To take advantage of the growing international natural gas market, Sempra Energy (SRE) is considering investments outside North America, in facilities in producing nations that liquefy the gas at the source, as well as receipt terminals that regasify and distribute the gas, the company's top executive said.

The strategy would expand on Sempra LNG's current investments limited to receipt terminals in North America. On the supply side, delays in upstream gas projects in Australia, Russia, Indonesia and other countries have pushed out the time frame for when new imported gas supplies will be available. That slowdown diminishes the need for processing plants on the receiving end.

All the major projects to build liquefaction plants around the world have made little or no progress over the past 12 months, Sempra chief Don Felsinger said in an interview with Dow Jones Newswires. Sempra, he said, may be able to help break through the barriers.

"There's not enough new liquefaction capacity coming on line to satisfy demand," Felsinger said. "If anything, this encourages us to do more in this market, not to be just a player in North America.

"Shouldn't we be taking a more aggressive role in other parts of the world, helping to get liquefaction on line or making investments in shipping or in receipt terminals in other countries? That's something we're thinking about," Felsinger explained.

The energy executive declined to say which country or countries Sempra might invest in because the company is in talks with numerous countries.

Producers Seek Share

With generally high natural gas prices in the big consuming nations translating to big profits, the governments of producing countries want to do more than just sell gas as a raw material. They want to become more involved in the liquefaction plants, as well as the shipping and marketing of LNG. And many of them have the capital and access to technology to do that, Felsinger said. That complicates projects that are very expensive, difficult and hindered by a shortage of expertise.

"The host governments want to play a bigger part all along the supply chain and take a piece all along the supply chain because it's their resource," said Felsinger, adding that he doesn't blame the governments for trying to get maximum value from their resources.

"But that puts the negotiations on hold. We're in a crunch point right now," he said.

Sempra, said Felsinger, has the skills to build the infrastructure, knows the markets and has the customers to possibly get some of these projects back on track.

N. American Strategy Firm

Sempra's Costa Azul receipt terminal, which is being built in Baja California on Mexico's Pacific coast, is scheduled to begin commercial operation by early 2008. The company is also building the Cameron terminal near Lake Charles, La., which is set to start operating late next year. In addition, Sempra has a permit to build an LNG terminal in Port Arthur, Texas. The company also might expand the Cameron facility beyond its initial processing capacity of 1.5 billion cubic feet of gas per day.

The capacity from the initial two projects has already been sold for up to 20 years, though one of the contracts for the Cameron plant is contingent on the shipper firming up supplies. For the possible Port Arthur plant and Cameron's second phase, Sempra is negotiating with potential shippers, but the demand for regasifying capacity has slowed due to the delays in the producing countries, Felsinger said.

"There has been a recalibration in the marketplace," he said. "Why would someone rush out to sign a firm contract to take capacity (at a receipt terminal) when they don't know if they will be able to get the supplies."

The recent decline in natural gas prices hasn't caused Sempra to reconsider its North American LNG strategy. The price decline has been limited to the near-term market due to two mild winters, while future prices remain strong. Sempra is convinced that U.S. will need LNG. The issue for the U.S., Felsinger said, is that it will have to compete for LNG supplies with Europe and Japan, where gas prices have often been higher.

In perhaps 10 years, he said, the LNG market will move from one dominated by long-term supply contracts and separate continental markets to a global gas market similar to the global market for crude oil.

The energy executive isn't too worried about Russia's recent call for sellers of gas to form a cartel similar to OPEC.

"The jury is still out on whether cartels are effective. Even with OPEC, oil prices have been at $70 a barrel but also $13," said Felsinger.

Copyright (c) 2007 Dow Jones & Company, Inc.