California is looking at increased interstate natural gas pipeline capacity as well as the much-talked about liquefied natural gas (LNG) imports now slated for the West Coast as a means of satisfying an unabated 6 Bcf/d thirst for gas supplies, a state energy official said at the Law Seminars International conference in San Francisco on “New Directions for California Energy Markets.”

On the East Coast, New England will get additional LNG imports, but most likely from a Canadian-based receiving terminal via excess capacity in existing pipelines, said Dianne Phillips, a Boston-based energy attorney who once was general counsel to Distrigas which has an LNG receiving terminal in Everett, MA.

“They will be a project built in northern New England, but not in the south,” said Phillips, noting that there is “tremendous” local opposition to the proposed LNG sites in the southern part of the region.

“LNG is going to be price competitive and baseload,” said Standard & Poor’s San Francisco-based analyst Swami Venkataraman. “I think we’re looking at becoming dependent on LNG in this country to the same degree that nations like Japan have been for decades.

“California looks like it will be the first state to receive new supplies of LNG because the Sempra/Shell project in North Baja is likely to be the first one, with project financing.”

David Maul, the California Energy Commission’s gas expert, noted that there are real risks that have been identified, but neither the state, industry or federal government have clearly assessed them. Among those risks in post- 9/11 is the extent to which LNG terminals are now prime sources for terrorists?

“With LNG coming from foreign sources, the state loses a lot of control over its supply sources,” Maul said. “That makes us and our suppliers nervous.”

S&P’s Venkataraman thinks that there are a lot of ramifications from LNG that have not been fully articulated yet. Among them is what happens to the current Southwest wholesale natural gas price differential between Southern California Gas’ Arizona border price at Topock and the San Juan Basin prices.

Venkataraman thinks the LNG imports in North Baja coming into California from the new California Public Utilities Commission-designated receipt point at Otay Mesa could cause the difference between Topock and San Juan prices to disappear.

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