Natural gas supply concerns have commanded the spotlight in California's continuing energy crisis.
California must boost in-state natural gas production to avoid another energy crisis, California Republicans said last week, in calling for Gov. Gray Davis to convene a special legislative session to deal with skyrocketing gas prices. But a Davis spokesman dismissed the proposal as unnecessary, saying there is plenty of time to deal with gas issues during the current special session the governor called to address the state's electricity crisis.
The crisis has also revived an old grudge among California's gas producers toward the state's gas utilities. For decades, California gas producers-particularly in the Sacramento Valley-have fought to boost local distribution company purchases of their gas. Now, fresh concerns are mounting that environmental rules could force the shut-in of some of the state's oil and gas wells. And the state's gas producers' association is pressing legislation that would compel the LDCs to give state gas producers preferential treatment in puchasing gas supplies.
Meanwhile, the biggest pipeline serving California disclosed it has bids for capacity more than ten-fold its available capacity and consequently is mulling an expansion-even as it fends off claims that it sought to hinder the flow of gas to the state.
Boosting California gas flow
California Republicans warned against overlooking natural gas in the state's efforts to deal with an energy crisis marked by rolling blackouts and astronomically high power bills.
"California's natural gas crisis is completely intertwined with its electricity crisis," said Assembly Republican leader Bill Campbell (R-Villa Park). "Any plan to deal with our electricity crisis must have a natural gas component, or Californians are going to pay unacceptably high prices for both."
California imports 86% of its natural gas from out of state, Campbell said. A special session would permit lawmakers to pass legislation that could take effect immediately, he explained. Republicans said natural gas issues should include addressing pipeline capacity, storage, exploration, alternate fuels, and conservation.
"The private sector has the expertise and the capital to deal with these issues, if government would just get out of the way. Republicans believe that a legislative solution to the natural gas crisis should leave the resources and primary decision-making to the private sector," said Campbell.
With gas prices projected to remain high by historic standards through the summer, Republicans had requested the special session Mar. 5 in a letter to the governor. Climbing gas prices are hurting businesses, consumers, and agriculture, Republicans explained in the letter. They contend the electricity and natural gas crises are inescapably linked.
Californians' gas bills have more than doubled in some cases, and rising natural gas costs are blamed, in part, for rising wholesale power costs that have pushed the state's two biggest utilities, Southern California Edison Co. and Pacific Gas & Electric Co., close to bankruptcy.
Producers' concerns
The California Independent Petroleum Association (CIPA) is scrambling to extend Southern California Gas Co.'s yearend deadline to stop taking associated natural gas that is not up to state quality standards for compressed natural gas vehicles.
That move could shut down several small and medium-sized oil producers in the Los Angeles basin as well as in Kern and Ventura counties, CIPA officials said.
Most of the primarily independent producers in those southern California regions historically have sold their associated gas to SoCalGas. That amounts to about 10% of the utility's entire gas supply, said company officials.
CIPA officials acknowledge that the gas varies in quality and does not meet the commercial fuel specifications-set by the California Air Resources Board (CARB) in 1992-that strictly limit amounts of ethane, nonmethane components, and hydrocarbons in compressed natural gas (CNG) used to fuel vehicles in that state.
Since then, SoCalGas has continued to buy gas produced in association with oil by southern California producers and has used various methods to bring it into compliance with state specifications at the CNG fueling sites it supplies. But in July, SoCalGas notified producers that it was changing that policy and would soon no longer accept gas that does not meet CARB specs. Utility officials said increased costs, safety concerns, and the growing number of CNG fueling sites make it more difficult to know if its CNG deliveries are up to state specs.
However, some critics say privately that the California utilities would like to cut their costs by buying all of their gas supplies out of state, eliminating the need to provide intrastate gathering and processing systems.
At any rate, SoCalGas gave southern California producers 18 months either to bring their gas up to spec or find alternatives for disposing of gas produced in association with their primary oil production.
