Seeking greater operating flexibility in what is expected to bea more fluid California natural gas market following industryrestructuring, Occidental Petroleum has started work on a $9million, 12-mile, 16-inch gas pipeline out of Elk Hills to the eastof the massive reserve. It will interconnect with Pacific Gas andElectric’s transmission line swinging north from the Arizonaborder, providing the first interconnection between Four Cornerssupplies and PG&E when combined with earlier Elk Hillsconnection work done by Oxy.

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

The additional pipeline carries 200 MMcf/d capacity. It is notexpected to increase the average supplies now being taken out ofElk Hills, which have more than tripled from 100 to 390 MMcf/dsince Oxy assumed ownership and operation in February 1998. Earlierit had built new 10-mile, 20-inch-diameter pipeline connections tothe west of the field with Mojave Pipeline and local cogenerationprojects.

“It just increases our options, it won’t improve capacitybecause we are moving everything we can now,” said aBakersfield-based spokesperson for Oxy’s Elk Hills operations. “Itgives us the option of selling in the best markets at any giventime.”

Longer term, Oxy is looking at developing storage in Elk Hillsand building a merchant power plant in the area, using some of the500 MMcf/d of gas it is handling routinely at Elk Hills. Dependingon the market, some days Oxy can buy more gas on the open market tofulfill its contract requirements and (store) more supplies at ElkHills by simply not producing it,” said Bakersfield-based JohnAllen, manager of Oxy’s operations at Elk Hills.

“Obviously, if you have two pipelines you can use one forsupplies going out and one for supplies coming in, and they don’tnecessarily have to balance in terms of volumes in and out,” Allensaid. “We are evaluating some gas storage, but it is a fairlycomplicated evaluation. When you buy gas at $2-plus/MMBtu, burnsome of it to inject and burn some of it as you compress it intothe pipeline, it is a very expensive process and there is a lot ofreservoir studying that needs to be done to make sure you have agood place to put it. We are studying it and may be able toimplement it in the next year or two.”

Allen noted the enhancements at Elk Hills reservoirs beyondinjection and compression “would be fairly minor.” Oxy haspartnered with a Sempra Energy subsidiary to develop a 500 MWmerchant power plant at Elk Hills, which it expects to get stateapproval for by June next year.

PG&E Generating Co. earlier this month received approval forLa Paloma, a 1,000 MW merchant plant in the same general area andexpects to begin construction before year’s end.

Oxy’s power plant strategy is based on projections that SouthernCalifornia will continue to grow very rapidly, and the local powerplants (City of LA Department of Water and Power and PG&E) useconventional boilers with fairly low energy efficiencies thataren’t as economically competitive in the new generation market.

“About the time our plant starts, some pundits are predictingthat California may go into a fairly serious shortage of electricalgenerating capacity.” While emphasizing that the proposed plant ismainly aimed at the grid, Allen said the Elk Hills’ operationalneeds (now about 43 to 46 MW) provide “a nice, steady 24-hour,seven-day-a-week load,” and that, in turn, helps make the proposedmerchant plant very competitive compared to other people because ithas a predictable base load.

“We have 20% of the proposed power plant’s output spoken for ona 24/7 basis,” Allen said. “La Paloma can’t compete with that.”

Richard Nemec, Los Angeles

©Copyright 1999 Intelligence Press, Inc. All rightsreserved. The preceding news report may not be republished orredistributed in whole or in part without prior written consent ofIntelligence Press, Inc.