By Ann de Rouffignac
OGJ Online
HOUSTON, May 25 -- California gas producers and customers complained to a Federal Energy Regulatory Commission Thursday about constraints on Southern California Gas Co.'s intrastate pipeline system.
The competition for capacity on that system is so fierce that customers like power plants have started nominating gas in the trillions of cubic feet in order to be placed higher on the list when SOCAL allocates the limited space.
Occidental Petroleum Corp. said it had to "back-haul" gas to Nevada to avoid shutting in southern California fields because of limited access to the intrastate system.
The demand for capacity often outstrips the availability and the company uses what Oxy called a "bizarre allocation procedure."
The Southern California Generation Coalition said the SOCAL receipt points of gas are "bottlenecks" and the system is running at close to 100% load factor.
Because of California Public Utilities Commission regulations, noncore customers cannot buy firm capacity on the SOCAL system.
So when demand exceeds availability, SOCAL "prorates" the capacity to the customers based on a percentage of each customers' prior nominations.
"But they started playing games with the nominations," said Lad Lorenz, a SOCAL official. "In April we got nominations that totaled 800 bcf. In May, nominations escalated to 6 tcf."
Not only are the buyers of gas in southern California doing whatever it takes to get deliveries, they pay a huge premium.
The constraints on the intrastate gas delivery system have caused basis spreads of at least $4/Mcf above final settlement prices for NYMEX contracts at Henry Hub and the price at the California border receipt points. The basis spread between Southern California and the NYMEX was around 14¢/Mcf from 1992 until May 2000, according to testimony given FERC. After May 2000, there was a total basis "blowout." Basis is defined as the difference in cost of a commodity at a particular market and a benchmark location.
FERC was briefed about proposed pipeline projects to bring more gas into the state. But Oxy cautioned there is not necessarily insufficient capacity coming into California but "take-away" capacity is the root of the problem.
"Expansion of capacity into Wheeler Ridge for example, without a concomitant expansion of take-away capacity from that point solves nothing," the company said in its filed comments.
Oxy said increasing interstate capacity would only exacerbate the bottleneck conditions and would have the "perverse" result of shutting in state gas production, discouraging development of California reserves.
Oxy urged the commission to coordinate its actions with those of state regulators to seek a "holistic" cure to the market anomalies.