Why Sempra Energy's Gas Exports Won't Help Ukraine

The decision to approve the Cameron LNG project is good news for Sempra Energy and construction contractor Chicago Bridge & Iron, but the natural gas won't reach the Ukraine market anytime soon, if at all.

Jun 24, 2014 at 10:21AM

The recent announcement that the Federal Energy Regulatory Commission (FERC) approved the Cameron LNG export project is big news for Sempra Energy (NYSE:SRE), but investors shouldn't get too excited just yet. The project is the second such LNG export facility to get approved, and the media suggests that the approval process was recently expedited to ship natural gas to Europe, and specifically Ukraine. The gas may never reach that country, though. In addition, the energy department recently changed the approval process to expedite decision-making procedures on LNG exports.

The Cameron LNG project is 50.2% owned by Sempra Energy with the remaining positions split between French and Japanese energy companies. The project involves the development of a three-train liquefaction facility in Hackberry, LA, that will provide export capability of 12 million tons per annum of LNG, or approximately 1.7 billion cubic feet per day (Bcfd). The project is similar to the Sabine Pass LNG export project by Cheniere Energy (NYSEMKT:LNG), which is significantly farther along in the construction process and has helped push that company's stock to new highs.

Project timeline
While the project may have gotten approval recently due to the issues with Russia supplying gas to the rest of Europe and especially Ukraine, the project timeline makes it impossible to solve the current crisis. The FERC approval allows Cameron LNG to go forward with construction of the $9 billion to $10 billion project that will take up to five years to reach full production. Chicago Bridge & Iron Company (NYSE:CBI) is leading the nearly $6 billion construction project via a joint venture with Chiyoda International. The joint venture has experience with the construction of 43 LNG trains worldwide that amount to over 40% of world LNG liquefaction capacity.

For those hoping for a quick resolution to the Ukraine gas supply issue, the Cameron project or any LNG export project isn't the short-term solution. The estimate is that the project won't even start initial production until early 2018, with full-scale production by 2019. The good news for Sempra is that the existing facility originally designed for LNG imports has plenty of land available to expand the project.

Screen Shot


Source: Sempra Energy

Locked-in customers
The economics of the contracts also make it unlikely that a large portion of the gas ends up in Ukraine. The contracts signed by Sempra require its 16.6% partners in the Cameron LNG project (Mitsubishi, Mitsui, and GDF SUEZ) to sign binding 20-year tolling agreements for the gas. Mitsubishi and Mitsui customers already include Tepco and Toho Gas in Asia. It's possible that the GDF SUEZ supply will end up in Europe and possibly Ukraine. 

In a similar manner, Cheniere Energy contracted the majority of its LNG export capability in long-term take-or-pay deals to mostly Asian buyers, including GAIL in India and Korean Gas.

Bottom line
The energy market is very fluid. Opening up the domestic natural gas production to export markets will provide at least an indirect benefit to Ukraine and Europe, even if the gas heads directly to Asian markets willing to sign 20-year contracts. In addition, more supply on the market helps to reduce the leverage that Russia has on the political landscape in Europe, as the governments there are currently reliant on energy supplies from that country. Ultimately, Sempra Energy benefits from a forecasted share of income it estimates at $400 million annually. Chicago Bridge & Iron, meanwhile, can move forward with work on the large-scale project.

Do you know this energy tax "loophole"?
You already know record oil and natural gas production is changing the lives of millions of Americans. But what you probably haven’t heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America’s greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, “The IRS Is Daring You to Make This Investment Now!,” and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Mark Holder has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers