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With Russia crimping European energy supplies, Sempra signs deal to export natural gas

The Cameron LNG facility on the Louisiana Gulf Coast, which is majority-owned by Sempra Infrastructure, sends liquefied natural gas to destinations around the world.
(Sempra Infrastructure )

Twenty-year deal with London-based petrochemical firm looks to address ‘structural energy issues in Europe’

With European energy markets facing strained supplies, London-based petrochemical giant INEOS has signed a non-binding 20-year agreement with Sempra Infrastructure to deliver about 1.4 million metric tons per year of liquefied natural gas, or LNG, across the Atlantic.

The two companies signed a deal that could see INEOS receive gas from Sempra Infrastructure’sCameron LNG facility’s Phase 2 operations on the Gulf Coast of Louisiana or from its proposed Port Arthur LNG facility in Texas.

For the record:

10:26 a.m. June 24, 2022This story has been updated to clarify that the proposed deal with INEOS Energy is for 1.4 million metric tons per year of liquefied natural gas.

Sempra Infrastructure is a subsidiary of Sempra, the San Diego Fortune 500 company whose other holdings include San Diego Gas & Electric.

The agreement with INEOS subsidiary INEOS Energy marks the first time the company has entered the global LNG market. Through its 36 businesses, INEOS is a global manufacturer of petrochemicals, specialty chemicals and oil products.

“Long-term supply from INEOS Energy will help alleviate the structural energy issues in Europe,” INEOS Energy chairman Brian Gilvary said in a statement.

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European markets have been squeezed by a sharp increase in natural gas prices in the past year, and the continent’s vulnerabilities have worsened since the Russian invasion of Ukraine. Russia’s state-owned natural gas company, Gazprom, supplies about 40 percent of the gas that heats homes and powers businesses in Europe.

Looking for alternatives to Russian gas, European suppliers have increasingly looked overseas.

“INEOS is about the fourth largest chemical manufacturer in the world and they use a lot of natural gas,” said Brian Lloyd, Sempra Infrastructure regional vice president. “I think (the agreement) is a reflection of the world looking to reposition energy supplies to more reliable partners.”

The preliminary deal is contingent on Sempra’s Cameron and Port Arthur projects securing the necessary permits, financing, engineering and construction contracts needed to make final investment decisions at both locations.

A decision on Cameron Phase 2 is expected in the middle of next year while a commitment on whether to break ground on Port Arthur LNG has not yet been announced so it’s hard to say when — should the INEOS and Sempra deal be completed — the LNG shipments would commence.

“Yes, these facilities will take some time to build but we don’t think the demand is going away,” Lloyd said.

The proposed deal is the third Sempra Infrastructure has signed with European LNG customers in little more than a month. On May 16, the company signed a tentative agreement with Poland’s state-run oil and gas company for 3 million metric tons per year and 10 days later announced a potential partnership with the RWE utility in Germany to deliver 2.25 million metric tons per year.

Other U.S. LNG companies have announced similar deals and look to ramp up shipments overseas.

The U.S. Energy Information Administration has reported that imports to European and United Kingdom markets in April reached all-time highs. On Wednesday, LNG exporter Cheniere Energy announced an $8 billion expansion of its facility in Corpus Christi, Texas.

In the LNG process, export facilities take natural gas via pipelines and cool it to minus 260 degrees Fahrenheit. They then load the liquefied gas onto specially made cargo tanks on double-hulled ships that take the LNG to markets around the world, many of them eager to substitute their use of coal with natural gas.

The export market for U.S. natural gas has boomed in recent years as domestic production has dramatically increased due to hydraulic fracturing and horizontal drilling techniques in places such as the Permian Basin in West Texas and southeastern New Mexico.

But LNG has its critics. After years of rock-bottom prices, domestic natural gas prices have shot up in recent months as pandemic restrictions have lifted and demand has increased. Some manufacturing groups have complained that U.S. companies should not be exporting natural gas when prices at home are high.

Many environmental groups are opposed to LNG exports, saying they extend the world’s dependence on fossil fuels. While natural gas burns twice as clean as coal, methane can leak from pipelines, well sites and other infrastructure. Methane is about 30 times more potent than CO2 when released into the atmosphere.

“Sempra is the parent company of SDG&E and has been overcharging San Diego ratepayers, using their monopoly for decades and building a fracked-gas-methane empire of energy infrastructure to basically stop us from transitioning to a renewable world, make huge profits that we pay for (and selling) all this gas to Europe and Asia,” Scott Kelley of SanDiego350 said at a protest last month in front of Sempra’s downtown headquarters in San Diego.

Lloyd of Sempra Infrastructure said long-term natural gas prices in the U.S. are projected to return to lower levels “and normalize over time” and cited recent reports of countries such as Germany and China ramping up coal production in the wake of power shortages and constraints.

“We are firm believers that U.S. LNG and natural gas is a tremendous climate benefit when it’s used in place of coal,” Lloyd said.

Sempra Infrastructure also has LNG ambitions in Mexico. The company is building an export component to its Energía Costa Azul facility near Ensenada that expects to send out its first shipment in 2024. Plus, Sempra is working with the Mexican government to build another project in the port city of Topolobampo on the Gulf of California.