Sempra's gas venture gathering steam at Baja site

Union Tribune (2005-11-24) Diane Lindquist

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Sempra's gas venture gathering steam at Baja site

Plant expected to boost fuel supplies by 2008

By Diane Lindquist
STAFF WRITER

October 24, 2005

COSTA AZUL – After spending four years putting together a globe-spanning deal amid a binational chorus of protest, Sempra Energy is well along in building the first liquefied natural gas terminal on North America's West Coast.

DON KOHLBAUER / Union-Tribune Darcel Hulse, the president of Sempra's LNG subsidiary, gave a tour last month of Sempra Energy's liquefied natural gas terminal under construction in Baja California.

Since the first of the year, workers have graded 74 acres of undeveloped seaside land 50 miles south of the Mexico-U.S. border. Two 17-story storage tanks, each containing more steel than the Eiffel Tower does, are starting to rise on the picturesque Costa Azul plateau.

By January 2008, if all goes according to plan, Sempra's $1 billion Energía Costa Azul terminal will begin supplying Baja California and Southern California power plants with a new source of natural gas that could change the region's energy future.

"Here today, we're starting to see the reality of the vision we had years ago," Darcel Hulse, the president of Sempra's LNG subsidiary, said during a recent tour of the construction site.

"For us, it's satisfying a demand and being able to put those pieces together."

Experts dispute whether or how much traditional natural gas supplies from Texas, the Four Corners region, the Rockies and Canada are shrinking. But energy firms are gambling that North America's West Coast will switch to imported liquefied natural gas, or LNG, to drive the region's power plants and sustain and spur economic development.

Liquefied natural gas Natural gas – or methane – liquefies when cooled to 260 degrees below zero Fahrenheit. This reduces the space it occupies by more than 600 times, which makes transportation and storage easier. The primary exporters of natural gas include Indonesia, Malaysia, Qatar and Trinidad. Liquefied natural gas can be moved on ships before being converted back to gas at terminals such as the one being built by Sempra Energy at Costa Azul in Mexico. That gas is expected to move by pipeline to California, Washington, Oregon, Nevada, Arizona and Baja California.

Hulse predicts the fuel will cut overall energy costs – a hopeful prospect given predictions that natural gas prices will rise 50 percent this winter.

"If you can show that you can bring LNG into this market and prices are comparable with bringing gas by pipeline, that would have more people pushing for the terminals," said Scott Weeden, editor of the industry newsletter LNG Express.

"Being first carries a whole lot of weight. Because you're there first, you can tie up a whole lot of the market."

Sempra plans to build two LNG terminals at Hackberry, La., and Port Arthur, Texas. When all the projects get operational, Sempra LNG is expected to become the largest business entity of Sempra Energy, the parent company of SDG&E.

At least four other energy companies or partnerships have failed to get similar projects started along the coasts of Canada, the United States and Mexico. But a dozen more ventures are in the works.

Shell Oil Corp. abandoned a similar project at Costa Azul and struck an agreement with Sempra to share capacity at its facility.

"Sempra's obviously taken some risk," said Bob Ramage, president of Portwestward LNG, which is working to get a terminal built at Clatskanie, Ore. "We're all watching with great interest."

Hulse insists the venture is not risky.

"Sempra is not about gambling," he said. "The revenue stream was assured before we turned the first shovel of dirt."

Being first to get its project under way required the assembly of a complex, multibillion-dollar supply chain that spans the Pacific Ocean. Entities in Indonesia and Russia will provide the fuel; those in the United States and Mexico will receive it.

At the Costa Azul site mound upon mound of crushed rock and concrete structures that look like giant toy jacks are being piled up to form a jetty for a pier where special tankers carrying the LNG will dock every three to four days.

A breakwater is planned about three football fields away from the shoreline. It will be built of caissons constructed at the nearby port of Ensenada, floated to the site, sunk and then filled with concrete.

Setting the caissons won't happen until the middle of next year, about the same time that the storage tank roofs will be raised.

"June of next year will be a monumental time for the project," Hulse said.

Cold storage

The LNG arriving at Costa Azul by tanker will be kept in liquid form, cooled to below minus 260 degrees Fahrenheit so that it shrinks to 1/600th of the gas volume, making it easier to transport and store.

A cryogenic pipeline will carry the LNG from the ships to the storage tanks, built to look like mammoth thermos bottles with a 36-inch-thick blanket of concrete and insulation to keep the fuel cooled to liquid form.

