Eric Watkins
Senior Correspondent
SAN DIEGO, Apr. 12 -- Even as San Diego-based Sempra Energy announced groundbreaking for its $800 million LNG terminal at Costa Azul in Baja California on Mar. 30, a legislator in Mexico vowed an investigation aimed at halting the project.
Guillermo Aldrete Hass, leader of the foreign affairs committee of the Baja California state legislature, said that his state uses very little natural gas and that the project is being built to benefit users in California.
As a result, Aldrete launched an investigation into Sempra on Apr. 1 and said he would ask federal officials to suspend permits for the project while the investigation continues and legal challenges remain unresolved.
Aldrete claimed that there has not been sufficient transparency concerning the project and that the legislature wanted to know about economic and environmental impacts.
He also said there were concerns in the legislature about investigative findings and legal cases in California alleging that Sempra manipulated the natural gas market during the state's 2000-01 electric power crisis, raising prices for consumers.
Aldrete said the issue of the Sempra investigation would be discussed at a meeting between legislators from Baja California and California.
California and LNG
There can be little doubt of California's interest in the development of new supplies of natural gas.
California's lower state legislative Utilities and Commerce Committee postponed action Apr. 5 on four energy proposals while passing out an LNG assessment bill, AB 993, which now moves to the Appropriations Committee.
Assemblyman Joe Canciamilla, who has been involved in several bipartisan efforts to get a state energy policy in place, authored AB 993.
Noting that LNG is "possibly going to become an ever-important component in the state," Canciamilla stressed that the legislation is needed to formalize and require a comprehensive assessment of LNG's potential pluses and minuses, including—"but not limited to"—a thorough cost-benefit analysis.
"Natural gas fuels enough power plants right now to account for 33% of the state's energy needs," he said, emphasizing that only 15% of the state's gas supplies come from its declining in-state production.
"Alternatives to increase supply include expanding the domestically produced supplies, looking at the interstate supplies, and looking at LNG. So this bill would help assure a close examination was done of the potential benefits and drawbacks of LNG as we move forward trying to make decisions about how we balance the state's energy portfolio."
While California may wish to derive some benefit from the new site across the border in Costa Azul, Sempra officials have focused on the importance of their project for Mexico.
LNG 'natural choice'
At the Mar. 30 groundbreaking, Mark Snell, group president of Sempra Global, described the many benefits the terminal will have for the area, including satisfaction of Mexico's rising need for natural gas.
"The demand for natural gas in Mexico is expected to nearly double by 2010," he said. "Gas-fired power generation is the primary driver of this demand. While demand for natural gas is growing, gas production is declining. That's creating a gap between supply and demand, and many experts agree that imported LNG is the natural choice to fill that gap."
That view is supported by Mexican energy officials.
Over the last decade, Mexico's gas consumption has increased at an average rate of 5%/year, while its domestic production has risen at only 2.3%/year, Mexican Energy Minister Fernando Elizondo told a conference on Mar. 8.
"In terms of gas, we need reforms, but a lot of the time such reforms are rejected based on sovereignty arguments when paradoxically we have grown to depend on the US for nearly 25% of our domestic [gas] consumption," Elizondo said.
"Apart from contributing to higher prices, the situation is not desirable from a strategic or industrial development point of view," he said.
Elizondo said Mexican President Vicente Fox has focused on increasing investment in upstream activities, guaranteeing improved efficiency in the use of gas and opening up the domestic market to LNG.
When it becomes fully operational in 2008, Sempra's Energía Costa Azul regasification terminal, 14 miles north of Ensenada, in the Mexican state of Baja California, will be the first LNG project on North America's West Coast.
Gas sources
LNG for Sempra's Costa Azul project, already under contract, will come from Indonesia and Russia.
Last October, Shell International Gas Ltd. and Sempra Energy LNG (SELNG) announced a 20-year agreement that provides Shell with half the initial capacity of the Energía Costa Azul terminal.
Sempra said LNG for the Shell capacity would come from the Sakhalin II project in eastern Russia, whose partners include Shell 55%, Mitsui & Co. 25%, and Mitsubishi Corp. 20%.
Under a long-term contract, Sakhalin II reportedly will ship 1.6 million tonnes/year of LNG to the Sempra facility.
Also last October, SELNG announced a supply agreement with BP PLC and its Tangguh LNG partners for the supply of 3.7 million tonnes/year of LNG from Indonesia to Energía Costa Azul.
