Petroleum News: Sempra LNG expansion gets lots of interest

Sempra LNG expansion gets lots of interest

Company says potential customers want 2.9 billion cubic feet daily in new supplies from Baja California facility

Allen Baker

For Petroleum News

Sempra’s new LNG terminal under construction near Ensenada, Mexico, has plenty of interest from shippers if the facility is expanded — interest for a staggering 2.9 billion cubic feet of daily capacity, or nearly half the amount California now consumes.

Initial capacity of the Energia Costa Azul plant is a billion cubic feet daily, about a sixth of California’s current demand. That capacity is already pledged to BP and Royal Dutch Shell in long-term contracts. Sempra has a pipeline nearby that could take some of the terminal’s natural gas to the east, and says a substantial portion will go to Mexican customers.

Expansion plans call for adding 1.5 billion cubic feet of daily capacity in a second phase. But shippers say they’re ready to bid on nearly twice that amount. That figure comes from an open season that ended May 12.

The open season doesn’t commit any shippers to take the capacity they say they want, so the result could be different when real dollars are required. But it’s still a big number.

Sempra LNG says it “immediately will begin working with the shippers who submitted bids, to develop binding terminal service agreements.”

The initial phase of the terminal is now 30 percent complete, and should be pumping out gas in just two years, the company says. Expansion capacity could be ready as early as 2010.

Could the expansion plans themselves be expanded to meet the interest? That’s not quite clear yet.

“The ultimate size, scope and cost of Energia Costa Azul’s expansion will depend upon the outcome of the negotiations for commercial agreements,” Sempra says.

Mexican strategy succeeds

While Sempra’s bulldozers are rolling, Australian companies are stalled for the moment because they haven’t quelled NIMBY concerns about their terminal plans in Southern California — even by moving proposed facilities far offshore.

BHP Billiton wants to import gas to California with a terminal placed 14 miles off the coast of Malibu. But that plan has drawn fire in raucous public meetings, with opponents raising objections to the 14-story-tall tanks on the offshore factory ship, and to emissions from the boilers that would be used to heat the LNG and regasify it.

BHP Billiton executives are a bit mystified by the objection to the presence of the ship. They say 5,000 ships already transit the area every year without major complaints, and their ship won’t even be visible most of the time.

But that may not count for much in the court of public opinion. The opposition has even gotten cash support from the Malibu City Council, which voted May 8 to give $50,000 to the Environmental Defense Center, which is leading opposition to the plan.

Woodside Petroleum, meanwhile, has dropped its participation in an onshore LNG facility in favor of a system using special tankers with regasification equipment aboard. The tankers would moor to an undersea buoy 22 miles off Malibu and pump gas into a pipeline that would come ashore in an industrial area near the Los Angeles airport. The gas could come from Woodside’s Pluto field or the Browse field, both offshore Australia.

The import capacity of the Woodside system would be 800 million to 1.4 billion cubic feet per day, with a tanker taking three to five days to put its cargo in the line. Excelerate Energy has used a similar system in the Gulf of Mexico to deliver gas to a line 116 miles off Louisiana.

But Malibu’s mayor, Andy Stern, told the Los Angeles Times this spring that “the vast majority of people in my city are opposed to any LNG facility. It’s an environmental disaster waiting to happen.”

Aussie LNG to China

After winning the bid for Unocal over a Chinese rival, Chevron doesn’t want hard feelings from a prospective customer. So it was quick to note its participation May 16 when the first cargo of LNG for China was loaded at the Karatha, Australia, base for the North West Shelf Venture. Chevron is a one-sixth partner in the venture, operated by Woodside. A subsidiary of China’s CNOOC has a stake in the venture as well, though not an operating interest.

“This historic LNG shipment to China is another milestone in Chevron’s strategy to connect our resource base to the markets that need them,” said John Gass, president of Chevron Global Gas in a press release. “This also underscores our view that China is on its way to becoming an important market in the global LNG business.”

The LNG cargo is the start of a 25-year contract. The fuel is headed for China’s first LNG receiving terminal, in the province of Guangdong in southern China.

Sakhalin supply deal

Shell-led Sakhalin Energy has signed a 20-year contract to send 420,000 tonnes of LNG annually to a Japanese utility just a day’s sailing time away. That’s a lot of LNG, but only a tiny 0.5 percent slice of the Sakhalin plant’s capacity.

Tohoku Electric Power’s cargoes will be turned into around 20 billion cubic feet of natural gas annually.

Sakhalin Energy says the LNG plant that is part of its Sakhalin 2 project is now 70 percent complete. Capacity is 9.6 million tonnes of LNG annually, which will supply customers with about 1.2 billion cubic feet of natural gas each day.

Shell currently has a 55 percent stake in Sakhalin 2, though it has agreed to trade nearly half of that stake to Gazprom for a Siberian field. Mitsui and Mitsubishi of Japan are the other Sakhalin 2 partners.