Western Hub Eyes Storage Expansion Prospects in California

Increased gas and electricity price/supply volatility is music to the ears of natural gas storage developers, and no one is whistling louder these days than two firms sinking their investment dollars into depleted gas fields in California: Western Canada's Alberta Energy Company, developer of the state's first merchant underground storage project, Wild Goose Storage, in a depleted gas reservoir 50 miles north of Sacramento; and Western Hub Properties, the Texas-based developer that will begin construction of the first of two new storage projects in the state by the end of March.

Although delayed in finalizing all of its local permits, Western Hub will begin construction on its Lodi Storage Project south of Sacramento by the end of March, according to its California project manager Jim Fossum. It has selected a location for a similar project in the southern half of the state, Wheeler Ridge Hub, which is expected to start construction by the end of 2002 and be connected with four different transmission pipeline systems.

Following the completion of its most successful open season yet, garnering long-term four- and five-year contracts for the first time, Wild Goose's Canadian backer said last Friday that it is looking at expanding the field and linking it to the Pacific Gas and Electric Co. backbone transmission pipeline network over the next three years. Alberta Energy also is taking over storage in Oklahoma, too, betting that in the heated energy markets storage might be a preferable alternative to large pipeline expansions.

"We had a reasonably good year for ourselves and our customers," said Paul Amirault, Alberta Energy's vice president for business development. "The open season attracted long-term contracts for as much capacity as we were comfortable selling and at prices much better than in previous years. The environment has certainly translated into an early contracted facility at good prices. Market area storage is worth something and this market situation in California could last for some time.

"So I don't think it is any secret that we are evaluating an expansion at the moment. But it would take some time both for the regulatory process and for building a 20 to 25-mile pipeline to the PG&E backbone. That is a more significant endeavor."

Wild Goose, with 14 Bcf of working capacity, 200 MMcf/d withdrawal and 80MMcf/d injection, currently is only connected through a relatively small-diameter pipeline to PG&E's local transmission system. "It provides a constraint on how much gas we can handle at our facility," Amirault said. "The most likely time frame to bring that online would be the spring of 2004, although that could be sped up by taking some risks by pre-ordering equipment, pipe, etc. We think it is certainly going to be needed, but the trick is to make sure customers see this as the proper solution."

Amirault said in today's volatile energy markets storage developers could make a case that their projects are more economically viable than interstate transmission pipeline expansions. "We think storage makes a lot more sense than building a lot more pipe back to supply basins. It gives you better usage of the existing pipe," he said, adding that in recent years the PG&E transmission system in northern California, for example, has averaged only 85% load factor on a year-round basis.

"If you add more storage at the end of those pipes, you can increase the average load factor by just five percent and get a whole bunch more customers."

Alberta Energy continues to look for other possible sites in the western U. S. for developing new storage projects, but it has yet to find anything better (in California) than expanding Wild Goose and/or buying existing fields like the 15 Bcf (working capacity) Manchester Gas Facility in Oklahoma, which Alberta is in the process of purchasing. "This is an indication that where we can find an attractive facility, we will step in and buy it," Amirault said.

Western Hub's facilities are designed as "multi-turn" storage projects in which a minimum of 500 MMcf/d of gas can be withdrawn or injected, Fossum said. Lodi is designed for 12 Bcf of working capacity. The still-to-be-designated and certificated Wheeler Ridge Hub would have 9 Bcf of working capacity in the first of a three-phase build up toward 20-25 Bcf capacity, he said.

"It's an easy one from an engineering standpoint, although the reservoir analysis is still being completed," Fossum said. An application to state regulatory authorities is expected "in the next few months," he said. The transmission interconnections envisioned for Wheeler Ridge Hub include Kern River, Mojave, PG&E and Southern California Gas pipelines.

Richard Nemec, Los Angeles

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