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Natural Gas January 07, 2020 12:30:58 AM

Sempra Takes Another Step on Natural Gas Deal with Saudi Arabia

Anil
Mathews
OilMonster Author
Though a dominant force in the world’s oil sector, Saudia Aramco is not a big player in natural gas.
Sempra Takes Another Step on Natural Gas Deal with Saudi Arabia

SEATTLE (Oil Monster):  Sempra Energy has not made a final decision to build a massive liquefied natural gas, or LNG, facility on the Texas Gulf Coast but on Monday, the San Diego-based Fortune 500 company took another step toward forging a relationship with Saudi Aramco on the proposed plant.

Through their respective subsidiaries, Saudi Aramco and Sempra signed what is called an “interim project participation agreement” for the Port Arthur LNGexport project under development in Jefferson County, Texas.

The agreement comes a little more than seven months after the two companies signed an agreement that would potentially see the Saudi oil giant’s subsidiary buying 5 million tons of LNG from Port Arthur and taking a 25 percent equity stake in the project. The agreement last May formally kicked off negotiations, and Monday’s announcement, Sempra officials said, “reflects continued progress” to try to finalize the terms.

“Today’s announcement is a reflection of the growing alignment between our companies’ interest in the overall success of the Port Arthur LNG project,” Sempra Energy CEO Jeff Martin said in a statement.

Though a dominant force in the world’s oil sector, Saudia Aramco is not a big player in natural gas.

“This is an area for them to to branch out and participate in a market that they have historically not been very active in,” said Nikos Tsafos, senior fellow with the Energy and National Security Program at the Center for Strategic and International Studies in Washington D.C.

It’s not clear where Aramco’s share of LNG from Port Arthur would end up going — perhaps it will be sold to buyers in regions such as Asia and Europe that have increasingly shifted from coal to natural gas or maybe Saudi Arabia will use the LNG within its own borders.

“It’s an idea that’s been floating around for a while,” Tsafos said. The Saudis “still use a lot of oil for power generation, which is both environmentally damaging and costly because they could be exporting that oil and making more money.”

The initial phase of the Port Arthur LNG project, which has received the required permits, is expected to include two liquefaction production units — called “trains” in industry parlance — and up to three storage tanks that would enable the facility to export about 11 million tons of LNG per year on a long-term basis.

Sempra’s subsidiary, Sempra LNG, has already initiated the Federal Energy Regulatory Commission pre-filing review to expand the project by two more trains and increase the plant’s total export capacity to about 22 million tons of LNG per year.

Sempra officials are expected to make a final decision on constructing the project by the end of the second quarter.

“The global demand growth for LNG is expected to continue in the coming years, and we see significant opportunities in this market,” Saudi Aramco CEO Amin Nasser said in a statement. “This agreement with Sempra Energy is another step forward for Saudi Aramco’s long-term gas strategy, and towards becoming the global leading integrated energy and chemicals company.”

Sempra is one of a number of companies making huge bets on the emerging LNG export business. Hydraulic fracturing and horizontal drilling in places like the Permian Basin in West Texas and eastern New Mexico have led to a boom in natural gas production that has been so plentiful that domestically produced gas is being exported overseas.

In the liquefaction process, natural gas is super-cooled to minus-260 degrees Fahrenheit, put into double-hulled cargo tankers and shipped to international energy markets.

In 2019, the United States became the world’s third-largest LNG exporter, and the U.S. Energy Information Administration estimates the nation will have the world’s largest LNG export capacity by 2025, surpassing both Qatar and Australia.

U.S. Energy Secretary Dan Brouillette sent out three tweets about the Sempra-Aramco announcement, saying the Port Arthur project “is one of the largest LNG projects in development and will play an important role in strengthening the US global energy trade.”

Not everyone is cheering, though. Many environmental groups are opposed to exporting LNG, saying that while natural gas is cleaner than coal, it is nonetheless a fossil fuel.

“As more power systems in the U.S. turn away from gas, the answer isn’t to export surplus internationally — that would just be exporting the climate problem while keeping the upstream damages in communities who have suffered enough,” Dan West and Han Chen of the Natural Resources Defense Council wrote in a recent blog.

Sempra is already the majority owner of a $10 billion LNG facility on the Louisiana Gulf Coast. Cameron LNG opened commercial operations last August, and a second train is scheduled to start production in the second quarter of this year.

In addition, Sempra’s subsidiary in Mexico is expected to announce by the end of the first quarter whether it will add an export component to its already existing LNG plant near Ensenada. The project is considered lucrative because an export location on the coast of Baja California would mean LNG exports to Asian markets can arrive sooner than exports from the Gulf of Mexico and bypass tolls at the busy Panama Canal.

If the combination of all three locations come to fruition, Sempra officials hope to develop enough LNG infrastructure to export 45 million tons per year of natural gas to global markets.

Courtesy:www.hellenicshippingnews.com

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