Sempra Seeking ‘Faster Pace’ of Development for Mexico LNG Export Project

Sempra is seeking to expedite development of its proposed Vista Pacifico liquefied natural gas (LNG) export project envisioned for Mexico’s Pacific coast, according to CEO Jeffrey Martin.

The project, if sanctioned, would have liquefaction capacity of 3-4 million metric tons/year (mmty), and would source natural gas from the Permian Basin.

During a call to discuss first-quarter earnings, Martin said he recently had dinner with Mexican President Andrés Manuel López Obrador and U.S. Special Presidential Envoy for Climate John Kerry.

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“And the topic of that conversation…was how we can move Vista Pacifico along at a faster pace,” Martin said. “In Mexico they understand the value of being able to export some of their natural resources, particularly high-sulfur oil. 

“But they also want to make sure that they raise their marquee status as an exporter of LNG so I’m pleased with the type of support we have across the government inside of Mexico to support that project going forward.”

Vista Pacifico is envisioned for Topolobampo, Sinaloa. It would follow the Energía Costa Azul (ECA) Phase 1 liquefaction project under construction in Baja California. The roughly 3 mmty ECA Phase 1 is slated to enter service by the end of 2024.

Martin said that Eca Phase 1 and Vista Pacifico “both really leverage the same common resource of Permian gas and we have a straight shot through two different pipeline systems to support Vista Pacifico.” 

Both projects are designed to primarily serve demand in Asia, which “remains the number one growth market for U.S. LNG,” Martin said. 

Martin was joined on the call by Justin Bird, head of subsidiary Sempra Infrastructure, which oversees Sempra’s LNG business.

Vista Pacifico’s ultimate size will depend in part on “how much gas can be delivered at what rate there,” said Bird.

He added, “It could be that we do it in two phases as we get additional gas transportation capacity…” 

Noting that Vista Pacifico is still in early stage development, Bird said, “we will optimize the size to create the best risk-adjusted returns.” 

Long-term Contracts, Equity Partnerships

As the invasion of Ukraine fuels record prices for LNG, Sempra plans to hold steady on prioritizing long-term contracts and equity partnerships, which management said have become more important during the conflict.

Sempra Infrastructure has a hefty list of proposed and sanctioned LNG projects. Almost 40 million metric tons/year (mmty) could be added to capacity from the United States and Mexico within the next decade.

Martin said the current market dynamics have underscored how important completing those projects could be for future energy security. Still, there are no shifts to the short-term strategies. Instead, Sempra plans to court European and Asian buyers for long-term contracts as demand grows.

Martin said “from our standpoint, it’s not always a race.” He added that the company’s balance sheet and “a strong track record” gave it a unique position in the market. That position means Sempra could be “one of the few developers in the U.S. LNG community that has a shot” at delivering a substantial addition to export capacity, Martin said. 

To maintain its strength, Sempra is working to add equity partners for its LNG projects in Mexico and elsewhere in North America. TotalEnergies SE, for example, would gain a stake through a preliminary agreement with Sempra for one-third of the 3-4 mmty capacity in Vista Pacifico.

Sempra also is 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 ownership stake to 70%. Sempra completed the sale of 20% of its infrastructure company to global investment firm KKR & Co. Inc. in October.

‘Definite Renewed Interest’

Bird said efforts to increase value with equity sales has led to more attention for long-term contracts. With the volatility in export prices to Europe and Asia since the Ukrainian conflict began, “you’re seeing a definite renewed interest in parties willing to go long term. And those are the conversations that we’re having.”

Once Sempra’s existing construction pipeline is executed, “we will run headlong” toward securing more offtake and partnerships for the expansion of the 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 offtake from the 13.5 mmty Port Arthur LNG project southeast of Houston. An FID has been delayed several times.

Sempra reported net income of $612 million ($1.93/share) for 1Q2022, versus $874 million ($2.87) in the year-earlier period.

Andrew Baker contributed to this story.