Sempra Energy, PG&E Corp. and Proxima Gas SA de CV announcedlast week a three-way effort to build and operate a $230 million,212-mile natural gas pipeline to serve the rapidly growing energyloads in the southern end of California and the northern tip ofBaja along the U.S.-Mexico border. The principal target market isnew and existing electric generating plants and “otherenergy-intensive industries” in northern Baja, the sponsors said.

The proposed pipeline, which will require federal approvals onboth sides of the border, is targeted to go into service in January2003. It is envisioned as a 30-inch diameter pipeline carryingapproximately 400 MMcf/d from an interconnection with El PasoNatural Gas at Ehrenberg, AZ, running through southeasternCalifornia and into northern Baja. (Sempra’s Southern CaliforniaGas has an interconnect with El Paso outside of Ehrenberg..)

PG&E’s National Energy Group will develop the 77-mile U.S.segment of the proposed pipeline, and Sempra International andProxima Gas will build the 135-mile portion in Mexico, where theyare already partnering on projects to develop gas distributionpipeline systems in several population centers in Mexico, includingnorthern Baja. The deal between the two U.S. companies pretty muchcomes out to be 50-50, according to company officials. PG&E hasa separate major proposed merchant generating plant outside of SanDiego near the U.S.-Mexican border.

The proposed pipeline project combines PG&E’s experiencebuilding and operating interstate gas pipelines, and theSempra-Proxima experience in Mexico where they have won competitionin recent years for several billions of dollars worth of business,including Sempra’s 10-year $1 billion deal that closed in Aug. 1998to supply up to 300 MMcf/d for new and converted electricgenerating plants south of Tijuana at Rosarito Beach in Baja (seeNGI, Aug. 31, 1998).

Also last year, the Mexican federal government took steps toencourage foreign energy developers, removing a 4% import tariff onnatural gas, providing new open access transportation rates andbeginning steps to pursue privatization of its electric industry.With its past experience and geographical location along the borderin San Diego, CA, Sempra has moved aggressively to develop projectssouth of the border.

California Gov. Gray Davis and Mexico’s President Ernesto Zedilloannounced the liberalization of Mexican energy rules a little over ayear ago in ceremonies conducted in San Diego, some of which were heldat Sempra Energy’s corporate headquarters building. Only days beforethat ceremony, Mexico’s energy regulatory commission (CRE) awarded aSempra unit the license to build and operate a natural gasdistribution system in the La Laguna-Durango geographic zone innorth-central Mexico, similar to earlier bidding it won toconstruction distribution systems in Mexicali and Chihuahua (see NGI,May 31, 1999).

With growing concern about California’s so-called “energy cul desac,” the extreme southern end of the state is facing both gas andelectric transmission constraints in the face of projected electricdemand growth in the 8-10% range annually. The sponsors said theproposed pipeline “will make it possible for Southern California todraw gas supplies from Mexico when needed, providing addedreliability for the U.S. side of the border.”

Air quality issues increasingly are affecting energy andindustrial plant development on both sides of the border, andPG&E Generating’s proposed 510 MWplant at Otay Mesa, 15 milessoutheast of San Diego, has been stalled because of air emissionconsiderations. The project sponsors are promoting the pipeline asa means of reducing emissions overall in the air basin along theCalifornia-Baja border.

“As industries convert to clean-burning natural gas they canreduce their air emissions by as much as 75 %,” the pipelinebackers said in prepared background information on the project.

A spokesperson for PG&E’s national energy group said theproject was completely separate at this time from the Otay Mesapower plant proposal. PG&E “in the next few weeks” will conductan open season to assess the potential market directly off theproposed pipeline on the U.S. side.

Sandra McDonough, a PG&E national energy spokeswoman saidthat the proposed power plant will obtain gas for the plant throughthe local distribution utility, Sempra’s San Diego Gas and ElectricCo.

“We’re going to hold an open season and see if there are viablepotential markets to be served right off of the pipeline. If thereare, we’ll take a look at it. The open season should show us what’sthere. In terms of Sempra’s pipeline system, it is up to them whatmight be served off of their pipes.” Do they expect muchcompetition for this proposal?

“The only one I know of is the El Paso one, and I am notfamiliar enough with the market they are going after. We’retargeting the northern Mexico market, including generation andindustrial growth around Mexicali and Tijuana. We think we have agood, cost-competitive project that can match up with any otheralternative down there.”

El Paso Natural a month earlier started an open season for its YumaLateral, a 94-mile pipeline in the range of $61 to $143 million,running from south of Yuma, AZ, westerly across parts of the Mexicanstate of Sonora and Northern Baja to around Mexicali, aiming to servenew gas-fired power plants in both Sonora and Baja (see NGI, May 15).

Richard Nemec, Los Angeles

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