Kern Plans First Extension: A Lateral to Long Beach
Southern California has become the latest hot spot for gas
pipeline competition. Following the successful $50,000 bid two
weeks ago for Southern California Gas' option to purchase (in 2012)
the California portion of the Kern River Pipeline, Williams wasted
no time in drawing up plans for Kern River's first major extension
project since going into operation in 1992.
The company announced an open season last week for a 150-mile
lateral extension to the City of Long Beach, CA. The new pipe would
be 24- or 30-inches in diameter and would be designed to carry a
minimum of 300 MMcf/d.
Kern River had been spending a fourth year studying a possible
extension into the city when Questar snuck into Long Beach this
summer with an attractive proposal to convert an existing oil line
to flow gas. That signaled the need to stop talking and start
acting, said Greg Snow, vice president of business development for
Williams Gas Pipeline-West, Kern's parent company.
"I don't look at it as if we're getting into this late. We've
talked to a lot of people about it. We've done preliminary
construction and environmental studies for alternate routes,
identified a customer coalition. We've done a lot of ground work
already," he said.
Gaining SoCalGas's option also opened a window of opportunity
for the project, he added. SoCalGas was ordered by California
regulators to divest options to buy Kern and Mojave Pipeline Co.
facilities as a condition of the merger between SoCalGas' parent
Pacific Enterprises and Enova Corp.
"It took away some of the uncertainty. One of the reasons why
customers might want to go over to a direct connect to an
interstate would be to avoid CPUC jurisdiction. If there was a
possibility those facilities would revert back to the CPUC
jurisdiction sometime in the future some customers might not want
to sign on," Snow noted.
Long Beach, with a population of 440,000, is the state's fifth
largest city and a major international port paired with the City of
Los Angeles Harbor. In addition, the proposed route for the Kern
extension would pass several oil refineries and gas-fired power
plants. The Long Beach Gas Department has a daily load of about 35
MMcf, or 13 Bcf annually, and has expressed interest in new
interstate pipeline capacity. Eight years ago, it made an
unsuccessful bid for the pipeline Questar currently is buying for
$40 million from ARCO.
The city gas department is scheduled to meet with Questar on
Sept. 29. By the end of last week, Long Beach also had received a
written solicitation from Kern River, said Chris Garner, Long Beach
gas department's general manager.
"Obviously, we are interested in all of this because it seems
Long Beach is going to be the hub for all of Southern California
for pipelines," Garner said. "We're excited about that. It gives
us some options." He indicated the municipal gas department also
will be talking to SoCalGas.
"It opens up opportunities not only for us but also for our
customers," said Garner, noting that in addition to the highly
industrial port area and adjacent major electric generation plants,
some major new industrial loads have been announced privately which
are what he calls "still in the talking stages" of planning and
Snow said there might be enough market for both the Kern and
Questar expansions. Questar is proposing to convert to gas
transportation a 16-inch-diameter, under-utilized oil pipeline that
extends from the Paradox Basin in New Mexico to California. The
700-mile Four Corners pipeline would transport 130 MMcf/d possibly
as soon as the end of 1999, two years earlier than the Kern
extension. Questar currently is holding an open season for the
project and must file an application for the conversion with FERC.
"I'm not surprised they're interested in this area. There's some
great opportunities in Southern California," said Questar spokesman
Chad Jones. "It doesn't change our plans. We have an aggressive
plan to get this line that we're in the process of purchasing
converted by the fourth quarter of 1999. We intend to compete
aggressively with whomever shows up in the marketplace."
Both companies certainly will face battles with California's
LDCs. "I would be extremely surprised if [SoCalGas and Pacific Gas
& Electric] didn't fight this," said Snow. "We expect a dogfight
from the utilities. But we've gone through that battle before.
That's why Kern River is in California now.
"If SoCalGas can't offer customers the most economic solution
why shouldn't people be able to pursue other options? My
understanding is they're charging 50-cents to $1/MMBtu for [firm
transportation to the city]." Snow wouldn't provide any details on
the rates Kern plans to offer, and the company is not disclosing
the cost of the extension at this time. Kern intends to charge
incremental rates that are "competitive with SoCalGas and PG&E
SoCalGas said Kern's move was expected becau se it acknowledged
its plans as part of its participation in the recently concluded
Enova-Pacific Enterprises merger proceedings. A SoCalGas
spokesperson said the utility thinks it can successfully compete
with Kern's proposed pipeline expansion, but only if state
regulators give it "certain tools" that have been requested,
including an expedited process for signing long-term, below-market
contracts with large customers; removal of subsidies large
customers now pay to help keep rates down to the smallest
customers; and non-bypassable charges for stranded facility costs
and for various social welfare (so-called "public goods") programs.
A spokesperson for PG&E Corp., parent Pacific Gas and
Electric, the San Francisco-based utility, said PG&E is "always
evaluating the marketplace" both nationally and within California,
but at this point it has "nothing to report" regarding Kern's
intentions in the southern half of the state.
The Kern extension currently does not include a related upstream
expansion. Kern expects Long Beach to be an attractive new market
for existing throughput. "Right now we have a lot of volume moving
on a day-to-day basis fighting that spot market game," said Snow.
"We're hearing you might be able to line up some large base load
customers with this."
Kern is requesting prospective shippers sign confidentiality
agreements that would prohibit sharing information about the
project with Questar or California's utilities. "We're being
selective because we don't want people to use this as leverage to
extract something from the LDC and leave us out in the cold. Mojave
tried an expansion into Northern California. They spent a lot of
money; came up with specific plans; and in the end, PG&E came in
and offered a rate that was a little bit better, and the customers
jumped ship and went and took that better rate. We don't want to be
The open season closes Oct. 16. For details on the Kern River
extension contact Greg Snow at (801) 584-7076.
Rocco Canonica; Richard Nemec, Los Angeles