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-diameter gas pipeline out of Elk Hills tothe east of the massive reserve. It will interconnect with PacificGas and Electric Co.’s transmission line swinging north from theArizona border, providing the first interconnection between FourCorners supplies 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 a variationof the 500 MMcf/d of gas it is handling routinely at Elk Hills.Depending on the market, some days Oxy can buy more gas on the openmarket to fulfill its contract requirements and (store) moresupplies at Elk Hills by simply not producing it,” saidBakersfield-based John Allen, manager of Oxy’s operations at ElkHills.
“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 that the enhancements at Elk Hills reservoirs-beyondinjection and compression-“would be fairly minor” to create aprospective storage operation, depending on the pressure of thereservoir you put it in. Oxy has partnered with a Sempra Energysubsidiary to develop a 500-MW merchant power plant at Elk Hills,which it expects to get state approval 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.”
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