Leadership perspective

Overview

At Sempra Energy, we believe liquefied natural gas (LNG), used worldwide, will play a critical role in bridging the gap between declining domestic natural gas supply and increasing demand. For that reason, Sempra LNG constructed two LNG receipt terminals in North America, and within the next five years we intend to become a major importer of LNG.

Background on LNG

LNG is natural gas that has been cooled below minus 260 degrees Fahrenheit for shipment and/or storage as a liquid. LNG is odorless, colorless, non-corrosive and non-toxic.

Natural gas is plentiful, easy to produce and reasonably priced in many parts of the world. Indeed, there are huge, proven gas reserves in Southeast Asia and the Pacific region, South America, the Caribbean, the former Soviet Union, Africa and the Middle East. Shipping natural gas by pipeline to the major industrial markets is economically infeasible. Countries such as Japan and South Korea rely solely on imported LNG to meet their natural gas needs.

Transporting LNG

Liquefying natural gas makes it more compact than the gaseous equivalent (a volumetric difference of 610 to 1), enabling gas to be shipped in special refrigerated LNG tankers to terminals near the markets where it will be used. At these terminals, it is placed in special insulated storage tanks, or warmed to its gaseous state (regasified) and injected into pipelines for transport to end users or to underground natural gas storage sites. There are currently seven LNG regasification terminals in the United States: in Massachusetts, Louisiana, Georgia, Maryland and Texas.

Gas supplies & LNG

In Congressional testimony on June 10, 2003, Federal Reserve chairman Alan Greenspan warned that the price of natural gas was, "a very serious problem" that was receiving insufficient attention and said the way to bring down prices is to import liquefied natural gas.

Declining North American supplies and increased demand have led to high natural gas prices in the United States. Higher natural gas prices, coupled with improved technologies, make LNG imports competitive with domestic natural gas - as a result, LNG imports will grow significantly in the next several years.

At present, LNG imports provide less than 3 percent of domestic natural gas supplies, largely because LNG has not been price competitive with domestic natural gas. That situation is rapidly changing and industry experts agree LNG will be competitively priced against domestic natural gas. Indeed, as more LNG importation facilities are brought online, LNG is expected to be an important factor in bringing domestic natural gas prices to levels lower than they are in today's difficult market.