EIA predicts high summer gas demand in California

By the OGJ Online Staff

HOUSTON, June 14 -- The California natural gas transportation system could become more dependent on electricity in the future to satisfy environmental restrictions, cutting throughput during power outages, the federal government said in a special report.

New or retrofitted compressors powered by electricity will increase reliance on the electric grid, according to the Energy Information Administration, a unit of the US Department of Energy. The agency noted, for example, the Doggett compressor station on the Kern River pipeline will be converted to electric-driven compression from gas in the summer of 2002.

Pipeline company executives told EIA a 24 hr loss of electricity after the conversion will reduce throughput about 25% or 350 MMcfd at that location.

The agency forecast California's gas demand will rise 6.8% this summer over last. While still quite high -- more than three times the expected national growth rate for this summer -- EIA said the rate is far below last summer's torrid 12.8% growth rate.

Falling demand from the industrial and commercial sector due to a slowing economy is expected to be offset somewhat by continued strong demand by the power sector to compensate for declining hydroelectric resources, the EIA reported. Absent the declining hydroelectric share, the agency said, gas demand would grow at a rate closer to that expected for US electricity demand or about 2.3%.

EIA said gas prices will remain high this summer due to capacity constraints on the California intrastate pipelines to take delivery from other regions and the high utilization rates of interstate pipelines serving the California market.

Falling prices
Prices have dropped considerably since January, but EIA predicted prices for natural gas service will likely be higher this summer than last. At $4.25/MMbtu the May 2001 Henry Hub spot price was about 20% higher than the year-earlier level. However, city gate prices at California border points were still more than $8/MMbtu in late May 2001.

Although several pipeline expansion projects are under way, EIA noted this summer's interstate capacity will remain at about 7.3 bcfd. Utilization rates on interstate pipelines serving the state are expected to be high this summer, even under normal weather conditions.

Electricity outages for short periods of time are expected to cause only minor problems at storage facilities. EIA said of considerably more serious concern is the extent to which storage stocks can be built up over the summer. If storage injections are low, the agency said withdrawals over the summer will lead to exceptionally low storage stocks in the West at the start of winter 2001, adding pressure to the already high gas prices.

Weekly storage inventories in the western region averaged 30-40% below the 5-year average level throughout the winter. From November 2000-January 2001, net storage withdrawals in California totaled 73 bcf or about 11% of consumption during the period.

This compares with net storage withdrawals of 47 bcf or about 9% of consumption during the same period a year earlier. The pattern of monthly gas consumption in California shifted from the single winter peak in 1998-1999 to a dual peak in 2000. Last year, the summer peak was nearly as high as the state's normal winter peak, EIA said.

Higher gas prices have served to boost California's gas production. Production rose 8% in 2000 alone. Presently, about 17% of California's gas demand is met from in-state production, compared to 14% in 1998-99. If this growth continues, the EIA said it should help alleviate the increasing demand on the interstate pipeline system.

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