Sempra to bring liquefied natural gas to Southern California

September 7, 2004--Sempra Energy moved closer to bringing liquefied natural gas to Southern California, when state regulators approved importation of the gas from Mexico through pipelines at Otay Mesa.

The San Diego company said that the vote by the California Public Utilities Commission opens the local market for the gas it will import at a planned LNG terminal near Ensenada in Baja California.

While the PUC vote was hailed by supporters as key to ensuring regional natural gas supplies and lowering costs, it was criticized by opponents as a hidden subsidy to Sempra and costly to San Diego Gas & Electric customers.

But Sempra, parent company of SDG&E, said the vote should provide benefits to local utility customers.

"This is the most direct and least expensive delivery route into Southern California," said Art Larson, a Sempra spokesman. "Obviously, this will be a significant source of natural gas for this region and have substantial benefits for customers in terms of price and future sources."

Natural gas is increasingly popular as a choice among fossil fuels, Larson said. The commodity is the predominant choice for new fossil-fuel electricity generating plants, which is driving its demand in the state.

The Sempra spokesman also said the company will pay for pipeline upgrades needed to allow the northward flow of gas from Otay Mesa.

Up to $200 million in additional upgrades may be billed to SDG&E customers later if the PUC determines these improvements provide benefits to local customers.

LNG technology allows natural gas to be extracted from foreign fields, supercooled and condensed to a liquid state, then shipped aboard specialized tankers to other destinations.

Development of LNG terminals has sparked opposition in many communities, who fear the explosive hazards of the commodity. Some developers have responded by proposing to build LNG terminals offshore, but Sempra's facility near Ensenada would be land-based.

Sempra, which is building the plant with Royal Dutch/Shell, plans to obtain and liquify its gas in Indonesia, then ship it to the terminal it calls Costa Azul Energia along the West Coast of Baja California. With preliminary work under way, the project is scheduled for completion by 2007.

Sempra says the LNG that is re-gasified in Baja will be injected into pipelines for both the Mexican and U.S. markets.

PUC Commissioner Susan Kennedy said yesterday's vote on Otay Mesa, along with other measures taken by the commission, will help secure the state's energy future.

"The time to act is now," Kennedy said. "The decisions we make today and in the coming months will determine whether there will be another energy crisis in California."

But Loretta Lynch, a member of the PUC who voted against the proposal, said the vote will cause SDG&E customers to subsidize Sempra's transport of gas across the region, a subsidy that could put the company's competitors at a disadvantage.

She explained that gas moving through Otay Mesa for SDG&E's customers, as well as that bound farther north for the Los Angeles area, will be charged the same transport charges despite the difference in distance.

That will allow Sempra to deliver gas to the Los Angeles area market more cheaply than if it was billed for the actual transport distance, she said.

That advantage, she said, will be paid for by SDG&E customers, whose rates support the pipeline.

"That's like giving Sempra a 100-yard lead in a 400-yard dash," she said.

Lynch also said yesterday's vote barred consideration of whether LNG imports were needed in the region, as well the environmental impact of LNG development.

Larson, speaking for Sempra, said SDG&E customers now pay higher gas transport costs than customers of Southern California Gas, also a Sempra subsidiary.

"With full integration of the utilities, we would expect costs to go down, and we will support that," he said.

But John Coequyt, energy policy specialist for Greenpeace, still criticized yesterday's vote as a bad deal for SDG&E customers.

"They are not getting any money for moving this gas across their region and they are subsidizing Los Angeles area customers in the process," he said.

Bill Powers, chair of the Border Power Plant Working Group, which works with Greenpeace in a coalition opposing LNG development in the region, added that the groups believe a combination of conservation and renewable energy development can meet regional needs and make LNG development unnecessary.

But, in comments before the PUC vote yesterday, Kennedy said experts at a recent workshop agreed that current supply and infrastructure would be insufficient to meet California's demand in the near future.