New Rules for Natgas

In 2006, Donald Felsinger, CEO of Sempra energy, based in San Diego, took charge of a volatile company tainted by the California energy scandal, which threatened to bankrupt the $15.5 billion firm. Felsinger settled lawsuits, shed holdings in coal and expanded its natural-gas business globally. Now, he tells TIME, the volatility has moved south.

Sempra dropped its stakes in Argentina, and there's been trouble in Bolivia and Peru.

There's a lot of distrust in South American countries that their natural resources won't be accrued for the people living there. We saw that firsthand in Bolivia. We had been trying to convince the government to produce natural gas, liquefy it and ship it to North America, but there was an uprising, and the President got thrown out of office. At the end of the day, the commodity is so important to countries as a revenue source that it will eventually move to market. We're just going through a step change as to how countries get compensated.

Meaning?

Countries that own natural resources want a bigger stake in profits. They won't just settle for a share now. They want to partake as a full partner all the way up the chain into the end use of their commodity. So for companies like Exxon, Conoco-Phillips, Shell, Chevron-Texaco, it's not the same game anymore.

What are the most difficult countries?

Bolivia will eventually come around to the fact that they don't have a lot they can do to better the population, but they have huge natural-gas reserves. Iran has large reserves, but we're prohibited from doing business there. There's also instability in Africa that makes it difficult to embark on projects.

How about Russia?

We're having discussions with Gazprom now. Russia would like access to the U.S. market, and obviously you can't ignore them. But we're also seeing things like the government forcing Shell into a corner and giving up a lucrative project. So any relationship will have to be carefully thought through.

What are the worst places for a liquefied-natural-gas company to do business?

One of the worst is California. Look at the companies trying to build receipt facilities along the coast that are being stymied. It's a tough place for infrastructure in general.

The Dallas energy company TXU is the target of a $45 billion buyout. What does that mean for the industry and Sempra?

Other than a short aberration in our stock price, it didn't really affect us. The industry has had a so-so track record in M&A over the past three to four years. But if there's a deal that can get done, it's this one. They're addressing all the right hot buttons--providing rate certainty to customers, a premium to shareholders, even an environmental section that would reduce the number of their coal-fired electricity plants. The only wild card here is what regulators and politicians will try to do.