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Sempra (SRE) Arm Teams Up With Conoco to Build LNG Facility

SempraEnergy’s SRE business subsidiary, Sempra Infrastructure, recently joined forces with ConocoPhillips COP through a head of agreement (“HOA”), which will aid in constructing the former’s Port Arthur LNG facility. The move comes in sync with Sempra Energy’s aim to strengthen its portfolio of liquefied natural gas (“LNG”) projects amid the rising demand.

Additionally, the HOA will aid the development of future energy infrastructure in Southeast Texas and the Pacific Coast of Mexico. Such collaborations will further boost the U.S. low-carbon future amid soaring energy prices.

The first phase of the Port Arthur LNG project, which is currently under construction, boasts a capability to produce nearly 13.5 million tons per annum (Mtpa) of LNG, underpinned by two natural gas liquefaction trains, storage tanks and facilities.

Details of the Agreement

The HOA contemplates a 20-year LNG tolling arrangement for 5 Mtpa at the Phase 1 of the Port Arthur LNG project in Jefferson County, TX. Additionally, per the deal, ConocoPhillips may consider to acquire a 30% stake in the proposed project and may supply additional natural gas to the facility, thus providing a boost for the project's other LNG sales.

Also, the two companies may further bond at the phase 2 of the ECA LNG export development project in Baja California, MX, which will includeLNG offtake, natural gas supply and equity investment by COP and up to one-third of the exported LNG volumes.

Benefits of the Agreement

The agreement stands to strengthen SRE’s infrastructure to facilitate the production of LNG and solidify its position in the global LNG market.

Further, it opens avenues for Sempra Infrastructure to join carbon capture and sequestration projects developed by ConocoPhillips in Texas or Louisiana in connection with the Port Arthur LNG project while giving an opportunity to ConocoPhillips to further acquire LNG offtake and equity ownership from the future developments of the Port Arthur LNG site.

Sempra’s Plans to Expand in the LNG Segment

As the demand for LNG continues to rise worldwide, Sempra Energy is well-positioned with strategically located opportunities in North America. Currently, the company is engaged in advanced commercial discussions with many of its LNG projects. It is also developing many other LNG projects in the Pacific and Gulf coast regions.

Its Vista Pacifico LNG project will assist Sempra Energy in exporting to Asian markets. In addition, it is developing the Cameron LNG Phase 2 and Hackberry CCUS projects. All these project development activities bode well for SRE to capitalize on the growing demand.

Peer Moves

The expanding LNG market amid the increased focus on transitioning to the low-carbon forms of energy has led many other gas utility companies to expand their position in the lucrative LNG market. In this context, other utilities that have invested in the LNG segment of the market areChesapeake Utilities CPK and UGI UGI.

Chesapeake Utilities’ subsidiary, Marlin Gas Services, is a premier provider of virtual pipeline solutions, with the nationwide mobile gas delivery of compressed natural gas, liquefied natural gas and renewable natural gas.

The Zacks Consensus Estimate for Chesapeake’s 2022 sales indicates a growth rate of 13.3%. CPK shares have rallied 7.2% in the past year.

UGI operates 1.25 billion cubic feet of LNG storage, associated peak shaving services and an LNG tanker truck-loading terminal at the Temple LNG plant, which is strategically located in southeastern Pennsylvania.

The long-term earnings growth rate of UGI is pegged at 8%. UGI shares have returned 9.8% in the past three months.

Price Movement

In the past year, shares of Sempra Energy have rallied 16.5% compared with the industry’s growth of 11.9%.

Zacks Investment Research
Zacks Investment Research

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Zacks Rank

Sempra Energy currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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