By the OGJ Online Staff
HOUSTON, June 6 -- A combination of regulatory relief and financial incentives could substantially increase deliverability of natural gas from California producers to intrastate markets, said the head of the California Independent Petroleum Association.
"Simply expanding production and reforming the regulatory relationship between the producers and the utilities could address a significant portion of California's long-term energy needs," said Dan Kramer, CEO of the CIPA, in testimony Tuesday before the California Energy Commission (CEC).
California producers now supply only 10%-15% of that state's annual gas consumption, down from 25% historically. That falloff is the result of "stringent environmental laws, high drilling costs, historically low gas prices throughout the 1990s, and labor shortages," said Kramer. "Many experts believe that operational policies and statutes governing the state's major gas utilities have also contributed in part to the production declines."
Kramer wants to strip California utilities of their "almost exclusive authority" in setting terms and conditions for connecting new natural gas wells to pipelines. "Many producers have felt that the utilities have used this authority to stifle California production and limit competition in favor of taking larger supplies of gas from out-of-state sources such as Canada, the Rocky Mountains, and the Southwest," Kramer charged.
"For the past 10 years, independent producers throughout the state report delays of 6 months to a year before receiving utility approval to install a new pipeline interconnects for newly completed wells. Overly burdensome and expensive terms of conditions imposed by the utilities (on) new interconnections are now thought to be the rule rather than the exception," he said. "In many cases, producers have elected simply to abandon new exploratory projects rather than try to meet demands being imposed by the utilities."
Kramer proposed several regulatory reforms that could help increase natural gas production in California. They include:
-- New tax and other financial incentives to encourage landowners to provide rights of way and easements for new natural gas pipelines.
-- Mandatory timeframes in which a utility must respond to a producer's request for pipeline interconnection, and incentives for utilities to accept intrastate gas.
-- Oversight within the CEC or California Public Utility Commission to enforce rules and regulations requiring utilities to accommodate producers' needs for pipeline hook-ups.
-- Requiring utilities to install new metering sites or allowing producers to do it. Kramer claimed a new policy at Pacific Gas & Electric Co. "would require all new wells to be connected through existing metering sites along a pipeline -- requiring in some cases miles and miles of new pipelines to be constructed to connect a remote exploratory well."
-- Allowing intrastate gas to flow to alternate markets, without penalty to producers, whenever utilities are curtailing or cannot provide standard services.
-- Prohibiting utilities from assessing local transportation charges on gas moved from storage after being paid to move gas into storage.
-- Creation of a tax credit for California producers and/or power generators that use interstate gas to generate electricity for California markets.
-- Incentives for development of blending facilities to bring gas inventories into compliance with utility pipeline specifications.
-- Elimination of a unique California law that prohibits delivery of gas from a well that produces less than 50 Mcfd. That law artificially constrains production, Kramer said.
-- Standardizing city and county permitting processes for drilling natural gas wells, installing pipelines, and connecting wells "by requiring all permit applications to be acted on within 3 weeks." Kramer urged commissioners to support pending state legislation along the same lines.
-- Forcing utilities to sell off existing gathering systems to interested producers and cooperatives.
"California is the only gas-producing state in the nation in which the utility owns the gathering lines. These lines should be sold to producers with an interest in fields connected to the gathering system in order (to) create an incentive to produce as much gas as possible," Kramer said.
He also urged commissioners to support legislation to create new markets for low-btu gas "by allowing producers to serve up to five end-users directly without being subject to regulation as a utility."
