NGI The Weekly Gas Market Report
While the Pacific Northwest clearly needs new natural gas supplies in the long term, including liquefied natural gas (LNG) imports, no single state, nor the hydroelectric-rich region as a whole, has enough demand to support the economics for new pipelines or LNG terminals, according to analyses done by San Francisco-based Pacific Gas and Electric Co. (PG&E). The major new supply projects need to be conceived and designed to serve the broader West, PG&E has concluded.
The main challenges, said PG&E, are the continuing reductions of imports of pipeline supplies from Canada, a full-to-the-brim existing pipeline from the Rockies, and steadily increasing demand that will grow even faster from the fallout from climate change mitigation programs.
The California utility made this and other points to a variety of industry speakers at the Fifth Annual Northwest Energy Conference in Portland, OR, which was sponsored by the Northwest Gas Association (NWGA). Robert Howard, a PG&E vice president, made some of those points and his colleague Steve Whelan, senior director for wholesale markets business development, echoed them and added some color in an interview with NGI last week.
Rather than just the Northwest, PG&E looked at a number of different scenarios involving the West Coast as a whole, Whelan said. “At this point, it is hard to determine whether any of the pipeline projects or an LNG terminal is going to make it on a stand-alone basis. We’ve looked at the benefits of each option, and it has really helped guide our thinking in terms of the projects we think fit best for the West Coast.”
One of the conclusions of PG&E’s recent modeling analysis is that in order to have an attractive market, core producers want to have the infrastructure that will allow bringing supplies into PG&E’s Northern California territory, Whelan said. And what will make the market more attractive is the ability to reach a larger number of customers, he said.
Thus PG&E is involved in the joint venture proposing the Pacific Connector pipeline to link the proposed LNG terminal at Jordan Cove in Coos Bay along the south-central Oregon coast to existing interstate gas pipelines that can move supplies north to the Portland and western Washington state load centers and south into California. Similarly, PG&E Corp., the utility holding company, was a backer in the consortium sponsoring El Paso Corp.’s proposed Ruby Pipeline from the Rockies, but it dropped out because of escalating costs, although the utility is staying in close contact on the project developments and supports it being built, Whelan said (see NGI, May 12).
PG&E’s utility in separate deals — one for its electric generation operations and the other for gas distribution — has fixed-price contracts on Ruby, and it has filed with the California Public Utilities Commission (CPUC) for approval. The issue is supposed to be resolved by the CPUC in October, said Whelan, who noted that his utility’s analysis shows that Malin, OR, is the best and most flexible place to flow new supplies to the West Coast because they can go north, east into Nevada or south into California.
“El Paso is still fully supportive of the Ruby project, and we are, too,” Whelan said. “We think it supplies our customers with the option of access to Rocky Mountain supplies and probably their best option for possible LNG supplies.
“The Northwest market by itself can’t support a LNG terminal,” Whelan said. “It is going to be dependent on an external market. It is clearly more attractive to have multiple markets, rather than just one utility buying your LNG if you’re in that business. So we can’t look in isolation at what’s good for out customers; we have to look at what is attractive to a broader market.”
When PG&E’s Howard spoke to the NWGA conference, he cautioned that continued unprecedented high oil prices may make it difficult for LNG to be available to meet all the increased U.S. natural gas demand. “World demand for LNG is growing faster than supplies are being developed,” he said. Similar views were expressed at the recent GasMart 2008 conference in May in Chicago.
Thus, Howard’s conclusion is that the nation needs to see “more unconventional supplies developed or we will pay an oil price equivalent for gas.” In this developing global scenario involving continuing high prices for oil and gas, the West’s storage resources, and the growing resources nationally, could help turn the tide in favor of more LNG imports.
Since liquefaction operators want baseload steady production of LNG supplies, North America’s relative wealth of storage makes it an ideal long-term market for summer supplies that can’t be landed in Asia or other storage-constrained areas of the world. Price also, by PG&E’s analysis, could be competitive for both LNG and added Rockies supplies.
A projection of the California-Oregon border gas price (at Malin) in 2015-16 by PG&E pegged supplies landing at the proposed Jordan Cove terminal at $7.22/MMBtu, compared to $7.28 in the PG&E utility citygate base case, and Southern California LNG from Sempra Energy’s Costa Azul plant in North Baja California, Mexico, at $7.27.
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