CA Refiners Face Long Summer Absent Outage Exemption

With summer 2001 only a week away, all eyes are turning toward California to see how the embattled state handles itself through the three-month period when air conditioning usage reaches its peak and MW supply becomes scarce. With the California Energy Commission (CEC) and the California Independent System Operator (Cal-ISO) already on record expecting rotating power outages during peak afternoon demand hours in the state, the key issue is how will the outages impact petroleum product and natural gas supply in the state.

According to the Energy Information Administration (EIA) report: Electricity Shortage in California: Issues for Petroleum and Natural Gas Supply, electricity outages should not "significantly affect" the gas supply system within the state. In California's intrastate pipeline system, the EIA points out that only one compressor station operates on electricity, and electricity is not typically needed for withdrawals from gas storage.

Despite the pipeline imbalances in the state, the EIA remains optimistic that electrical outages will not have a greater effect on the gas industry. "Electrical outages will result in additional costs to natural gas producers, processors, pipelines and storage operators," the EIA said in its report. "There may also be some loss of California gas production, particularly gas recovered from enhanced oil recovery projects in Southern California."

The CEC and Cal-ISO agree that electricity demand will once again exceed supply capability in the state this summer making rotating electrical outages a necessity. "The estimates of electricity outages in California during the summer of 2001 (June 1 through Sept. 30) range from a low of 55 hours to a high of 700 hours," the EIA said. "The estimates of involuntary peak demand reduction during electrical outages range from 1,825 megawatts (MW) to as high as 5,500 MW."

EIA admits that a key uncertainty in its projections of electricity outages is the amount of electricity demand reduction that will be either voluntary or motivated by high electricity prices.

As opposed to natural gas, petroleum refineries could be more greatly affected, the EIA report showed. In April, the California Public Utilities Commission (CPUC) ordered utilities that feed transmission-level customers (refineries) to be included with distribution-level customers in rotating outages. But it apparently had a change of heart last week, issuing a draft decision that would exempt state's refineries from rotating outages for the summer. The CPUC expects to consider the draft ruling at a June 28 meeting.

"The potential impact of rotating electrical outages on individual California refineries ranges from minimal to severe," the EIA said. "About one-fourth of the refining capacity in California is protected from electrical outages either because of sufficient cogeneration capacity within the refinery or because it is in an electric utility service area that is not expected to be subject to rotating electrical outages (e.g., Los Angeles Department of Water and Power)."

As for the rest of the refineries, the report said they could be forced to either reduce operating rates or shut down completely during an electricity outage. Up to 27% of refining in the state is expected to be forced to shut down completely in the case of a rotating electrical outage. Since emergency shut downs and restarts are costly and time consuming, operators might elect to "remain down" for extended periods of time.

This loss in petroleum refining would likely result in higher petroleum prices, the size of which would be determined by numerous factors including length of outage. The EIA report shows that past California refinery disruptions have resulted in price spikes ranging from $0.07 to $0.52 per gallon.

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