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FERC Summer Market Update Again Clouded By Aliso Canyon NatGas Storage Outage

Electric capacity is expected to be sufficient to meet forecast demand nationally, according to a FERC report released Thursday, but for the second year in a row the outage at Southern California Gas Co.'s Aliso Canyon natural gas storage facility has the potential to become a hurdle for gas customers.

"While the restrictions on Aliso Canyon did not pose any major issues during the 2016 summer, the limited availability of the Aliso Canyon natural gas storage facility in Southern California may pose a risk to gas and electric reliability this summer if hotter than normal weather conditions and unplanned gas pipeline outages materialize," staff at the Federal Energy Regulatory Commission said in the Summer 2017 Energy Market and Reliability Assessment.

"This resource had been used to help maintain natural gas pipeline pressures, which are necessary for supporting gas-fired generation during swings in power plant demand. Currently, Aliso Canyon has less working gas than last summer because of withdrawals this past January, and current physical and regulatory limitations may affect the amount of stored gas that could be used this summer."

And new rest restrictions in the state requiring all gas storage facilities to inject and withdraw only through the well pipe, not through the casings, as has been done in the past, "will reduce the rate at which injects and withdrawals can occur," FERC staff said.

The Aliso Canyon outage also loomed over FERC's 2016 summer market update.

The Department of Energy has urged California regulators to reopen Aliso Canyon. But legislation that would require completion of an investigation into the 2015-2016 storage well leak before new gas may be re-injected at the 3,600-acre facility recently stalled in the state Senate. Residents living near Aliso Canyon -- at 86 Bcf capacity, California's largest underground natural gas storage field -- continue to seek its permanent closure.

Despite the retirement of about 10 GW of electricity generating capacity, including about 4 GW of coal-fired capacity, since May 2016, there should be enough power to meet forecast demand.

Data from the North American Electric Reliability Corp.’s Summer Assessment “indicates that the total U.S. load forecast, when weather-adjusted, will be approximately 1.1% higher than it was last summer," FERC staff said.

"Meanwhile, the total generating capacity in the U.S. has increased by approximately 1.0% since last summer and over 20 GW of new generating capacity is expected to be installed nationwide through the summer. A majority of the capacity additions will come from renewable resources such as wind and solar."

The National Oceanic Atmospheric Administration expects above-normal temperatures for most of the continental United States through August, with nearly all regions forecast to see above-normal temperatures, FERC said.

On Thursday, the Energy Information Administration reported a 78-Bcf storage injection for the week ending June 9, raising natural gas inventories to 2,709 Bcf, 322 Bcf less than last year and 228 Bcf above the five-year average.

"This summer's natural gas injections into storage will depend in part on countervailing forces in natural gas supply and demand fundamentals," FERC staff said. "Current natural gas futures show prices at the Henry Hub increasing this summer by 2 cents/MMBtu to $3.09/MMBtu, indicating that market participants expect demand increases to more than offset increases in supply.

“A 125% year-over-year increase in the number of active oil and natural gas drilling rigs should strengthen natural gas supply during the 2017 injection season. However, much of the drilling activity is in oil-rich plays with associated gas production which exposes much of this future natural gas production to oil prices instead of natural gas prices."

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