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An adjacent plant – not yet under construction – will convert the LNG back to natural gas and transport it by pipeline, a portion of which is yet to be built, into a grid that connects Baja California with California, Arizona, Nevada, Oregon and Washington.

Current consumption on that system is about 9.5 billion cubic feet of natural gas a day. When Energía Costa Azul starts operating, Sempra and Shell will add 1 billion cubic feet of natural gas a day to the system.

"It obviously feels good," Hulse said. "To us, it's not a race. We saw the need before others saw it. . . . It's more important that it will make a better place for our children and grandchildren, that you've not just taken from this life but given back."

Choosing Mexico appears to have worked in Sempra's favor in getting its LNG receiving terminal under construction.

Liquefied natural gas was an unknown quantity to both Sempra and Mexico a few years ago. But Mexican federal officials, who are encouraging LNG projects and who had worked with the company in previous energy ventures, moved quickly to issue the company's development permits.

"One of the few places available in the Pacific for these projects is Mexico. They can take advantage of using the gas in Baja California and also having it shipped to Southern California, where opposition is so great it's difficult for projects to get built," said David Shields, a Mexican journalist who specializes in energy issues.

Despite Sempra's warm welcome in Mexico City, it was received in Baja California with resistance from environmentalists, surfers, fishermen, opposition politicians, citizen groups, and residents and the developer of Bajamar, the golf resort directly north of Costa Azul.

Numerous lawsuits challenging the project are pending in courts on both sides of the border. An inquiry is being conducted in the Baja California legislature. And a referendum is being considered that would bar any LNG terminal from the state.

"They might have the project under construction, but that doesn't mean it's going to get built," said Bill Powers, a San Diego environmental engineer and organizer of Ratepayers for Affordable and Clean Energy, a binational coalition of critics of the development.

Sempra executives say they have tried to meet with all interested parties to explain the project's many benefits, which include construction jobs for more than 350 Baja California residents, indirect economic effects totaling $350 million, and long-term tax revenue.

$7 million trust

Ensenada Mayor César Mancillas Amador, who supported the project 14 miles north of the city during his election campaign, has become one of its fiercest critics since taking office in December.

Mancillas contends that Sempra's heavily industrial LNG terminal violates the state master plan, called the Cocotren, which restricts development in the coastal area to tourism and housing projects. He complained that most of the tax revenue will go to the federal government. Furthermore, he said, there are no plans to convert homes and businesses in Ensenada to natural gas from the liquid petroleum that is in wide use.

His strongest criticism concerns a $7 million trust that Sempra is establishing to finance charitable and municipal projects in Ensenada.

"I've had nine meetings and made several presentations to Sempra on all the projects we want to accomplish in the next three years, and I'm still waiting for a response," Mancillas said.

Meanwhile, he noted, Chevron, which plans an LNG terminal near the Coronado Islands, has already built a $1 million elementary school in the city's impoverished El Sauzal neighborhood.

"Sempra is not a good public citizen," Mancillas said.

According to his office, the mayor recently sent Sempra a letter canceling the trust.

Hulse said the company has not received such a letter. He said his understanding is that Mancillas is not ending any agreement but resigning his position on the advisory group that is to decide which projects to fund.

"There is no agreement for the trust. The trust is our doing," Hulse said. "It's Sempra's good wishes to provide that for the good of Ensenada."

During his tour of the construction site, Hulse stressed the company's willingness to address local critics, especially those asking Sempra to protect plant and sea life at the Costa Azul site.

Under terms of Sempra's environmental permit, the firm plans to install equipment that will monitor California gray whale migration near the terminal. Tankers will be kept from the area when mothers are heading north with their calves, Hulse said.

More visible is Sempra's effort to protect the endangered ferocactusviridescens, a barrel cactus species unique to Costa Azul. Work crews have removed every single cactus that was on the road and construction site, marked the position of each using a global positioning system, and put them on flats until, if possible, they are replanted in exactly the spot.

In contrast to the housing boom taking place along the Baja California coast, which has been criticized for creating environmental problems, Hulse said, "There's nobody else on this entire coast line that's preserving plants like we are.

"I hope we can create a balanced environment that sensitive to these needs and, at the same time, the necessity of economic development."

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Diane Lindquist: (619) 293-1812; diane.lindquist@uniontrib.com