California's natural gas outlook contains growing uncertainty fueled by an inadequate pipeline/storage system, declining viability for liquefied natural gas (LNG) imports, and added U.S.domestic supplies from shale carrying too much carbon-emitting baggage, according to three draft reports developed by the California Energy Commission (CEC) staff that were released last Wednesday.
The reports are part of the update of the California Integrated Energy Policy Report. One report draft, authored by the CEC's former natural gas expert, Bill Wood, finds the infrastructure of pipelines and storage just "barely adequate." Wood looked at supply capacity available to meet statewide short-term peak-demand and higher demand that could occur through the winter season with cold and dry weather conditions.
Wood's draft outlines a number of "issues and uncertainties," looking at winter demands and summer peak-gas demand. One question is "how suddenly and by how much daily natural gas demand may change as renewable generation is added to the electric resource mix?"
The other two reports -- on LNG and domestic supply prospects from shale -- are equally skeptical. While recognizing that California has repeatedly stated that future gas supplies should include the possibility of LNG imports, the latest CEC draft report noted that U.S. imports last year were "significantly lower than the amounts that market experts projected several years ago." The other report said that shale's "infancy of development...creates many uncertainties and thus leaves many questions unanswered."
Wood's draft said it is important to differentiate between pipeline delivery and utility receiving capacity in California because they vary considerably (10.1 Bcf/d pipeline delivery vs. 9.3 Bcf/d receiving or takeaway capacity). If not taken into consideration, "this can lead to faulty conclusions" when analyzing high-demand scenarios, he said.
The draft lists up to nine "key uncertainties" regarding the state's gas infrastructure, which serves more than 10 million homes and businesses, including:
"Analysis of a prolonged high winter demand period, similar to the 2001-02 energy crisis, indicates that current supply and storage facilities will be barely adequate," Wood's draft said. "The natural gas price tag for not planning for a siege of high winter demand was more than $19 billion in 2001, more than double the price paid for similar amounts of natural gas in the years just before the crisis."
The report acknowledges that renewable-based electric generation is going to change things, but it is not clear how utility operations overall will change. Underground gas storage, the report said, surely will play "an important role" by providing quick response to electricity generation peaking plants.
"As was learned in 2000-2001, storage was a valuable tool in meeting unusually high levels of natural gas demand for an extended period. Therefore, when evaluating storage additions, [the value of such additions] as a tool to meet demand for extended periods must be taken into account."
The report said that California's "investment" in excess interstate pipeline delivery capacity has paid off by giving utilities and large end-users more options. It raises the rhetorical question about whether the state has sufficient gas infrastructure to meet "possible worst-case conditions" during the next 10 years, and its answer in draft form is: probably not.
Intelligence Press Inc. All rights reserved. The preceding news report
may not be republished or redistributed, in whole or in part, in any
form, without prior written consent of Intelligence Press, Inc.