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California View: Sinking Gas Demand, LNG

Economic declines, renewable energy and efficiency growth and ultimately greenhouse gas (GHG) emissions controls all are pushing down natural gas demand in the near term in California and further pushing back the need for liquefied natural gas (LNG) imports, according to a California Energy Commission (CEC) gas staff analyst reporting last Monday to a joint meeting of the CEC and California Public Utilities Commission (CPUC).

One indicator of the dramatic increase in domestic U.S. gas supplies and dampening of demand is the fact Sempra Energy now has told the CEC it does not expect any meaningful shipments of LNG to its new Costa Azul receiving terminal along the Pacific Coast of North Baja California, Mexico, until late next year.

"A lot of this is attributable to the slowing economic conditions as it continues to dampen the demand for natural gas, even in the electric generation sector," said CEC gas analyst Randy Roesser. "We're looking at a 2.2% decline in industrial demand for natural gas in 2009 due to the weakening U.S. economy."

A complementary presentation from CPUC gas expert Richard Myers painted an optimistic picture of capacity coming into the state now and in the future greatly exceeding expected demand, which for the long term into 2030 is expected to be basically flat, according to the latest projections from the state's major gas utilities.

"Expected new interstate pipelines in 2011 [will] provide major access for California to low-priced Rockies supplies, diversify supply access and improve reliability," Myers told the commissioners. In response to the utilities' forecast for flat long-term demand, Myers said energy efficiency and renewable programs have a "significant impact in moderating demand," along with impact from GHG emission reduction efforts.

Both Myers and Roesser attribute lower current gas prices to several factors: increased domestic production, lower oil prices and the economic downturn; also, dampened demand due to energy efficiency and renewables; excess interstate and intrastate transmission pipeline capacity; and expected significant additional interstate pipeline capacity in the next few years. There also are new storage fields and expanded existing ones in California, along with the potential for biogas providing a promising new source of supply and help in GHG emissions control; and a new LNG receiving terminal on Mexico's west coast.

With expectations for continued increases in the amounts of nontraditional gas being produced throughout the Lower 48 in the United States, overall U.S. supplies are expected to rise in 2009 despite continued decreases in Canadian and LNG imports, Roesser said. "Lower 48 non-Gulf-of-Mexico supplies are expected to increase 10% this year." Low prices and negative credit markets are expected to cut this growth substantially in 2009 to about 2%, he said.

Roesser called it the "best and worst of times" for natural gas -- continued technological advances have increased exploration and production domestically, but negative financial and economic elements are sapping demand.

LNG imports are expected to stay well below the record levels of 2007, Roesser said, attributing this to a combination of increasing global demand, declining gas production in Europe, slowing of new LNG liquefaction capacity coming on-line and lower domestic prices. The Sempra LNG terminal is now on-line, but the company recently said "they don't expect active shipments coming to the West Coast until late 2009."

A Sempra spokesperson told NGI that shipments are expected in the late third quarter next year.

"The U.S. natural gas industry has a history of boom-and-bust cycles, but this current supply growth is different -- it represents a new resource that could impact the natural gas market for decades," Roesser said. "It is not likely to be a boom-and-bust cycle. All the estimates are pointing northward; everything is growing."

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