Increased interstate pipeline capacity, new storage capacity and other in-state natural gas infrastructure upgrades are just some of the possibilities outlined for the California gas market between now and 2006, according to panel assembled Tuesday at the first day of FERC’s two-day workshop in San Francisco examining “Natural Gas Market Outlook, 2006-2016.”
About 2 Bcf/d of interstate pipeline capacity that is held by California’s major local utilities will be renegotiated after 2005. Those contract rengotiations offer the state an opportunity to strengthen its supply reliability and improve its prices for the longer term, according to competing pipeline company representatives.
Kirk Morgan of Kern River Gas Transmission, Shelley Corman of Transwestern Pipeline, Peter Lund of North Baja Pipeline and Steve Harris of Kinder Morgan each outlined their views of the interstate supply picture, which could include as much as 500 MMcf/d added capacity from the Rockies to California and another 600 MMcf/d diverted from the Permian Basin to Mexico.
Despite 900 MMcf/d of new capacity this year from the Rockies to California on Kern River, the pipeline is running at near 100% capacity. About 300 MMcf/d of excess deliveries are being made at Kramer Junction but are being turned away by Southern California Gas Co., according to Morgan. He noted that Kern’s current design capacity is now 1.75 Bcf/d and 97% of the expansion capacity goes to California. Kern now claims more than 20% of the gas market in the state, whose appetite for natural gas is second only to Texas.
“Before the expansion there was a substantial amount of gas trapped in the Rocky Mountains that was looking for an outlet,” said Morgan. He said that on the first day the expanded Kern River system it had a load factor of 95% and has averaged right at 100% ever since.
Morgan touted the benefits of Rockies supply, including its recent 63% growth in production, and he downplayed the Southwest and Canadian basins. Morgan also cited “considerable risks” associated with liquefied natural gas (LNG) development. He stressed the need for regulators to help loosen up the marketing of Southern California Gas Co.’s rich underground storage and intra-state transmission assets, which he viewed as keys to widening interstate, gas-on-gas competition for the commercial/industrial loads in the state. The large customers are required to do their own supply contracting, with SoCalGas providing the transportation.
A sobering national look from a FERC policy analyst indicated a lot of new gas supplies assumed to be developed in western North America could flow East rather than into California. Morgan picked up on this by saying more Rockies gas needs to be encouraged to come to California rather than elsewhere.
While noting that California’s intrastate pipeline capacity is “sufficient to provide reliability,” Morgan said increased congestion at Kramer Junction and Wheeler Ridge on SoCalGas’ backbone system “support the fact there is inadequate intrastate capacity to allow gas-on-gas competition. Today there is 300 MMcf/d of Rockies gas being rejected at the California citygate due to capacity allocation procedures, and regulatory problems.
“Discriminating against Rocky Mountain gas is the wrong message to send to Wyoming producers. We want to encourage Wyoming gas to come to California, not to go to the Midcontinent.”
Other supplier representatives — Transwestern and Gas Transmission-Northwest (GT-NW) stress their experience with expansions in the western markets that stretch back decades before Kern River came on the scene in the early 1990s. Without the same specifics, they too are eyeing markets in Arizona, California and North Baja.
“We’re not interested in expansion until we have full subscription of existing capacity, which we don’t have (in the Pacific Northwest) today,” said Peter Lund, pipeline marketing/development vice president for the former PG&E National Energy Group’s gas operations–GT-NW, who noted that his firm is looking for “smaller expansions that are easier to execute in a shorter period of time.” He said they have smaller financial and environmental requirements, and therefore, are “simply much easier to get done.”
With the North Baja pipeline, Lund said there is full subscription and with strong, albeit nonbinding, interest from a recent open season, they are looking at expansions on the North Baja mainline and a lateral to Arizona.
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