Sempra to Continue US$600mn LNG Project Without CMS

US energy company Sempra plans to continue its US$600mn Costa Azul liquefied natural gas (LNG) project in Mexico's Baja California state on its own after its partner, fellow US company CMS Energy, pulled out of the project earlier this year, Sempra spokesperson Cathleen Romero told BNamericas.

In 2002, CMS Energy (NYSE: CMS) planned to provide technical support and operate the facility once it was built, while Sempra (NYSE: SRE) would provide 100% of the equity. But CMS pulled out of the project because it lacked the funds, CMS Energy spokesperson Jeff Hollyfield told BNamericas.

CMS reached an agreement in December with US company Southern Union to sell its Panhandle subsidiary, including its LNG business, for US$1.8bn. It closed the sale in early June. "Our real problem is that we have too much debt for a company our size and so the focus over the past couple of years has been on selling assets to reduce that debt," Hollyfield said. The Panhandle deal included US$1.2bn of assumed debt. "Actually we had started to retrench from [the Mexico LNG project] even before we sold Panhandle, just because of our financial difficulties and the capital requirements," Hollyfield said. "It's not a project for us at all," he added. Because CMS had dropped out of the project even before it sold Panhandle, "no rights were sold to Southern Union for the project," Sempra's Romero said. "Neither CMS nor Southern Union are at all involved in our project," she added.

Sempra will now proceed with the Costa Azul project on its own, although the company's chairman and CEO Stephen Baum said in June that the company would consider partnership proposals. Sempra's interest is mainly in the downstream part of the project, from regasification forward, so it could benefit from finding a partner with experience in the upstream LNG business, Baum said. Mexico's environmental authority Semarnat licensed Sempra's project in April this year, and the company is still waiting for the green light from energy regulator CRE.

It plans to finance the regasification terminal from cash flows of the project, and so will not build the terminal until it has secured an adequate level of long-term contracted capacity. The project would be profitable if the US natural gas price is over US$3.50 per thousand cubic feet, and the price is now about US$5, Hollyfield said. LNG developers "are clearly in the money," he added.

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