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Sempra’s $1 Billion Natural Gas Plant Sits Mostly Unused

Sempra won a war with other Fortune 500 companies to build a natural gas plant in Baja California, but the plant is hardly the cash cow everyone expected.

The process is amazing, really.

When natural gas gets cooled to -260 degrees Fahrenheit – colder than the average temperature on Jupiter – it turns to liquid. Then you can put it on a boat and ship it anywhere in the world.

Sempra Energy’s liquefied natural gas plant in Baja California, Mexico, is the only place on the West Coast of North America that can import the fuel. Ships dock at a large, T-shaped jetty that juts into the Pacific Ocean. The liquid gas gets sent into two large storage tanks that can hold enough to fill 128 Olympic-sized swimming pools. When needed, the gas gets heated and piped to homes and businesses in northwestern Mexico.

At one point during the plant’s construction in the mid-2000s, observers believed the company could corner the market on natural gas on the West Coast. A decade ago, a Sempra executive giddily predicted the plant could provide as much as two-thirds of Southern California’s natural gas.

But the plant is hardly the cash cow everyone expected.

The plant is set up to handle a boatful of gas every three days. But a ship only comes a half-dozen times a year, bearing liquefied natural gas from Indonesia. That means the plant is taking in about 5 percent of its capacity.

When Sempra was building its plant, no one imagined that fracking would revolutionize the natural gas market in the United States, depressing demand here. Nor did anyone know that the Fukushima nuclear power plant would shut down in Japan, boosting demand there. Natural gas prices have cratered in the United States and spiked in Asia. No one needs giant, ocean-crossing ships to get natural gas here anymore.

Sempra officials cut deals with energy giants Shell and Gazprom to pay the company for half of the plant’s capacity no matter how much gas actually was imported. So Sempra’s not losing its shirt on the plant. But these days, the plant matters far more for what it represents than what it actually achieves. It showed that Sempra could elbow out competitors from across the globe to get a major contract in Mexico.

Sempra’s foothold in the country led to the company winning hundreds of millions of dollars in large natural gas pipeline contracts in recent years. Sempra plans to invest more than $3 billion in Mexico in the next two years, taking advantage of major changes in the country’s energy market to allow for greater private investment.

Sempra executives still have big plans for their Baja California natural gas plant. With natural gas production booming in North America, company officials recently told financial analysts they’re thinking about turning their Mexican plant into an export facility. Executives believe their existing plant will give the company a head start over anyone else who wants to build a new one.

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