Sempra to Sell Gas Storage Business
San Diego-based Sempra Energy said Monday that it would sell a natural gas storage subsidiary for $250 million to a partnership created by Plains All American Pipeline and billionaire investor Paul Allen’s Vulcan Capital.
Assets of the business, Energy Center Investments Corp., include 20 billion cubic feet of underground storage in Michigan and a planned complex in Louisiana with capacity of 24 billion cubic feet, the companies said. The partnership, PAA/Vulcan Gas Storage, plans to spend $260 million to develop the Louisiana site.
“Due to current favorable market conditions, we believe this is an opportune time to monetize these gas storage assets, which are not critical to our liquefied natural gas and gas infrastructure strategy,” Mark Snell, group president of Sempra’s businesses operating in competitive energy and commodity markets, said in a statement.
Sempra said it expected the sale to generate about $35 million in 2005 net income when it closes in September.
Allen, the 52-year-old co-founder of Microsoft Corp., is investing in gas storage amid expectations for increased demand for the services from new import terminals for liquefied natural gas under construction in the U.S. Allen’s Vulcan owns 54% of the general partner that controls Houston-based Plains, which operates 14,000 miles of oil pipelines, according to public filings.
“We believe we will produce a leader in the natural gas storage sector,” said David Capobianco, Vulcan’s managing director and a director of Plains. “Given the increasing volatility in the timing of gas supply and the seasonal nature of demand, storage will be critical to maintain market equilibrium.”
Sempra shares rose 74 cents to $44.24. Units of Plains rose 27 cents to $44.50.
Growing U.S. demand for gas and a dwindling domestic supply of the fuel has prompted plans for construction of more than 50 terminals to import liquefied natural gas. Five such terminals currently are operating in North America, and construction is underway on two more in the U.S. and one in Mexico.
“The LNG supply line will be vulnerable to disruption from hurricanes, fog and geopolitical events,” said Greg Armstrong, Plains’ chief executive, on the conference call with analysts and investors. “All of these factors point to an increased need for natural gas storage to balance supply and demand.”
Sempra, parent of Southern California Gas Co. and San Diego Gas & Electric Co., said that it would continue building underground storage and a pipeline for its liquefied-gas terminal near Lake Charles, La., that begins construction by the end of this quarter.
