Executive perspectives

Capital program increased to help support LNG and pipeline infrastructure

02/23/06
by Don Felsinger
Chairman and Chief Executive Officer, Sempra Energy

Since it was formed in 1998, Sempra Energy has been going through an evolution. The first step was to create a platform of successful, competitive, wholesale energy companies to complement our investor-owned utilities in California. We've done that.

Our next step—and my first priority in my new role as the company's chairman and chief executive officer—is to continue Sempra Energy's move toward an increasingly comprehensive energy strategy that creates added value across our business units. We're doing that now.

Sempra Energy's capital-budget outlays will exceed $2 billion in 2006, surpassing the $1.5 billion we invested last year and the $1.16 billion we spent in 2004. This growth in expenditures reflects the transition from planning to execution on a number of the projects that we've got underway, including a focus on liquefied natural gas (LNG), and natural gas pipelines and storage. These projects will help define the future of Sempra Energy and of the natural gas market in the United States.

Supply vs. demand
At Sempra Energy, we were among the first to realize that U.S. domestic natural gas supplies were not going to keep pace with demand. We saw that production of natural gas in most U.S. gas-producing regions had peaked. Even with more drilling and new wells, we knew the country was using more natural gas than it could replace.

It wasn't hard to see that this could lead to a serious, long-term natural gas shortage. But, we also knew that these shortages weren't inevitable. That's because there's plenty of natural gas in many other parts of the world, from Asia to South America, that have no local markets and are eager to export their supplies.

The trick, of course, is getting the natural gas from there to here. And that's where we took a page from Asia and Europe.

With hardly any of its own gas reserves, Japan, for instance, was forced to look abroad to feed its growing energy needs in the 1960s. By the end of that decade, it had built its first LNG receipt terminal to fuel Tokyo's two large utilities. This approach worked so well that Japan now has 24 LNG receipt terminals in operation.

LNG strategy
And, while there are LNG receipt terminals already operating in Maryland, Georgia, Massachusetts and Louisiana in the United States, Sempra Energy knew more were needed.

And that's why we've embarked on one of the nation's most ambitious and aggressive LNG strategies.

Through Sempra LNG, we're developing three major LNG receipt terminals. Furthest along is Energía Costa Azul, in Baja California, Mexico. Construction is well underway on this, the first LNG receipt terminal on the West Coast of North America, which will become operational in early 2008. Construction has also begun on our Cameron LNG terminal in Louisiana. Given interest from potential customers, we have already begun the approval process to expand the size of this terminal. The third LNG project, planned for Port Arthur, Texas, is in the permitting stages and could become operational by 2010.

Pipelines, storage
Our strategy for transporting and storing natural gas is just as ambitious as that for LNG.

Through Sempra Pipelines & Storage, we're investing in natural gas transmission and storage facilities, such as:

• The 1,300-mile Rockies Express Pipeline: This major new pipeline is being developed in a partnership with Kinder Morgan. If built, the pipeline will deliver natural gas from the Rocky Mountain region, where more exploration and production is taking place, to markets in the Midwest and northeastern parts of the country, where it's needed.
• Cameron and Port Arthur trunk-line natural gas pipelines: These lines are being developed to transport LNG into the interstate-pipeline systems and are near a major gas hub in Louisiana.
• Liberty Gas Storage: This large, salt-cavern natural gas storage site is also being developed in Calcasieu, La.

National leader
Besides providing major revenue for the company, our new LNG receipt terminals and associated pipelines will make Sempra Energy one of the nation's leaders in LNG infrastructure.

These projects will provide a real benefit to the United States and Mexico by helping to correct the supply-demand imbalance. Without these projects, gas prices could skyrocket, which would affect manufacturing, power generation-even the cost of staying warm at home.

We're committed to helping bring in new supplies of natural gas to help meet the growing demand.

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