OXY Makes Elk Hills Gas Upgrades
Seeking greater operating flexibility in what is expected to be
a more fluid California natural gas market following industry
restructuring, Occidental Petroleum has started work on a $9
million, 12-mile, 16-inch gas pipeline out of Elk Hills to the east
of the massive reserve. It will interconnect with Pacific Gas and
Electric's transmission line swinging north from the Arizona
border, providing the first interconnection between Four Corners
supplies and PG&E when combined with earlier Elk Hills
connection work done by Oxy.
A delay in obtaining the pipe has set back the start of
construction, but right-of-way work is under way and full
construction is expected to begin shortly, aiming for a February
The additional pipeline carries 200 MMcf/d capacity. It is not
expected to increase the average supplies now being taken out of
Elk Hills, which have more than tripled from 100 to 390 MMcf/d
since Oxy assumed ownership and operation in February 1998. Earlier
it had built new 10-mile, 20-inch-diameter pipeline connections to
the west of the field with Mojave Pipeline and local cogeneration
"It just increases our options, it won't improve capacity
because we are moving everything we can now," said a
Bakersfield-based spokesperson for Oxy's Elk Hills operations. "It
gives us the option of selling in the best markets at any given
Longer term, Oxy is looking at developing storage in Elk Hills
and building a merchant power plant in the area, using some of the
500 MMcf/d of gas it is handling routinely at Elk Hills. Depending
on the market, some days Oxy can buy more gas on the open market to
fulfill its contract requirements and (store) more supplies at Elk
Hills by simply not producing it," said Bakersfield-based John
Allen, manager of Oxy's operations at Elk Hills.
"Obviously, if you have two pipelines you can use one for
supplies going out and one for supplies coming in, and they don't
necessarily have to balance in terms of volumes in and out," Allen
said. "We are evaluating some gas storage, but it is a fairly
complicated evaluation. When you buy gas at $2-plus/MMBtu, burn
some of it to inject and burn some of it as you compress it into
the pipeline, it is a very expensive process and there is a lot of
reservoir studying that needs to be done to make sure you have a
good place to put it. We are studying it and may be able to
implement it in the next year or two."
Allen noted the enhancements at Elk Hills reservoirs beyond
injection and compression "would be fairly minor." Oxy has
partnered with a Sempra Energy subsidiary to develop a 500 MW
merchant power plant at Elk Hills, which it expects to get state
approval for by June next year.
PG&E Generating Co. earlier this month received approval for
La Paloma, a 1,000 MW merchant plant in the same general area and
expects to begin construction before year's end.
Oxy's power plant strategy is based on projections that Southern
California will continue to grow very rapidly, and the local power
plants (City of LA Department of Water and Power and PG&E) use
conventional boilers with fairly low energy efficiencies that
aren't as economically competitive in the new generation market.
"About the time our plant starts, some pundits are predicting
that California may go into a fairly serious shortage of electrical
generating capacity." While emphasizing that the proposed plant is
mainly aimed at the grid, Allen said the Elk Hills' operational
needs (now about 43 to 46 MW) provide "a nice, steady 24-hour,
seven-day-a-week load," and that, in turn, helps make the proposed
merchant plant very competitive compared to other people because it
has a predictable base load.
"We have 20% of the proposed power plant's output spoken for on
a 24/7 basis," Allen said. "La Paloma can't compete with that."
Richard Nemec, Los Angeles