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San Diego’s Sempra Energy strikes deal to sell natural gas to Saudi Aramco

San Diego’s Sempra Energy strikes deal to sell natural gas to Saudi Aramco
Oil producing facilities at the Khurais oil field in the Kingdom of Saudi Arabia. Sempra Energy and Saudi-based Aramco’s deal underscores each company’s desire to expand its presence in the growing international natural gas market. (Ali Haider / EPA-EFE/REX)

Sempra Energy’s ambitions to become a major player in the global liquefied natural gas market took another big step when the San Diego-based energy giant Wednesday announced an initial agreement with Saudi Aramco to take part in Sempra’s proposed LNG facility on the Texas Gulf Coast.

Aramco is the national petroleum and natural gas company of Saudi Arabia, one of the largest companies in the world by revenue and, by some estimates, the most profitable.

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In what is billed as one of the biggest “heads of agreement” deals in the American LNG export infrastructure market in the past decade, Aramco Services Co. plans to purchase 5 million tons per year of LNG for the next 20 years and take a 25% equity stake in Port Arthur LNG.

Financial details of the proposed deal were not disclosed.

“We are pleased to partner with affiliates of Saudi Aramco, the largest oil and gas company in the world, to advance development of Sempra LNG’s natural gas liquefaction facility in Texas and enable the export of American natural gas to global markets,” Sempra Chief Executive Jeff Martin said in a statement.

Although the deal is still preliminary, the agreement underscores Saudi Arabia’s desire to expand its business interests into the growing market for international natural gas.

Citing Aramco’s “long-term strategy to become a leading global LNG player,” Amin Nasser, Saudi Aramco’s chief executive, said in a statement, “We see significant opportunities in this market and we will continue to pursue strategic partnerships which enable us to meet rising global demand for LNG.”

Nasser pointed to some estimates that predict global demand for LNG to grow 4% per year and exceed 500 million metric tons by 2035.

Sempra, whose subsidiaries include San Diego Gas & Electric and Southern California Gas, has aggressively moved into the LNG export business, taking advantage of the boom in U.S. natural gas production in the last decade in states such as Pennsylvania, North Dakota and Texas, and sending it to countries around the world that are eager to buy gas to heat homes and businesses.

A little more than a week ago, Sempra opened a $10-billion facility called Cameron LNG on the Louisiana Gulf Coast.

LNG developers need to line up customers and investors to finance building the facility’s terminals, and though Sempra has not made a final decision to break ground on the Port Arthur LNG project, the agreement with Saudi Arabia figures to improve the chances the facility will be built.

“It’s certainly looking better for them,” said Charlie Cone, LNG proprietary analyst for energy data provider Genscape.

Last December, Sempra signed Poland’s national oil and gas company to a 20-year agreement to take about one-fifth of Port Arthur’s export capacity. And in 2017, South Korea’s state-owned natural gas supplier agreed to establish a framework for an agreement at the site.

Sempra’s LNG division is also looking to add an export component to its Energia Costa Azul LNG terminal near Ensenada, Mexico, that could see LNG cargoes shipped to lucrative markets in Asia, where countries like China want to convert from oil and coal to natural gas. A final decision on that project is expected by the end of this year.

U.S. exports of liquefied natural gas were practically nonexistent a few years ago. But with the launch of the country’s first LNG export facility in 2016 — Cheniere Energy’s Sabine Pass facility, not far from Cameron — the U.S. has quickly become a contender in the global market.

At LNG export facilities, natural gas comes in via pipeline and is liquefied by cooling it to minus 260 Fahrenheit. At that point, the gas can be loaded onto specially made cargo tanks on double-hulled ships to destinations around the world.

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“We’ve long held the belief that there will be a shakeout and all these facilities that were proposed to be built are not going to come to fruition,” said Andy Smith, a senior analyst who follows utilities and LNG for Edward Jones. “And Sempra certainly has ‘first-mover’ advantage and I think they’ve solidified their position” with the Aramco deal. “In the end, they are going to be one of the biggest players in LNG exporting."

Sempra stock finished the trading day up $2.80 to $134.30.

Nikolewski writes for the San Diego Union-Tribune.

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