A Breather For Sempra Energy - Analyst Blog

Sempra LNG, a subsidiary of Sempra Energy (SRE) received a breather on Mexican federal appeals court revoking the June 17 district court order. The earlier court order directed Mexican regulatory agencies to suspend authorization for the operations of Sempra LNG’s liquefied natural gas terminal near Ensenada, Mexico.

Earlier, the Mexican federal district court issued an order to Sempra Energy for stopping operations to address the controversy regarding ownership of a land parcel adjacent to the terminal. The next hearing for the same with the district court judge on the terminal’s operating permits is scheduled for July 6. Sempra LNG officials stated that the LNG terminal continues to operate in compliance with all permits and the disputed land adjacent to the terminal is not required for the terminal’s operations.

Sempra Energy’s tribulations with the land parcel started in April 2003, when Secretaría del Medio Ambiente y Recursos Naturales (SEMARNAT), the Mexican environmental protection agency, directed the company to create a buffer zone around the terminal. This required purchase of additional land parcel. However, the layout of the terminal was subsequently modified with the help of independent studies to eliminate the need of any buffer zone including the property in dispute. Accordingly, in June 2005, SEMARNAT approved the elimination of buffer zone around the terminal.

Sempra Energy is a southern California-based energy services holding company involved in the sale, distribution, storage and transportation of natural gas. Its subsidiary Sempra LNG develops, owns and operates liquefied natural gas receipt terminals serving North American markets. The company competes with other companies to construct and operate liquefied natural gas receiving terminals and purchase the same. Its chief competitors include Cheniere Energy Inc. (LNG) and El Paso Corporation (EP).

We are positive about Sempra Energy’s stable base of utility earnings along with expansion in its liquefied natural gas terminals and renewable power projects in the Pacific Southwest. However, on account of volatile commodity business, tightening credit markets and pending regulatory issues, we reiterate our Neutral recommendation.