* Considering sale of whole business-sources

* Sempra seeking over $3 billion for whole business-WSJ

* Sempra declines comment on price, says all options open

LONDON, Dec 9 - Sempra Energy (SRE.N) may join Royal Bank of Scotland Group Plc (RBS.L) in selling off their entire joint commodities business, offering quick entry into a lucrative market with a diverse, global trading book.

RBS said in November it was selling its 51 percent interest in RBS Sempra Commodities as part of a deal to lighten the bank's risk in exchange for government aid, but people familiar with the matter now say that both companies may sell the venture together, a potentially more attractive proposition.

Sempra, a San Diego-based utility company that built up a sizable global gas, oil and metals trading operation during the heyday of the U.S. power market in the early 2000s, before selling a controlling stake RBS last year, is seeking more than $3 billion for the entire business, the Wall Street Journal reported on Wednesday, citing people close to the process.

Adviser Lazard (LAZ.N) is now considering the sale of the whole business, sources told Reuters.

While investment banks globally have raced in recent years to build up a strong presence in expanding commodity and energy markets, some have been forced to backtrack.

Two months ago Citigroup Inc (C.N) unloaded its Phibro energy trading business to oil company Occidental Petroleum (OXY.N) in order to defuse a battle with U.S. regulators over a star trader's hefty compensation.

Selling the entire venture would mark a new strategy for Sempra, which had distinguished itself from most U.S. utilities businesses by holding on to its speculative trading operation after the Enron crisis.

The move proved to be a lucrative one for Sempra as it built the unit into a global cross-commodity business, trading everything from Singapore fuel to London metals and bringing in reliable profits for the otherwise staid power company.

The biggest contributor to operating income in the April-December 2008 period was natural gas ($534 million), followed by oil trading ($357 million), according to Sempra Energy's full-year 2008 accounts.

RBS bought into the business in 2007 for $1.35 billion. The sale offers banks what RBS received in that deal: instant entry into lucrative and volatile global commodity markets.

The bank was forced to sell its stake by European Commission regulators as part of Brussels' approval for the state aid provided to the British bank. [ID:nL3540088]

RBS is pressing to have a deal done in the next several weeks and more than 20 banks and non-financial firms had expressed an interest, the Wall Street Journal said.

Among those taking a close look were JPMorgan Chase & Co (JPM.N), Barclays Plc (BARC.L), Morgan Stanley (MS.N) and Societe Generale (SOGN.PA), the paper reported, although all already boast substantial commodity trading teams. Several large oil companies were also considering a bid, it added.

NEW STRATEGY FOR SEMPRA

As recently as a month ago, Sempra Chief Executive Don Felsinger denied any interest in selling off his company's share in the business.

The only thing I can say with certainty is that Sempra's going to be part of this business whether it's alone or with a partner, Felsinger said on the company's third-quarter conference call.

A Sempra spokesman declined to comment to Reuters on the reports, citing company policy, and also declined to comment on the $3 billion price tag.

We continue to see the commodities business as an important part of our business model. All options remain on the table for us, he said. We are pleased with the amount of interest we have seen.

People familiar with the matter told Reuters the joint venture was unlikely to appeal as a single entity and would probably be sold in smaller parts.

Nobody will take a behemoth like this, one person said, adding that rival trading houses are instead likely to exploit the period of uncertainty and cherry pick the best traders.

Another person told Reuters that the joint venture was unlikely to appeal to banks already established in commodities trading because of potential business overlaps.

You can't take a firm like Morgan Stanley and add RBS Sempra and expect it all to settle down. There's too much overlap, he said.

BRAIN DRAIN

Another obstacle for the sale is the possible loss of talent at the unit. Since the start of the third quarter, 11 energy traders have left RBS Sempra to join trading houses or banks. Five are known to have been replaced. [ID:nNN2831316]

They had some of the best trading people who drove the business, got the company its value. They are now gone, said Vikram Tandon, head of commodities recruiting at Options Group, an executive search firm in New York.

Since the bulk of Wall Street traders usually wait for year-end bonuses before taking on new jobs, RBS Sempra may be wise in eyeing a quick sale, said George Stein, managing director at Commodity Talent LLC in New York.

A spokesman for RBS said: Following the decision of the EC we appointed advisers to help us review our options for RBS Sempra. This JV is a very successful business, so we expect that there will be a number of parties who will want to speak with us on this matter.

A spokesman for Lazard declined to comment.

For a history of RBS Sempra Commodities click on [ID:nN09168115]

For a Factbox about the business click on [ID:nN09169119] (Additional reporting by Alex Lawler and Ikuko Kurahone in London, Matthew Daily, Michael Erman, Barani Krishnan, Scott DiSavino and Joshua Schneyer in New York and Santosh Nadgir in Bangalore; Editing by Jonathan Leff and Walter Bagley)

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