Southern California Gas (SoCalGas) has bolstered its intrastate pipeline system with four expansions this year, adding 375 MMcf/d. The 11% increase in capacity was done to better prepare for extreme demand conditions, such as those of 2000-2001. Unfortunately, however, gas demand is expected to drop by 500 MMcf/d this year and by another 250 MMcf/d in 2003.

SoCalGas has added enough new capacity to serve more than five new power plants producing about 2,800 MW of electricity. However, many of the new power plants are being built outside California and the ones that are being built in the state will be displacing older, less efficient ones until power demand picks up. It’s certainly not likely that SoCalGas will experience the high utilization rates seen in 2001 for some time, utility officials admit.

“I can’t say I’m overly optimistic about the growth of gas demand on the SoCal system because most of the new developments of power plants are really off of the system,” said SoCal’s Jeff Hartman, director of energy markets and capacity products. However, he said if demand does suddenly pick up, SoCalGas is now much better prepared to handle the situation.

SoCalGas now has a 20% reserve margin, or about 20% more capacity than it needs on average throughout the year under normal weather conditions. The four new expansions include Kramer Junction, which is a new 32-mile link to the Kern-Mojave pipeline system that allows SoCalGas to receive an additional 200 MMcf/d of Rocky Mountain gas supplies. Kramer Junction began operation on April 1 and has averaged 166 MMcf/d in deliveries. The utility also increased its backbone transmission capacity by 85 MMcf/d with its Wheeler Ridge compressor station expansion in January, which provides greater access to nearly all western supply areas: Western Canada, Elk Hills in the San Joaquin Valley, the Rocky Mountains and the San Juan Basin in New Mexico and southern Colorado.

Its North Needles compressor station expansion increased system capacity by 50 MMcf/d by adding two compressors in April. That project provided customers with access to supplies from Transwestern Pipeline Co.’s system and Questar’s Southern Trails pipeline. In addition, the Sylmar Station compressor expansion increased system capacity by 40 MMcf/d this week. Sylmar adds receiving capability from California’s San Joaquin Valley.

“With this last expansion we have about 3.875 Bcf/d of receipt capacity. We’re expecting that gives us quite a bit of excess capacity to help manage unexpected load increases,” said Hartman. He noted that the backbone system wasn’t designed to meet peak-day demand, because the system has integrated storage and transportation. Although the system can take in 3.9 Bcf/d of flowing supply, it can deliver 6 Bcf/d to customers because of storage and distribution capacity.

One problem that remains even after the expansions is the mismatch between in-state receipt capacity and upstream interstate pipeline delivery capabilities. Although many market observers attributed the California border gas prices spikes in 2000 to the difference between SoCal’s receipt point capacity and the greater interstate pipelines’ delivery capabilities, SoCalGas has never accepted that argument, and its expansions do little to correct the capacity mismatch (see Daily GPI, Dec. 7, 2000, May 29, 2001, June 5, 2001, June 18, 2001, Aug. 20, 2001).

The interstate pipelines have oversold capacity intentionally, said Hartman. “I don’t look at it as a bottleneck on the SoCal system. I look at it as the interstates have oversold because in aggregate [SoCal] could take away more gas than is needed to meet gas demand on the [utility] system. We try to manage the cost of our transportation product by not overbuilding, which is the main difference with the interstate system.”

Kern River Gas Transmission, which delivers gas from Wyoming and Utah into SoCal at Wheeler Ridge, is about to add 900 MMcf/d of additional capacity to its system next year but SoCalGas has only added about 200 MMcf/d to its receipt point. A significant amount of Kern River’s capacity will be headed to power plants outside of California. Nevertheless, the delivery capability to the border will be increased significantly beyond what SoCal can take. Capacity at Wheeler Ridge and several other delivery points into Southern California already is oversold.

One thing that will help California guard against renewed nomination battles that can drive up prices is SoCalGas’ Gas Industry Restructuring (GIR) plan, which still faces regulatory hurdles and probably won’t be in place until well after next January, said Hartman. The GIR will give shippers firm capacity rights according to their needs on the Southern California pipeline system.

A lot of the bottleneck issues will go away, he said. GIR will offer California customers firm access rights on SoCal. “Those kinds of bottlenecks — we call it overscheduling — won’t occur because the gas that gets into the SoCal system will be determined by who holds those rights on the SoCal system. If you want to get into our system, you have to buy access. If you want to buy more access, you submit the bid and we’ll go out and construct it. We are trying to match shipper demand to the offering of that right.”

He wouldn’t predict how much of SoCal’s existing capacity he expects to sell to shippers once the GIR process is approved, but demand conditions indicate the utility could end up with a significant amount of interruptible capacity left over.

The California Public Utilities Commission approved GIR last December. SoCal has since filed “advice letters,” an implementation schedule and backbone receipt tariffs. Now it’s up to the commission to act on them. The word from sources inside the CPUC is that something will be done on the matter in the next few weeks.

“The whole idea behind our GIR proposal was that we would provide customers with greater certainty so that gas they contract for at the wellhead and at the interstate pipeline has a greater reliability of making it to the burnertip and they wouldn’t be running into those nomination games,” said Hartman. “One day we had nominations of 6 Bcf at Wheeler Ridge; that exceeded the physical delivery of the pipelines themselves. They were doing that because they wanted a greater pro rata share of the nominations into that point.

“One of the key benefits of this is they will get more certainty,” he said. “They will now be bidding it up only on an interruptible basis. There will be a clear priority that if you hold downstream rights on the SoCal system, that will determine whose gas goes first through the meter.”

©Copyright 2002 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.