But most small and medium-sized California oil producers can't afford either to treat the gas to CARB specs or to reinject it, say CIPA officials. Besides, they said, treatment equipment requires extensive permitting from local air boards and other regulators that far exceeds the 18-month time limit.
Since flaring is prohibited, they said, the only alternative may be to shut in production.
Legislation
Meanwhile, CIPA has proposed legislation that would require California utilities to give some preference to in-state producers in purchasing gas supplies.
It also wants the legislature to shorten the permitting process for gas treatment plants and to provide tax and other incentives for small and medium-sized operators to use their gas as fuel to generate electric power.
On Feb. 20, CIPA directors approved creation of the California Natural Gas Producers Association as another industry group to lobby state officials on energy issues. Because that proposal involves significant changes to CIPA bylaws, it must be approved by a majority of members.
The associated gas quality issue did not trigger creation of that new group, said CIPA officials. But they do expect it to address that and other industry issues from the producers' point of view.
El Paso pipeline
A unit of El Paso Corp. last week said it received bids totaling 14.4 bcfd for 1.22 bcfd of available capacity on its pipeline system serving California.
As a result, the company said it plans to announce another open season to determine if there is sufficient support to expand its pipeline system serving the region.
The Houston energy company recently denied allegations its El Paso Merchant Energy-Gas LP unit withheld capacity from the market driving up prices or that a "conspiracy" existed in 1996 to limit construction of a new interstate pipeline serving California.
El Paso Natural Gas Co. said it awarded contracts to 30 distinct corporate entities for 1.22 bcfd of capacity on its system. The company posted for sale capacity held by El Paso Merchant Energy, subject to right of first refusal, Jan. 12. The bidding closed Feb. 12.
El Paso said the contracts were awarded following expiration of a right of first refusal that was not exercised. It said contracts were awarded in accordance with the guidelines for this open season, which provided for proration when requests exceed available capacity.
The contracts, which range in duration from 17 months to 15 years, were awarded at the "just and reasonable" published tariff rate approved by the Federal Energy Regulatory Commission, the company said.
Lawsuits filed Dec. 18 in California Superior Court in Los Angeles allege units of Sempra Energy and El Paso illegally conspired to not compete against each other in the Southern California gas market. El Paso owns the largest interstate gas pipeline that transports gas from producing basins to the California border. El Paso Merchant Energy was awarded the right to a majority of that pipeline's capacity in a bidding process early in the spring.
El Paso has reiterated its contention that, as recently as last year, there were periods when significant quantities of unused capacity were available on the pipeline. Notwithstanding its availability, the company said, this capacity was not used by shippers to California to fill in-state natural gas storage facilities for future use.
Storage down in 2000
If California had stored in 2000 the same volumes of natural gas stored in 1999, El Paso said, "reliance on the spot market would have been reduced, and the steep rise in prices at the California border could have been substantially mitigated or avoided."
El Paso said capacity held by El Paso Merchant Energy has been used or made available for use by others to serve California and other western US markets. The Houston energy firm said it isn't possible for any holder of capacity on the El Paso pipeline to cause a significant increase in California gas prices by refusing to use that capacity.
The pipeline is required by law to post availability of any unused capacity on its public bulletin board and is obligated to sell that capacity for no more than the published tariff rate found to be just and reasonable by the FERC, the company has said.
Moreover, El Paso said that all new pipelines considered during the 1990s were either built or were not viable because they lacked sufficient customer support to justify construction.
In 1996, according to estimates, there was 1-2 bcfd of excess gas transportation capacity on existing interstate pipelines serving California.
El Paso said misplaced reliance on the continuing availability of excess capacity prompted the California Public Utilities Commission to encourage Pacific Gas & Electric, Southern California Edison, and Southern California Gas Co., beginning in 1996 and continuing into 1998, to relinquish over 1.5 bcfd of firm transportation capacity on the El Paso pipeline.