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OXY Makes Elk Hills Gas Upgrades

OXY Makes Elk Hills Gas Upgrades

Seeking greater operating flexibility in what is expected to be a more fluid California natural gas market following industry restructuring, Occidental Petroleum has started work on a $9 million, 12-mile, 16-inch gas pipeline out of Elk Hills to the east of the massive reserve. It will interconnect with Pacific Gas and Electric's transmission line swinging north from the Arizona border, providing the first interconnection between Four Corners supplies and PG&E when combined with earlier Elk Hills connection work done by Oxy.

A delay in obtaining the pipe has set back the start of construction, but right-of-way work is under way and full construction is expected to begin shortly, aiming for a February completion.

The additional pipeline carries 200 MMcf/d capacity. It is not expected to increase the average supplies now being taken out of Elk Hills, which have more than tripled from 100 to 390 MMcf/d since Oxy assumed ownership and operation in February 1998. Earlier it had built new 10-mile, 20-inch-diameter pipeline connections to the west of the field with Mojave Pipeline and local cogeneration projects.

"It just increases our options, it won't improve capacity because we are moving everything we can now," said a Bakersfield-based spokesperson for Oxy's Elk Hills operations. "It gives us the option of selling in the best markets at any given time."

Longer term, Oxy is looking at developing storage in Elk Hills and building a merchant power plant in the area, using some of the 500 MMcf/d of gas it is handling routinely at Elk Hills. Depending on the market, some days Oxy can buy more gas on the open market to fulfill its contract requirements and (store) more supplies at Elk Hills by simply not producing it," said Bakersfield-based John Allen, manager of Oxy's operations at Elk Hills.

"Obviously, if you have two pipelines you can use one for supplies going out and one for supplies coming in, and they don't necessarily have to balance in terms of volumes in and out," Allen said. "We are evaluating some gas storage, but it is a fairly complicated evaluation. When you buy gas at $2-plus/MMBtu, burn some of it to inject and burn some of it as you compress it into the pipeline, it is a very expensive process and there is a lot of reservoir studying that needs to be done to make sure you have a good place to put it. We are studying it and may be able to implement it in the next year or two."

Allen noted the enhancements at Elk Hills reservoirs beyond injection and compression "would be fairly minor." Oxy has partnered with a Sempra Energy subsidiary to develop a 500 MW merchant power plant at Elk Hills, which it expects to get state approval for by June next year.

PG&E Generating Co. earlier this month received approval for La Paloma, a 1,000 MW merchant plant in the same general area and expects to begin construction before year's end.

Oxy's power plant strategy is based on projections that Southern California will continue to grow very rapidly, and the local power plants (City of LA Department of Water and Power and PG&E) use conventional boilers with fairly low energy efficiencies that aren't as economically competitive in the new generation market.

"About the time our plant starts, some pundits are predicting that California may go into a fairly serious shortage of electrical generating capacity." While emphasizing that the proposed plant is mainly aimed at the grid, Allen said the Elk Hills' operational needs (now about 43 to 46 MW) provide "a nice, steady 24-hour, seven-day-a-week load," and that, in turn, helps make the proposed merchant plant very competitive compared to other people because it has a predictable base load.

"We have 20% of the proposed power plant's output spoken for on a 24/7 basis," Allen said. "La Paloma can't compete with that."

Richard Nemec, Los Angeles

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