NGI The Weekly Gas Market Report

El Paso Natural Gas “is willing to expand its system” to the California border if “sufficient support” for such a project can be demonstrated through long-term capacity contracts, the pipeline told FERC last week.

Record demand of 659 MMcf/d last week on San Diego Gas &Electric’s system forced the utility to curtail about 120 MMcf/d ofdeliveries to six interruptible customers, including two powergenerators and four commercial and industrial customers in SouthernCalifornia, SDG&E spokesman Art Larson said. Demand on thesystem Thursday would have exceeded SDG&E’s capacity withoutthe curtailments.

In his parting shot as FERC chairman last week, James J. Hoecker issued one last plea to California Gov. Gray Davis to join with the Commission to enforce its comprehensive reforms for the state’s beleaguered power market: a $150/MWh soft price cap on wholesale sales, an emphasis on forward contracting by utilities, market-monitoring activities, and state participation in a regional transmission organization (RTO).

A new round of expansion is getting under way in the buddingnatural gas industry in eastern Canada, starting with constructionof the last missing link in the country’s transcontinental pipelinegrid. Longer range, there are possibilities of a new majorpipeline to transport Atlantic Canada production to major markets.

Calgary-based Berkley Petroleum Corp. unanimously rejected the takeover bid last week by a Hunt Oil Co. subsidiary, which offered to purchase all of the common shares of the company for $10 per share. Analysts were meanwhile speculating that without a white knight, Berkley might be worth more if it’s broken up and sold.

With an extra boost from the industry’s newest branch offshoreof Nova Scotia, Canadian natural gas exporters chalked up their13th consecutive annual record during the contract year that endedlast Oct. 31.

Seeking to set aside what it called an “inappropriate” multi-billion verdict in which a jury awarded the State of Alabama $87 million in compensatory damages and $3.4 billion in punitive damages over unpaid royalty fees, ExxonMobil Corp. has filed an appeal with the Circuit Court of Montgomery County, AL. The case, decided last month, centered on charges that the energy giant (then Exxon, before its merger with Mobil) had underpaid up to $87.7 million in royalties on the Mobile Bay natural gas project in the Gulf of Mexico (see NGI, Dec. 25, 2000). The jury said it set the damages by tripling ExxonMobil’s annual production from 13 natural gas wells located on the Alabama coast in the disputed time. The long-standing contract dispute originally questioned whether an additional $40 million in royalties was due the state and exactly how the royalties should be calculated. To date, ExxonMobil said it has paid Alabama $1 billion in royalties and bonus payments under the lease agreement. “ExxonMobil believes that if this verdict goes unchallenged, other legitimate businesses in the state of Alabama – businesses that, like ExxonMobil, help expand the tax base, add to the economy and create new jobs – will also be potential targets,” the company said in a written statement. “Any company engaged in an open and reasonable contract dispute in the state will not be able to have reasonable disagreements with regulators without running the risk of being accused of fraud and being subjected to possible punitive damages.”

While still new in Canada, competition has escalated in naturalgas transportation to the point where some big shippers say theyface a “rate shock” of steep toll increases later this year. TheCanadian Industrial Gas Users Association says “disruptive” hikesare coming unless TransCanada PipeLines Ltd. is immediately bailedout with an “interim” raise to spread its losses from the rivalrythinner over all of 2001.

California Gov. Gray Davis on Friday signed a short-term measure(AB 7X) to allow the state to get into the bulk power spotpurchasing business immediately. He also ordered the state waterresources department to begin setting up a power auction processanticipating it will be authorized by another new state law thatwill be finalized this week to seek long-term electricitycontracts. Observers and market participants, however, say themeasures probably are inadequate to solve the state’s currentsupply crisis.