California regulators last Thursday approved a second phase expansion to the Lodi Gas Storage (LGS) project's Kirby Hills unit. The Kirby Hills Phase II expansion is expected to provide about 12 Bcf of working gas capacity.

The additional storage will be offered at market-based rates, and the facility's open season last year indicated a demand for more than double the capacity that will be added.

As part of the approval, the California Public Utilities Commission (CPUC) determined that any environmental impacts on the surrounding rural lands can be mitigated to "less-than-significant levels." The regulators approved a mitigated negative declaration and supporting initial environmental studies.

Pennsylvania-based Buckeye Partners LP in late January closed its purchase of the Lodi Gas Storage LLC facility in northern California from ArcLight Capital Partners LLC for about $432 million cash, according to Buckeye. The firm said it would pay ArcLight an additional $12 million as part of the sale when it gained CPUC approval for the second-phase expansion.

Kirby Hills is about 45 miles west of the Lodi facility and now has about 22 Bcf of working gas capacity. The facilities are connected to the Pacific Gas and Electric Co. utility backbone transmission pipeline system in northern California.

The CPUC said all of the capacity of the first phase of the Kirby Hills addition to Lodi is fully subscribed. The storage field operators told state regulators, "there is more than enough demand to support the additional storage capacity."

The CPUC said it continued to conclude that competitive gas storage is needed and there is need for the additional capacity the second phase will provide. "The open season LGS conducted from mid-February to mid-March of 2007 resulted in bid responses for 26.5 Bcf, more than twice the projected capacity of Phase II," the CPUC said.

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