Sempra focuses on long-term LNG contracts and capital partnerships

As Ukraine invasion fuels record US liquefied natural gas (LNG) prices, Sempra plans to maintain priority on long-term contracts and capital partnerships, which management says have become more important during the dispute.

The San Diego-based energy company’s Sempra Infrastructure Partners subsidiary has a long list of proposed and sanctioned LNG projects. Nearly 40 million metric tons/year (mmty) could be added to capacity in the United States and Mexico over the next decade.

CEO Jeff Martin said current market dynamics have underscored how important completing these projects could be for future energy security. Yet, there is no shift towards short-term strategies. Instead, Sempra plans to woo European and Asian buyers for long-term contracts as demand grows.

Martin said “from our perspective, it’s not always a race.” He added that the company’s balance sheet and “a strong balance sheet” have given it a unique position in the market. The position means Sempra could be “one of the few developers in the US LNG community with a chance” to provide a substantial addition to export capacity, Martin said.

To maintain its strength, Sempra is working to add financial partners for Mexico LNG and other North American projects. TotalEnergies SE would gain a stake through a preliminary agreement with Sempra for one-third of the 3-4mmty capacity of the proposed Vista Pacífico LNG project on the northern Pacific coast of Mexico.

The company is also working to sell a 10% stake in Sempra Infrastructure to a subsidiary of Abu Dhabi Investment Authority (ADIA). The potential $1.7 billion deal could close by the end of June, which would reduce Sempra’s stake to 70%. Sempra completed the sale of 20% of its infrastructure company to global investment firm KKR & Co. Inc. in October.

“Definitely renewed interest”

Sempra Infrastructure CEO Justin Bird said efforts to increase value through equity sales have led to more focus on long-term contracts. With the volatility of export prices to Europe and Asia since the start of the Ukrainian conflict, “there is a marked resurgence of interest in parties ready to go long term. And these are the conversations we have.

In terms of priorities for its LNG projects, Sempra is advancing the Energia Costa Azul (ECA) LNG project in Baja California, Mexico. The project is on track to eventually produce the first commercial volumes in 2024.

After that, “we’ll be running headlong” to secure more drawdowns and partnerships for the expansion of its Cameron LNG facility in Cameron Parish, LA, Martin said. Sempra is still in the preliminary design phase with Cameron LNG Phase 2, which could add 7 mmty to the Louisiana facility. A final investment decision (FID) is possible in 2023.

Bird said “active conversations” have also increased for future drawdowns from the 13.5 mmty Port Arthur LNG Project southeast of Houston. An FID has been delayed several times.

California RNG Goals

Sempra is also pursuing its energy transition and infrastructure objectives. In California, Sempra released a net-zero emissions plan for San Diego Gas & Electric Co. (SDG&E) last month, which includes near-term goals for renewable natural gas (RNG) and hydrogen. The utility could increase the share of RNG blended into its distributed gas to 5% by 2025 and 20% by 2030. It also plans to complete six hydrogen pilot projects over the next three years.

The utility Southern California Gas Co. (SoCalGas) is also working to provide up to 20% RNG in its pipelines by 2030. The California Public Utilities Commission (CPUC) in February established an RNG standard to require that SoCalGas will replace approximately 12% of traditional gas with RNG by 2030. SoCalGas serves 21.8 million consumers in Central and Southern California.

In Texas, Sempra announced that its Oncor Electric Delivery Co. LLC continues to implement a massive five-year capital plan to expand and upgrade transmission lines. Oncor saw a 78% increase in interconnection requests year over year. It also added 16,000 properties to its grid. Sempra said Oncor’s growing service territory also required upgrading 380 miles of power lines during the period. Oncor serves 98 counties in North and West Texas with more than 139,000 miles of transmission and distribution lines.

Sempra reported net income of $612 million ($1.93/share) for 1Q2022, compared to $874 million ($2.87) a year earlier.