At least one major independent power producer in California takes a skeptical view about the potential price and reliabiliity advantages that introduction of liquefied natural gas (LNG) imports on the West Coast will have on the wholesale gas and power sectors. NRG Energy Inc. thinks LNG will have minimal impact.

“We don’t think Sempra Energy and its LNG facility [at Costa Azul along the north Pacific Coast of North Baja California] will necessarily affect the price of gas,” said Steve Hoffmann, senior vice president and head of NRG’s western operations, including two major power plants in Southern California, Encina and El Segundo. “We expect the LNG off the Sempra plant to be priced right at the current California-Arizona border prices.

“We are concerned that the LNG projects in general are a less reliable supply because the Pan-Pacific LNG market is very competitive. People tend to make shipments to those places with the greatest netback. And in the case of California, the LNG gets regasifiied in Baja and then has to be repatriated coming into the interstate system as a potentially 1,300 Btu gas.

“So you have a permitting issue [in California] on the Wobbee [heating value] index, and you also have some of the greenhouse gas issues running headfirst into LNG because it is a little richer gas and has a little more carbon” (see Daily GPI, Sept. 22, 2006).

NRG sees regional and other factors entering into future gas prices nationally that go beyond LNG, Hoffmann said. Current prices at the California border have been favorable relative to Henry Hub, he said, and he doesn’t think LNG from Mexico or anywhere else on the West Coast will change that much.

Having expressed some indifference toward LNG, Hoffmann acknowledged that NRG keeps track of the various western proposals, ranging from the doubling of the Sempra terminal’s capacity to building other plants in North Baja California or along the California coast and in Oregon. “The fact is that it is not the gasification issue that will drive the supply, but the liquefaction side of the formula that will decide how much LNG makes it to this market,” he said.

“The producers are not building liquefaction facilities out of the production areas nearly as fast as gasification terminals are being proposed on this side. These are facilities that will be competing for the same ships. A second facility may make some sense, but the proponents still have to compete with China, Japan and the other pan-Pacific countries for LNG supply.”

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