated by seals, dolphins and whales. Renato Gonzalez, 32, ekes out a living finding starfish, which are sold to tourists in Tijuana.
''What can we do?'' Gonzalez said as he waited for the sunlight to bake dozens of starfish on a wire-mesh table. ''It's a very powerful company. We don't have a choice.''
Mario Loera, who has fished for lobster for 13 years, said he will move in 2008, when the plant begins operations. ''I still have two years to go.''
Sempra, which was formed in 1998 in the merger of Southern California Gas Co. and San Diego Gas & Electric Co., has transformed from a stodgy utility to a diversified company that builds pipelines and power plants.
In 2000, the company turned suspicious of forecasts by the U.S. government and industry consultants that domestic natural gas would remain cheap and plentiful.
A company researcher pored over microfiche showing drilling patterns going back to the early 1900s. Employees scoured public records in Texas, New Mexico and Oklahoma. Their conclusion: the United States cannot produce enough gas to feed itself and will turn increasingly to imports, just as it did with oil.
Sempra's dour outlook became the premise for a $2.9-billion investment in LNG. Aside from Mexico, it began building a $950 million terminal near Lake Charles, La., last year and plans to start on a $700 million plant next year in Port Arthur, Texas.
Sempra was sent scrambling in late 2003 when plans collapsed to import the gas to Mexico from Bolivia on a pipeline to Chile's north coast. The project rekindled old animosities from a 19th-century war that left Bolivia landlocked, and violent protests toppled the government.
Things quickly turned in Sempra's favor. It signed a 20-year agreement with BP PLC to import liquefied gas from Indonesia, and defrayed costs by agreeing to rent half the Mexican plant to Royal Dutch Shell Group of Cos.
Environmentalists say their fight to block the Sempra is far from over, but they face a formidable foe.
In 2002, environmentalists sued the U.S. Department of Energy in U.S. federal court to prevent Sempra from sending power to the United States from its new electricity plant in the Mexican border city of Mexicali. Critics said Sempra was exploiting Mexico's looser regulations. Sempra said shutting the power lines would raise prices for U.S. consumers.
The environmentalists sought an injuction to stop the power transfer. Sempra won that round, but the case continues.

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