California gas constraints could cause power plant curtailments

By Ann de Rouffignac
OGJ Online

HOUSTON, Apr. 19 -- Low hydroelectric power, rising demand, and insufficient intrastate pipeline capacity are setting the stage for possible natural gas curtailments and big price spikes this summer in California, analysts said.

Prices will remain in double digit territory this summer and could spike as high $30-$60/Mcf in a repeat of this past winter's runup, said Catherine Elder, principal with Navigant Consulting Inc.

She said the challenge facing California will be to keep gas-fired power plants running and also fill storage for next winter. Elder addressed the Gulf Coast Power Association annual spring conference in Houston this week.

California gas demand averaged 6.6 bcfd in 2000, according to the Energy Information Administration. Elder predicted insufficient hydropower capacity could boost 2001 summer demand another 500-800 MMcfd.

"If demand reaches 7 bcfd, there would be curtailments," she said. The total "take away" pipeline capacity in California amounts to 7 bcfd. Take away refers to the ability of the intrastate pipeline system to take the gas from internal sources of production and from the interstate pipelines at the California border. The California intrastate pipeline system has not been expanded since 1992.

Replacing the hydroelectric power with additional gas peaking power will push California close to the 7 bcfd take away limit. "If a nuclear power plant goes down, and the hydro is reduced, that could add 1 bcfd," Elder said, making the gas supply problem for peaking power units much worse than anything ever experienced before in California.

John Tasdemir, analyst with Raymond James & Associates, agreed the California market will be extremely tight this summer.

"The pipelines going into southern California ran full out last summer," said Tasdemir. "If anyone is looking for additional gas, it won't be there."

In Elder's opinion, the stage is being set for prices to spike in the daily market at Topock to $30-$60/Mcf with monthly prices hovering at $16-$18/Mcf. Topock is a point on the California-Arizona border where the interstate pipelines deliver gas to intrastate pipelines that take away the gas for delivery to distribution companies and other customers.

Why the runup? For years there was about a 30 cents/Mcf spread between the price at Topock and Henry Hub. Elder explained prices at Topock were lower than the rest of the country until 1997 when prices there moved to parity with Henry Hub. Prices at Henry Hub closed at $5.13/Mcf Apr. 13.

But in August 2000, the gas system in California was unable to satisfy electric demand and fill storage simultaneously. By November, price began their upward spiral with a sudden onslaught of cold weather. Low gas storage coupled with continued demand from power plants sent prices soaring to as high as $60/Mcf.

Prices could shoot up again if the local distribution companies don't fill storage this summer for noncore customers, she warned. Tasdemir said the choices are grim: cut back electric power generation or reduce industrial gas consumption.

Contact Ann de Rouffignac at

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